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Part A
Question 1
Kadlex Consultancy (KC) PLC Kadlex PLC has well established Financial Consultancy company in London. The board of directors have investigated the financial statements of the last two years and have noticed significant changes in different elements of Income statements and Balance sheets. You are working in the same company as a junior management accountant and directors have asked you to prepare a report on results of the two year’s financial statements. The financial statement of the KC PLC are given below:
Statement of Comprehensive Income for the year ended 2020 and 2021.
Statement of financial position as at 31st of December 2020 and 2021.
Required:
1. Prepare a structured report for Board of Kadlex PLC, which critically evaluates the performance of the company in relation to relevant ratios of the Profitability, Liquidity, Gearing, Asset utilisation, Investors’ potential. Your report must be supported by the calculations of relevant ratios in the five areas mentioned above.
2. Easy-Life Limited, a London based Event Organiser is as a strategic business unit of KC PLC. Sales revenue and direct costs for one event is £1000 and £600 respectively.
Total fixed cost for the year ending December 2021 was £160,000.
Calculate breakeven in both sales (unit and cash), contribution margin ratio, and operating leverage (assuming actual sales quantity of 700 units was increased by 10%).
Critically discuss how each of these three metrics can be used to impact on any of the profitability ratios in Task 1 above.
Part B
Perri-perri Sauce (PPS)Ltd, is well established London based fast-food company. The directors are expecting that demand of meal in future will increase significantly and with current capacity company will not be able to meet the demand.
Therefore, directors have decided to purchase a new machine to enhance the capacity to benefit from the expected increase in demand. Two versions of machines are available from different manufacturers at the same cost of £600,000. Both machines have six years useful life and will be sold at estimated price of £60,000 at the end of sixth year. PPS Ltd will use straight line method for depreciation of these machines. Cost of capital for both machines is 8%.
Directors are to purchase one machine from the available two, same cost and net cash inflow from both machines is confusing them to take decision. You are Finance Manager of PPS Ltd and directors have asked to produce a report which should highlight the economic feasibility for decision making. Further information regarding net cash inflow from both machines is provided below:
Required:
1. Calculate (2-decimal places) using the following investment appraisal techniques, and provide recommendations as to the economic feasibility of acquiring the suitable machine:
a. The Payback Period.
b. The Discounted Payback Period.
c. The Accounting Rate of Return.
d. The Net Present Value.
e. The Internal Rate of Return (to two decimal places)
2. Critically evaluate the key benefits and limitations of each of the differing investment appraisal techniques, supporting the response with relevant academic research as to whether each of the differing techniques is applied in practice within a real-life business context.
3. You are also required to critically evaluate three suitable sources of finance to fund PPS Ltd in this investment as compared to a listed company
Part C: Budgeting and Financial plan
Required:
Research a multinational organisation of your choice and complete the following task:
1. Critically evaluate the budgeting process and demonstrate how budgets,
objectives, and strategic plans are related. Marks (12%)
2. Briefly discuss the significance of Business plan and analyse the key elements of it financial plan section.
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