Submission

This is an individual coursework and contributes to 100% of Module Mark

No late submissions are allowed. Word limit (excludes charts, graphs, diagrams, tables, appendix etc.)

Minimum length : 2,500 words

Maximum length : 3,000words Style & Format

Style : Follow the template provided

Font size : 12 pt (preferably Arial)

Line spacing : 1.5 lines

References : APA style

Module Learning Outcomes

The intended learning outcomes are that on completion of this module the student should be able to:
Apply numeracy skills and qualitative judgement to aid financial decision making.
Derive and make use of financial information to evaluate company performance.
Apply management accounting concepts

IMPORTANT – PLEASE READ THIS WARNING REGARDING PLAGIARISM

All assessments must be your own original work and must not be copied in part or in whole from any external sources such as books, the internet, or other students’ work. If you wish to include another author’s exact words in your assessment, these must be clearly marked as a quotation using inverted commas. Additionally, the source must be fully referenced, including the page number, so that it is clear which words are directly quoted and not your own.

The use of AI or automated tools, such as translation tools (e.g., Google Translate) or referencing generators, to create or complete your assignment is strictly prohibited. Any use of such tools, or copying from unauthorized sources, will be considered academic misconduct and will lead to serious academic consequences, including potential disciplinary action.

It is important to note that simply listing references at the end of your script is not sufficient. You must properly reference and attribute all external sources used within the body of your work. For more detailed guidance on proper referencing and university policies regarding plagiarism, please refer to the relevant materials on your Blackboard platform.

Coursework Questions – Both Sections must be completed.

SECTION A: RATIO ANALYSIS AND INTERPRETATION

Objective: Conduct a comprehensive financial analysis of two companies operating in the same industry and listed on the same stock exchange, using their 2023 and 2024 Consolidated Financial Statements. The companies should be competitors within the same industry, to facilitate a comparison of financial performance.

Steps to Follow:

1. Select and Download Financial Statements:
Identify two companies from the same industry(key competitor), listed on the same stock exchange.

Ensure that both companies prepare their financial statements using the same accounting standards (IFRS, US GAAP, etc.).

Download the Consolidated Financial Statements for the years 2023 and 2024 for both companies.

2. Ratio Analysis: You will be calculating and analyzing a variety of financial ratios, grouped into five key categories: Profitability, Liquidity, Efficiency, Gearing (Capital Structure), and Investment.

For each category, calculate three relevant ratios for both companies, for the years 2023 and 2024

For each of the above ratios, use the following table format to present the calculations for both companies and both years, an example is given below:

3. Interpretation of Results: Based on the calculated ratios, evaluate the following aspects of both companies:

o Profitability: Identify which company is more profitable by analyzing trends
in gross profit margin, net profit margin, and return on assets.

o Liquidity: Determine which company has a stronger ability to meet its shortterm liabilities through the current ratio, quick ratio, and cash ratio.

o Efficiency: Compare how well the companies manage their assets, inventory,
and receivables.

o Gearing: Assess the companies’ financial leverage and ability to meet debt
obligations.

o Investment Appeal: Consider which company may be more attractive to
investors based on earnings per share, P/E ratio, and dividend yield.

4. Report on Financial Prospects: Based on the above findings, prepare a report summarizing the financial strengths and weaknesses of each company. Make recommendations for potential investors based on the financial ratios and trends observed between 2023 and 2024.

SECTION B – CASH FLOW AND EXPANSION STRATE

Context:

Lee Ltd is a manufacturing business producing a variety of products that follow a similar production process with a consistent cost structure. The company operates on a batch production system, with all production starting at the beginning of the month and finishing at the end of the same month. Consequently, there is no work in progress carried forward at the
month’s end. The company is contemplating adjustments to its sales strategies, production volumes, and credit policies in an effort to boost profitability and market presence.

Current Financial Position:

Sales Revenues: The company generates £0.3 million in monthly sales revenue.

Contribution: The contribution margin is 40% (i.e., 40p for every £1 of sales
revenue).

Variable Costs: Raw material costs account for 20p per £1 of sales revenue, with all other variable costs directly linked to production.

Fixed Costs: Total fixed costs are £120,000 per month, including £30,000 ofdepreciation.

Credit Terms: Trade receivables currently settle payments one month after the sale, and trade payables for raw materials are settled one month after purchase. Variable costs, other than raw materials, are paid in the month they are incurred. Inventory levels for both raw materials and finished goods are maintained at the end of each month to meet the requirements for the following month’s production and sales respectively.

Proposed Future Position:

Lee Ltd is considering an expansion strategy which involves increasing production and sales by 50%. To achieve this growth:

Sales Price: The selling price would be reduced by 10% to stimulate demand.

Credit Terms: Customers would now be allowed to take two months to pay for credit sales.

Contribution Margin: The contribution per £1 of sales would decrease from 40p to 30p, but raw material and other variable costs would remain unaffected in terms of their usage and cost per product.

Working Capital Policies: Apart from the change in trade receivables’ payment period, all other working capital management policies (including inventory levels and trade payable terms) would remain unchanged.
The proposed changes would take effect for sales starting from 1 December this year, but working capital adjustments may influence cash flows before this date. The bank balance at the start of October is expected to be £70,000.

Requirements:

(a) Cash Flow Projections

Construct monthly cash flow budgets for Lee Ltd for the months of October, November, and December of this year, and for January and February of the following year, assuming that the proposed expansion goes forward. In particular, you should consider:

The timing of cash inflows from sales (based on current and new credit terms).
The timing of cash outflows for raw materials and other production costs.
Any cash flow implications arising from the increased production and sales,
particularly in terms of additional working capital requirements for raw materials and finished goods inventories.
How the changes to the company’s operations starting from 1 December impact the cash position in the months leading up to and following the expansion.

Key Considerations:

Ignore interest on any overdrafts or financing.

Factor in the 50% increase in production and sales volumes.

Reflect the new contribution margin and extended trade receivables period in the cash flow budget.

Consider the company’s policy of maintaining sufficient inventories for the next month’s sales.

(b) Discussion of Expansion Impact Discuss the potential impacts of the proposed expansion on Lee Ltd’s working capital requirements and profitability. Your analysis should address the following points:

How would the increased production and sales volumes affect working capital needs (e.g., levels of receivables, inventories, and payables)?
What are the cash flow implications of extending the credit period for customers from one month to two months?
How would the changes in contribution margin, selling price, and sales volume influence the company’s overall profitability?
What challenges or risks might arise from these changes, particularly with regard to liquidity and the business’s ability to cover its short-term obligations? In your response, reflect on the balance between the increased production costs, the potential delay in receiving cash from customers, and the reduction in selling prices, compared to the anticipated increase in sales volumes.

Key Considerations for Grading:

Accuracy: Ensure calculations are correct and match the provided financial
information.
Clarity: The report should be easy to follow with clearly labeled sections, tables, and figures.
Depth of Analysis: The student should not only calculate the ratios but also provide meaningful interpretations of what the ratios indicate about the company’s financial performance.
Professionalism: The presentation of the document, including grammar, formatting, and citations, will also be taken into consideration.