Unit 2 Managing Financial Resources and Decisions (1)

1 | P a g e B r i t C o l l e g e C o p y r i g h t

Assignment front sheet Brit College

Qualification Unit number and title

Edexcel/BTEC Level 4 Higher National Diploma in

Business

Unit 2: Managing Financial Resources and Decision

Student name Assessor name

Emmanuel Adjaho

Date issued Completion date Submitted on

01/03/2015 22/05/2015

Assignment title CarmenJosh Ltd: New Business Opportunities in Europe and Africa

Learning

Outcome

Learning

outcome

Assessment

Criteria

In this assessment you will have the

opportunity to present evidence that

shows you are able to:

Task

no.

Evidence

(Page no)

LO1

Understand the sources of finance available to a business

1.1 Identify the sources of finance available to

a business 1

1.2 Assess the implications of different

sources 1

1.3 Evaluate appropriate sources of finance

for a business project 1

LO2

Understand the implications of finance as a resource within a business

2.1 Analyse the costs of different sources of

finance 2

2.2

Explain the importance of financial

planning

2

2.3

Assess the information needs of different

decision makers

2.4 Explain the impact of finance on the

financial statements 2

LO3

Be able to

make financial

decisions

based on

financial

information

3.1

Analyse budgets and make appropriate

Decisions

3

3.2

Explain the calculation of unit costs and

make pricing decisions using relevant

information

3

3.3

Assess the viability of a project using

investment appraisal techniques

3

LO4

Be able to

evaluate the

financial

performance of

a business

4.1 Discuss the main financial statements 4


4.2 Compare appropriate formats of financial

statements for different types of business 4

4.3

Interpret financial statements using

appropriate ratios and comparisons, both

internal and external

4

Learner declaration

I certify that the work submitted for this assignment is my own and that research sources are fully

acknowledged.

Student signature: Date:


In addition to the PASS criteria mentioned above, this assignment gives you the opportunity to submit evidence in order to achieve the

following MERIT and DISTINCTION grades

Grade Descriptor Indicative characteristic/s Contextualisation

M1 Identify and apply strategies to find

appropriate solutions/information

Effective judgements have been made. An effective approach to study and

research has been applied.

To achieve grade M1, you must be able to critically

evaluate the competing sources of finance, selecting the

best option in context, and assessing the implications of

your choice.

M2 Select / design and apply appropriate

research methods / techniques

The design of methods/techniques has been applied and justified.

Uses a range of sources of information. Appropriate and effective design of any

questionnaire for data collection as per the

organizations requirements

To achieve M2 you will have used suitable techniques to

evaluate the impact on your financial projections of your

choices. (Task 1 and 2)

M3 Present and communicate appropriate

findings

Communication is appropriate for familiar and unfamiliar audiences and appropriate

media have been used.

A range of methods of calculations and presentation have been used and technical

language has been accurately used.

The appropriate structure and approach has been used

To achieve M3, you will have used suitable techniques to

evaluate the impact on your financial projections of your

choices.

In addition, you must present the analysis in an

appropriate business format, and provide appropriate

information to help the user draw meaningful conclusions

from the data in making decisions. (Task 2 and 3)

D1 Use critical reflection to evaluate own

work and justify valid conclusions

Conclusions have been arrived at through synthesis of ideas and have been justified.

Realistic improvements are proposed against defined characteristics for success.

The validity of results has been evaluated using defined criteria

To achieve D1, you will have to represent the work in an

appropriate business format, and provide structured

additional (researched) information to help the user draw

meaningful conclusions from the data in making

decisions. (Task 2 and 3)

D2 Take responsibility for managing and

organising activities

Substantial activities, projects or investigations have been planned,

managed and organised

Activities have been managed.

To achieve D2 you will have demonstrated an effective

and efficient approach to your work. This will be evident

in your selection of suitable business formats, research

and originality is structuring your answers. You will have

met all deadlines in submitting the tasks and achieving

the unit assessment criteria. (Task 3 and 4)

D3 Demonstrate convergent /lateral /

creative thinking

This will be awarded based upon the overall performance, including logical thinking, structure, presentation,

neatness, format, creativity and style of writing. Your work will be focused, formatted for the user group

needs, and demonstrate research and originality in its content and structure.


