Summative Assessment

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Budgeting and Forecasting Boston Fill out the areas in buff/beige. Do not use other cells, we may miss it in grading!
Your name:
The Summative Assessment is based on Air Liquide. The questions in this assessment are partially based on facts, and partially fictitious. Its purpose is to evaluate your understanding
of the course topics.
Score Q# Pts
1 2 You have joined the FP&A department of Air Liquide. The CFO in 2020 was Fabienne Lecorvaisier. She has since moved to take an Executive post for the Company in Sustainability.
She is looking to add you to his already strong FP&A team. This is your interview with the current FP&A team. The first question is "why is knowledge of managerial accounting as important as financial accounting for an FP&A analyst? To receive full credit, give one example of managerial accounting that is different than financial accounting that is important for FP&A.
2 2 The accounting department and the FP&A departments are both very busy with monthly reporting. Contrast the outcomes of the work for the accounting department compared to the work by FP&A.
To receive full credit, provide specific examples.
3 4 Look at the 2020 Universal Registration Document (referred to as the "Annual Report" for the rest of this Summative Assessment), pages 17 and 18. Pick two of the items and explain their actions based on the Growth-Share Model. Be specific on the Air Liquid move and the rationale in Growth Share terminology (i.e. the associated quadrants).
Note: See the actual Annual Report to read the two pages (17 and 18)
2016 2017 2018 2019 2020
Revenues 18,134.8 20,349.3 21,011.1 21,920.1 20,485.2
Purchases (6,692.8) (7,720.8) (8,276.4) (8,153.9) (7,197.7)
Personnel (3,659.4) (4,138.3) (4,145.8) (4,410.9) (4,239.8)
Other (3,171.4) (3,348.5) (3,374.1) (3,423.8) (3,120.2)
Depreciation and amortization (1,587.3) (1,777.9) (1,766.3) (2,137.7) (2,137.9)
Operating Income Recurring 3,023.9 3,363.8 3,448.5 3,793.8 3,789.6
Non-recurring income (expenses) 35.6 (343.5) (161.8) (187.5) (139.5)
Earnings before interest and taxes 3,059.5 3,020.3 3,286.7 3,606.3 3,650.1
Net finance cost (interest) (389.1) (421.9) (303.4) (361.6) (352.8)
Other financial expenses (14.0) (67.5) (49.3) (106.1) (87.1)
Income taxes (747.4) (207.3) (730.7) (801.7) (678.2)
Other (profit from associates, minority interest and discontinued operations) (65.0) (124.0) (89.9) (95.4) (96.9)
Net Income 1,844.0 2,199.6 2,113.4 2,241.5 2,435.1
- 0
Balance Sheet (note: this is converted to US GAAP for purposes of this Summative Assessment)
Cash and equivalents 1,523.0 1,656.1 1,725.6 1,025.7 1,791.4
Trade receivables 3,115.0 2,900.0 2,500.4 2,477.9 2,205.8
Inventories 1,323.1 1,333.7 1,460.1 1,531.5 1,405.9
Other current assets 1,028.1 1,101.4 1,076.9 932.3 872.2 4 4 a. (1 pt) What are the five types of data captured in a Growth-Share Matrix?
Total current assets 6,989.2 6,991.2 6,763.0 5,967.4 6,275.3 b. (1 pt) What are the names of the four quadrants?
c. (2pts) If Air Liquide wants to sustain growth, which quadrant would be the most fertile quadrant to find the most promising new businesses? Why?
Property, plant and equipment 20,115.7 18,525.9 19,248.2 21,117.8 20,002.9
other non-current assets * 1,236.0 1,058.7 1,025.7 1,083.3 1,213.7
Intangible assets 15,776.9 14,451.5 14,943.7 15,498.0 14,485.2
Total non-current assets 37,128.6 34,036.1 35,217.6 37,699.1 35,701.8
Total Assets 44,117.8 41,027.3 41,980.6 43,666.5 41,977.1
Provisions, pensions, and other employee benefits 279.5 332.7 325.1 268.4 316.1
Trade payables 2,485.9 2,446.4 2,714.5 2,566.6 2,437.9
Other current liabilities (including taxes and derivatives) 1,680.6 1,861.0 1,838.1 1,896.2 2,083.4
Current borrowings 2,001.0 2,504.6 2,550.9 1,831.8 2,180.5
Current lease liabilities - 0 - 0 243.6 218.2
Total Current liabilities 6,447.0 7,144.7 7,428.6 6,806.6 7,236.1
5 3 Air Liquide challenges its employees and managers with the NEOS objectives (see page 36 of the Annual Report). Create a SMART goal that is based on one of the NEOS objectives, but is NOT the same as the NEOS Goal. This should be a goal for a department or division that would contribute to the NEOS goal. Remember to specify why it meets the SMART criteria. Note: you should create your own SMART goal. You do not need to read the entire 400 page Annual Report.
