Reference no: EM132476996

MOD003319 - Business Finance - Anglia Ruskin University

ASSIGNMENT

QUESTION 1

Mediterranean Delights Ltd ("MDL") owns and operates 30 delicatessens throughout the South of England. It also supplies several chains of restaurants with its own range of imported products. The company last year had turnover in excess of £50 million. Two key corporate customers are Delios Ltd and San Pedro Ltd.

The company is managed by Wade, who owns 25% of the shares in the company, while the remaining 75% is split between three other family members.

The other shareholders are concerned about the business. Although there seems to be plenty of business coming in and the last year has been reasonably profitable (Operating profit was £5 million last year before interest and tax), the company's debt has increased to £18 million from £16 million the year before.

Wade has started talking about the need for the other shareholders to invest more money to reduce the debt.

Towards the end of last year MDL acquired a 40% stake in an Italian company which produces a range of premium pasta. MDL invested £10 million in the company to acquire the shares and has agreed to pay an £8 million advance fee for exclusive supply of the products.
The company is owed £1.5 million pounds for a series of large orders placed by Delios last year. There is also an outstanding dispute about a £2 million delivery to San Pedro completed in 2017. This has led to payment being withheld while negotiations continue between lawyers and industry consultants.

There is a further problem that Wade believes the San Pedro issue arose due to the supply of sub-standard materials by a Maltese agricultural group, Valetta Ltd in 2017. He has refused to pay Valetta which is now threatening legal action. In the meantime, a large stock of materials and supplies has built up at the company's London warehouse. Wade insists that the company needs to have this level of stock for when the dispute is sorted out. He is also reluctant to press his key customers too hard for payment.

The other shareholders have approached MDL's accountants to review the situation.

Prepare a report of up to 1,250 words for the shareholders addressing the following issues.
i. Using the reading list provided on the VLE, explain:
a. what is meant by Profit and Cashflow and how they are different
b. what is meant by Working Capital and, the meanings of Receivables, Inventory and Payables
c. how changes in Working Capital affect Cashflow
ii. Apply the concepts in (i) above to this company to show how the way the company is being managed might affect its financial results.
iii. Analyse and recommend what steps should now be taken to improve this company's cashflow through better Working Capital management.

QUESTION 2

Second Sight Plc is an international company which produces prescription glasses and sunglasses for a number of leading international brands.

The company has been operating for 25 years and had revenues last year of £250 million. It was listed on the London Stock Exchange 10 years ago and has a market capitalisation of £300 million with debt of £50 million. The founder, Nasser, is the CEO and owns 15% of the shares.

The company headquarters is located in Manchester which accommodates 40 staff including management, sales, finance, HR and administration. It has a production centre in the UK and another in France. In these centres it employs 250 staff.

The company is planning to open a new facility in the Netherlands and is considering a joint venture project with an Indian company. If the Indian venture goes ahead it would involve setting up a facility in Chennai which is expected to employ 800 staff.

The company has always used a traditional budgeting system. The Finance Director, Bridget, joined 3 years ago but is concerned that this approach might not be the most appropriate. However, if a change of budget approach is going to be made, she thinks it should happen in time for next year's budget process. That way any "bugs" can be ironed out before the company goes through more significant changes in the following years.

Prepare a report of up to 1,250 words for the board addressing the following issues:

i. An understanding of the purposes of preparing a budget; an explanation of a) traditional budgeting approaches and b) the following alternative budget methods: rolling budgets, zero based budgets and activity-based budgets, explain their relative strengths and weaknesses

ii. Demonstrate the application of these methods showing how they might be used to plan future cost management for this specific business. Illustrate your answer with examples of how products and processes for this business would be budgeted for in a traditional approach and using the alternative methods

iii. Analysing whether a traditional or alternative budgetary system is appropriate to all or any parts of the business in its planned future form

Attachment:- Business Finance.rar