Assignment brief

Unit number and title Unit 2: Managing Financial Resources and Decisions

Qualification Edexcel/BTEC Level 4 HND Diploma in Business

Start date 01/03/2015

Deadline/hand-in 22/05/2015

Assessor

Assignment title CarmenJosh Ltd: New Business Opportunities in Europe and Africa

Purpose of this assignment

Financial Management concerns efficient and effective management of organisations financial resources

(capital, labour, materials, and overheads) in such a way to maximise and increase the value of the

organisation in terms of profitability, market and share value and growth. It also concerns raising capital or

funds, and allocating scarce resources in order to increase or maximise shareholders value. Managing

financial resources is also about short-term budgeting and long-term investment decisions, and how to

allocate resources relating to capital and revenue expenditure.

Knowledge of all these areas will be examined or tested.

The purpose of this assignment is to ensure a learner can:

Understand the sources of finance available to a business

Understand the implications of finance as a resource within a business

Be able to make financial decisions based on financial information

Be able to evaluate the financial performance of a business.

The assignment submission.

The assignment must be submitted using Word.

All tasks must be clearly numbered.

The assignment must use Ariel font size 11 throughout. 1.5 line spacing on all pages.

Accounting statements must use Excel.

Pages must be numbered.

Assignments that do not comply with these requirements will not be marked


Scenario

CarmenJosh Ltd: New Business Opportunities in Europe and Africa

CarmenJosh Ltd is a medium-sized and innovative UK company formed in 2000 by two young

entrepreneurs, Mrs Carmen Emmanuel and her university classmate, Joshua Christopher. The companys

head office is located in the city of London and has two regional offices in Edinburgh and Cardiff. The

company main business activity is design, development and production of IT accessories for major IT

companies in the UK. CarmenJosh Ltd has four directors, Mrs Carmen Emmanuel, Joshua Christopher,

and their partners who are also the shareholders of the company. The directors have ambitious plans as

they have long term vision for the company to expand their operations in both Europe and Africa.

The enlargement of European Union and the economic growth in most African countries provides perfect

opportunity for CarmenJosh Ltd to expand its investment in some selected countries in Europe and Africa.

To achieve this vision of expansion, the directors must first overcome some challenges, hard choices and

decisions to make before their vision is translated into reality. Some of the challenges facing the company,

for example, include sources of finance for investment, the implications of different sources, which country

or countries to invest in, company strategies, product pricing, cost and information needs of the directors.

You have recently been appointed a Special Assistant for Business and Finance (Projects) after lengthy

recruitment process to provide business and financial advice and information to support decision making

within the company as all directors are financially illiterate. Mrs Carmen Emmanuel read law at the

university and Mr Joshua Christopher is mathematician

Your role would be invaluable to directors as they rely on you to help them make informed finance,

business and investment decisions in order to maximise the value of CarmelJosh Ltd. Your answers should

be structured with logical and focused manner. The answer for you task should be between 3,000-4,000

words excluding figures and workings. (Mark will NOT be awarded for the excess words)


Tasks (LO1: 1.1, 1.2, 1.3 and Grades: M1, M2)

Task 1

On return on duty on 10 January 2015 at the company Head Office in London, the first task requested by the

two directors, Mrs Carmen Emmanuel and Joshua Christopher, is to write a formal business report to the

Board of Directors about the sources of finance for the company. The directors specifically asked you to

address the following key points in your report, and stressed that the report needs to be structured to meet

their information needs as outlined below:

1.1 Identify at least three short-term and three long-term sources of finance available to business, and

state reasons why or when short and long-term sources of finance may be the best options or

desirable.

1.2 Assess the implications of the different sources finance you have identify in (1.1) above, and

structure your answer to include, legal, financial and dilution of control and bankruptcy of a business.

1.3 Evaluate appropriate sources of finance for this specific business project the directors are planning to

Undertake.

You have been asked to make recommendations to the directors the main sources of finance available to

the company (CarmenJosh Ltd) as a private limited company for the European and African expansion, and

also consider the financial advantage (s) for CarmenJosh Ltd if the directors decided to seek plc (public

limited company) status.