Provisions, pensions, and other employee benefits 2,592.4 2,593.3 2,410.7 2,521.2 2,418.3 NEOS goal:
Deferred Tax Liabilities 2,378.2 1,807.7 1,955.9 2,051.9 1,871.5
Non-current borrowings 14,890.1 12,522.4 11,709.6 11,567.2 10,220.2 Your SMART goal
Non-current lease liabilities - 0 - 0 - 0 1,087.8 969.4
Other non-current liabilities* 685.1 240.8 268.4 307.4 257.0
Total non-current liabilities* 20,545.8 17,164.2 16,344.6 17,535.5 15,736.4
Minority interests 383.2 400.5 424.3 454.0 462.3 6 Calculate the ratio for five years (data on the left) and interpret
2016 2017 2018 2019 2020
Share capital 2,138.8 2,356.2 2,361.8 2,602.1 2,605.1 1 Current Ratio = current assets/current liabilities
Additional paid in capital 3,103.3 2,821.3 2,884.5 2,572.9 2,608.1 1 interpretation of the above
Retained earnings 11,611.40 11,276.90 12,657.80 13,824.20 13,468.90
Treasury shares (111.7) (136.5) (121.0) (128.8) (139.8) 1 Total Asset Turnover = sales/total assets
Total equity 17,125.0 16,718.4 18,207.4 19,324.4 19,004.6 1 interpretation of the above
Total Equity and Liabilities 44,117.8 41,027.3 41,980.6 43,666.5 41,977.1 1 Total Liabilities/ Asset Ratio
1 interpretation of the above
1 Net Profit Margin = net income/sales
1 interpretation of the above
1 Times Interest Earned (hint: you may ignore "other financial expenses")
Statement of Cash Flows 1 interpretation of the above
2 What is your overall impression of the financial performance, based solely on the ratios above (no extra work needed)
3 Review the statement of cash flows for 2020. a) did they generate or use cash from operating activities? b) what did they invest in? c) what were major cash used for debt and equity?
7 2 "We often create spreadsheets for our operating divisions' use. What are two examples of Excel "hygiene" that will make the spreadsheets more easily useable by division personnel
and less likely to have errors made by those users?
8 6 "Here is a hypothetical model for a new product launch. Create a sensitivity analysis for Price (+/- 10%) and Create a Scenario Analysis Worst Case with a 5% lower price, 10% lower unit sales, and 20% higher product costs per unit.
Price 4.00
units sold 10,000
product costs 1.50
selling and marketing costs 5,000
Revenues 40,000
product costs 15,000
selling and marketing costs 5,000
profit 20,000
9 4 What is the difference between the steps in a scenario analysis and a simulation? Be specific for full credit.
Day # Units Sold 10 4 Refer to the data for customer sales on the left (assume this is a sample of the data). Compute the indicated statistical measures
1 3,800 Mean
2 8,500 Median
3 2,100 Std. Deviation
4 10,000
5 14,000 Sales corresponding to the top quartile of customers
6 700
7 1,800
8 19,000
9 5,000
10 18,000
11 4,120
12 13,300
13 9,000 "We have been asked to assist the warehouse on a problem they are having with on time deliveries. They would like ideas on how to improve. Of the following techniques, which is most
14 2,000 11 3 appropriate to address this as quickly as possible? Fish bone, Kaizen, Lean Manufacturing, Six Sigma, Total Quality Management. And explain why (added)
15 18,700
16 8,000
17 13,700
18 4,000
19 3,600
20 1,600
21 1,200 12 8 The Production Engineering department has an annual expense of $4 million, most of it in salaries
22 30,000 Currently, it is charged to divisions based on total products manufactured. Look at the data below and apply the ABC concepts to recommend an allocation of the
23 450 production engineering costs to the four products Explain your choice of the basis for allocation.
24 20,000 Total Production Engineering costs 4,000,000
25 2,500 # of units produced # of direct labor hours used Hours of Production Engineering hours Total Manufacturing Costs
26 1,500 Product
27 10,500 Product A 20,000 500 5,000 5,000,000
28 900 Product B 100,000 500 750 20,000,000
29 750 Product C 300,000 1,200 5,000 40,000,000
30 11,500 Product D 900,000 900 4,000 80,000,000
31 16,500
13 2 "We use an On Demand Business Outlook approach. What is the difference between this approach and the more traditional way of budgeting? Why is it better than traditional budgeting?
14 5 You are asked to explain to a new manager the difference between incremental budgeting and zero based budgets?