To achieve M1 and M2, the learner must demonstrate an ability to critically evaluate the competing sources

of finance, selecting the best options for this business in context.

Tasks (LO2: 2.1, 2.2, 2.3, 2.4 and M2, M3, D1)

Task 2.1

The directors are exploring various sources of finance for the business however, they are confused about

the various types of costs associated with raising finance. You have been asked to explain and analyse

briefly the difference between interest, dividends, opportunity costs and retained earnings. You are also

been asked to briefly analyse which of these costs give tax incentives (if any).

Task 2.2

Mr Christopher is the director responsible for strategic planning for CarmenJosh Ltd. He is about to start the

development of 5-Year business plan for the company. However, his limited financial knowledge limits his

ability to prepare a robust and sustainable business plan for the company. Three weeks after your

appointment, the company sent you to attend a two-day seminar on the subject, the importance of financial

planning, within organisation. This course has enhanced your skills and knowledge to provide support to Mr

Christopher in the development of the 5-year business plan.

You have been required to produce formal business report to the directors about the importance of financial

planning.


Task 2.3 There are various decision makers or stakeholders, internal and external, to every business organisations, including shareholders, lenders (debenture holders and bankers), suppliers, employees, customers, government and the general public). You are required to identify decision makers in business organisation, and assess the information needs of each of them.

Task 2.4 (a) As a Special Assistant for Business and Finance (Projects), part of your role occasionally is to

explain financial terminologies and issues to the directors. You have been asked by Mrs Carmen Emmanuel

to explain briefly the impact of finance on the financial statements.

Task 2.4 (b) A company financial statement consists of:

i. Statement of Profit or Loss

ii. Statement of Financial Position (Balance Sheet)

You have been asked by the directors to produce a pro-forma statement of profit or loss and statement

financial position (Balance sheet) for CarmenJosh Ltd, and showing clearly the information content under

the International Accounting Standards (IAS) requirements. (No financial figures are required!)

To achieve M2 and M3, you will have used suitable techniques to evaluate the varying impacts of

using different sources of finance. A detailed and structured critical analysis will win you D1,

provided it is presented in an appropriate format using business and accounting terminology.

Tasks (LO3: 3.1, 3.2, 3.3 and M3, D1, D2)

Task 3.1 (a) In a financial or business context, what is budget and why is a cash budget is a critical to every business organisations? State advantages and two disadvantages for preparation of cash budget.

Task 3. 1 (b)

You have been required to draft a monthly cash budget for CarmenJosh from November 2014 April 2015

(6 moths), and analysed the results.

You have been given the following information to assist you prepare a cash budget for Roman Ltd months

ended April 2015. (November 2014 April 2015):

.

A bank loan of 78,000 has been negotiated and this will be paid into the business bank account in

November 2014.

The principal (capital) element of the bank loan (78,000) is to be repaid in 24 equal monthly instalments

beginning in December 2014.

The loan attracts 8% interest per annum calculated on the amount of the loan principal advanced in


November 2014. The annual interest charge is to be paid in equal monthly instalments beginning in

December.

CarmenJosh Ltd uses bank overdraft facility, which attract annual interest of 2% and interest payable

monthly and is estimated at 2% of the previous months overdraft balance (if any). The interest is to be

rounded to the nearest .

As at 1 November the balance of the banks current showed an overdraft of 10,000.

(Note: Cash inflows should be entered as positive figures and cash outflows as negative figures.)

November

2014

December

2014

January

2015

February

2015

March

2015

April

2015

Credit sales 80,000 125,000 105,00 96,500 145,000 155,00

Cash sales 15,200 34,00 19.800 17,900 22,750 26,500

Credit purchase 105,000 88,500 145,000 100,000 55,000 185,000

Cash purchases 20,000 14,500 13,000 20,200 9,500 5,000

i. Staff monthly wages, 36,000 are paid each month from November December 2014, and increase

from January 2015 by 10% and are paid monthly

ii. Capital Expenditure (Restaurant Equipment) purchase on credit in November 2014 for 48,000 and

payable on two equal instalments from January 2015.

iii. Electricity and other energy bills are paid in monthly arrears and an equal amount of 4,850. The bill

for November 2014 is due for payment in December 2014. There was no outstanding bill brought

forward in November 2014

.

iv. An allowance of 950 is made for staff canteen, which is paid monthly.

v. Insurance is paid quarterly in advance starting from November 2014 and this figure is yet to be

determined.

vi. The company credit policy is to allow a month credit. This allows customers to pay 60% of all credit

sales one month after sale, and 40% the following month.

vii. Suppliers also allow one month credit term, and this gives credit customer to pay 20% of credit

purchase in the month of purchase and remainder 80% the following month.

Task 3.2

CarmenJosh Ltd directors are concerned about changing technological, economic and competition

environment within the IT industry. At this backdrop, they wanted to make sure costs and pricing policy

decisions are accurate for the business survival. Joshua Christopher, who is mathematician, would like to

ensure sensitivity analysis is carried out on unit costs information by taking into account changes in market

and operational conditions.

The following product cost per unit (USB 2) is provided on one of the companys popular products, USB 2. Product USB 2

Direct Costs per USB2 :


Direct Material 25.00

Direct Labour 15.00

Direct Expenses 5.00

Total Variable costs 45.00

Fixed overheads 10.00 The companys pricing policy is to add 20% mark-up to total production cost to arrive at the selling price.

You are required to carry out the following tasks to enable the directors make informed decision about the

selling price of Product USB 2, which depends on the following operational and market conditions:

(a) Calculate the total production cost per USB 2, and selling price if current operational condition is

unchanged, and explain the importance of costing to business organisation.

(b) It is forecasted, due to increase in inflation, that the direct material cost per unit will increase next

year by 10%, labour cost 5% variable cost by 2% and fixed overheads unchanged. Calculate new

total production cost and selling price per USV 2;

(c) What would be the production cost and selling price if direct material cost decrease by 5%, direct

labour cost increase by 15%, variable costs decrease by 2% and fixed overheads increased by

10%?

Task 3.3

Joshua Christopher and Mrs Carmen Emmanuel are considering two major capital investment projects in the

UK and Ghana from 2016 as part of the CarmenJosh Ltd.s expansion and long-term investment in Europe

and African counties. Only one investment can be chosen and you are provided the following information:

Country of investment The UK Ghana

000 000

Initial cost or investment) (cash outflow) at the beginning year

2016* 80 100

Cash inflows 2016 40 20





* The initial cost or investment occurs at the beginning of the project and you may assume that the net cash

inflows will arise at the end of each year. The cost of bowing the initial investment (interest rate) is 8%.

The companys depreciation policy is to write off 20%, on straight line basis, on all initial investment. Neither

project will have any residual value at the end of five years.


Your are required to use investment appraisal techniques to calculate:

(a) Accounting Rate of Return (ARR)

(b) Payback Methods

(c) The Net Present Value (NPV)

(d) If the cost of capital (interest rate) is increased by the bank to 14%, calculate the Internal Rate of

Return (IRR) and recommend to the board, which country investment should be undertaken.

(e) Write a report to the directors the relative merits (three advantages) and two demerits

(disadvantages) of using discounted cash flows methods of project appraisal. You are also required

to advice or recommend to the directors, on financial grounds alone, which country should the

company investment in undertaken under each investment methods.

To achieve M3 and D1, you will have to represent the work in suitable formats, show all workings

and draw meaningful conclusions based on the decision criteria provided in task. (Use the

appropriate accounting and financial terminology accurately).

To achieve D2, you will show effective approach to calculations, assessments and preparation of

report.

Task 4 (LO4: 4.1, 4.2, 4.3 and D2, D3)

Task 4.1

Discuss the main objectives of financial statements (Statement of Profit or Loss and Statement of Financial

Position (Balance Sheet) and outline or show the formant, in a logical form, the information contents as set

out by the International Accounting Standards (IAS), the international accounting reporting standard setting

body.

4.2

There are different types of business organisations, for example a sole trader, partnership, private limited

company and public limited company. Each of this organisation is required to prepare financial statements

however, the contents and requirements are different.

You are required to discuss briefly the reporting requirements, and compare the main differences between

each.


The following financial statement relates to CarmenJosh financial year ending 31 December 2011 and 2012

CarmenJosh Ltd

Statement of Profit or Loss for the year ended 31 December

2012

2011

m m

m m

Turnover 2,660

2,200

Opening Inventory 400 277

Purchases 1,945

Less: Costing Inventory 350 400

Cost of Sales 1,995

1,600

Gross Profit 665

600

Selling and Distribution costs 120 105

Administration costs 240 360 210 315

Operating Profit 305

285

Interest Charges 25

20

Profit before taxation 280

265

Taxation 84

62

Profit after taxation 196

203


CarmenJosh Ltd

Statement of Financial Position as at 31 December

2011

2010

m m

m m

Non-current Assets at Costs 1,370

763

Provision for Depreciation 770 600

500 263

Current Assets:

Inventory 350

400

Accounts Receivable 200

21

Cash in hand/Bank 26

97

576

707

Current Liabilities:

Trade Payables 236

224

Short-term loans 84

62

Net Current Assets

256

421

Net Assets

856

684

Finance by:

Ordinary Shares issued and fully paid

500

500

Retained Profits (Reserves)

356

184

856

684

Required:

You are required to carry out financial performance appraisal or ratio analysis, and briefly comments on the

key performance indicators (KPIs) for 2012 and 2011 as outlined below:

PROFITABILITY RATIOS:

Gross Profit Margin (%)

Operating Profit %

Return of Capital Employed (ROCE)

LIQUIDITY RATIOS:

Current Ratio

Acid Test or (Quick) Ratio


Working Capital Ratio

Accounts Receivable days (Accounts Collection Period)

Accounts Payable days (Accounts Payment Period)

Inventory Turnover (Average age of inventory)

Utilisation of Assets Ratio:

Selling and Distribution % (of Sales)

Administration

To achieve D2 and D3, you will produce your work in suitable business formats. Your logical and

technical analysis would also win you D3.


Evidence

checklist Summary of evidence required by student

Evidence

presented

Task 1 An informal report which identifies and discusses the sources of finance

available to the business, and which evaluates cost and other factors.

Task 2 An analytical report that briefs about analysing the implications of finance as a

resource within the business.

Task 3 A report that represents that helps in financial decision making based on

financial information available to owners or management.

Task 4 A briefing which helps in evaluating the financial performance of a business for

better corporate financial decisions making tactically and strategically.


Achievement Summary

Qualification

Pearson BTEC Level 4 HND

Diploma in Business

Assessor name Emmanuel Adjaho

Unit Number and title Unit 2: Managing Financial

Resources and Decisions

Student name

Criteria

Ref.

To achieve the criteria the evidence must show that the student is able to: Achieved?

(tick)

LO 1 Explore the sources of finance available to the a business:

1.1 Identify the sources of finance available to a business

1.2 Assess the implications of different sources

1.3 Evaluate appropriate sources of finance for a business project

LO 2 Analyse the implications of finance as a resource within the business

2.1 Analyse the costs of different sources of finance

2.2 Explain the importance of financial planning

2.3 Assess the information needs of different decision makers

2.4 Explain the impact of finance on the financial statements

LO 3 Make financial decisions based on financial information

3.1 Analyse budgets and make appropriate decisions

3.2 Explain the calculation of unit costs and make pricing decisions using relevant

information

3.3 Assess the viability of a project using investment appraisal techniques

LO 4 Analyse & advice how to evaluate the financial performance of a business

4.1 Discuss the main financial statements

4.2 Compare appropriate formats of financial statements for different types of business

4.3 Interpret financial statements using appropriate ratios and comparisons, both internal and external

Higher Grade achievements (where applicable)

Grade descriptor

Achieved?

(tick)

Grade descriptor

Achieved?

(tick)

M1: Identify and apply strategies to find

appropriate solutions

D1: Use critical reflection to

evaluate own work and justify

valid conclusions

M2: Select/design and apply appropriate

methods/techniques

D2: Take responsibility for

managing and organising

activities


M3: Present and communicate

appropriate findings

D3: Demonstrate

convergent/lateral /creative

thinking


Assignment Feedback

Formative Feedback: Assessor to Student

Action Plan

Summative feedback

Feedback: Student to Assessor

Assessor Signature

Date

Student Signature

Date

Documents

Unit 2 Managing Financial Resources and Decisions (1)