Which do you recommend and why?
15 8 One of our main contributions is our work on capital investments. Analyze the projects below and
compute the NPV, IRR, PI and Payback for both. The required rate of return is 14% for each project.
in $000's 0 1 2 3 4 5
Project A -6500 1900 2500 3000 3000 1500
Project B -400 100 200 200 250 250
A B
NPV
IRR
PI
Payback
16 3 If you could only select one project, which would you choose? If you had unlimited capital, what would you do?
17 3 Assume there is another high risk, high return alternative investment, Project C. If the total investment amount is $5 million, how can you use real options to make this project more attractive? For full credit be specific to show why your approach is effective.
3. Forecasted Financial Statements 18 10 Use the information to the left and determine the value of equity and the price per share (caution: this is a time consuming and challenging question!)
dollars in millions Actual Forecast additional information:
current 1 2 3 4 cost of capital 15%
Cash 35.0 40.0 45.0 55.0 70.0 long term growth% 3%
Marketable sec 105.0 150.0 200.0 300.0 400.0 tax rate = 35%
Accounts receivable 330.0 450.0 500.0 520.0 550.0 shares outstanding 500
Inventories 200.0 230.0 240.0 250.0 270.0
Prepaid expenses 38.0 44.0 49.0 55.0 60.0
Total Current Assets 708.0 914.0 1,034.0 1,180.0 1,350.0
Net fixed assets 490.0 550.0 600.0 650.0 700.0
Goodwill 120.0 150.0 150.0 300.0 300.0
Total Assets 1,318.0 1,614.0 1,784.0 2,130.0 2,350.0
Accounts payable and accrued liabilities 200.0 250.0 290.0 325.0 375.0
Short term loans 40.0 40.0 50.0 55.0 60.0
Total current liabilities 240.0 290.0 340.0 380.0 435.0
Bonds payable 170.0 170.0 170.0 170.0 170.0
Other operating non-current liabilities 35.0 50.0 60.0 70.0 80.0
total long term liabilities 205.0 220.0 230.0 240.0 250.0
total liabilities 445.0 510.0 570.0 620.0 685.0
Common stock (300mil shares outstanding) 60.0 60.0 60.0 60.0 60.0
Retained Earnings 725.0 1,044.0 1,154.0 1,450.0 1,605.0
Total shareholders' equity 785.0 1,104.0 1,214.0 1,510.0 1,665.0
Total liabilities and equity 1,230 1,614 1,784 2,130 2,350
NOPAT 650 670 730 900
19 8 The data for 2010 TO 2019 for a potential acquisition target is on the left. Analyze using two approaches: a) Compute and graph the 3 year moving average and b) Use the quadratic regression technique to determine a formula for sales in year 11. For full credit, show the formula, the sales estimate, and your assessment of the accuracy of the formula.
YEAR SALES
1 74,000
2 84,000
3 85,000
4 82,700
5 86,000
6 87,500
7 89,000
8 93,000
9 101,000
10 105,000
20 4 Performance Reporting
Air Liquide is moving toward a more comprehensive reporting approach.
What would be one example of a metric that shows their commitment to sustainability? note: this can be hypothetical (you do not need to read the Annual Report for actual metrics)
What would be one example of a metric that shows their commitment to governance? note: this can be hypothetical (you do not need to read the Annual Report for actual metrics)
0 100
score possible

regression

SUMMARY OUTPUT Regression Formula
Sales = 47,281+993.71* year +147.35* year ^2
Regression Statistics Sales = 76,041.67
Multiple R 0.94630
R Square 0.89549 Assessment of the model
Adjusted R Square 0.86563 The Adjusted R Squares is good = 0.86563
Standard Error 3097.3452534465 The F test is favoable= 0.000369 (below .005)
Observations 10 However, the P values are not favorable = both over .005
ANOVA
df SS MS F Significance F
Regression 2 575421166.666667 287710583.333333 29.9900094061 0.0003690071
Residual 7 67154833.3333333 9593547.61904761
Total 9 642576000
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 47281.6666666667 3642.9485593883 12.9789553423 0.0000037503 38667.4621558321 55895.8711775012 38667.4621558321 55895.8711775012
year 993.7121212121 1521.4488999143 0.6531353904 0.5345248964 -2603.9428450844 4591.3670875087 -2603.9428450844 4591.3670875087
year^2 147.3484848485 134.7946503514 1.0931330321 0.310520801 -171.3902143573 466.0871840543 -171.3902143573 466.0871840543
RESIDUAL OUTPUT
Observation Predicted SALES Residuals
1 48,422.7 (4,422.7)
2 49,858.5 4,141.5
3 51,588.9 3,411.1
4 53,614.1 (914.1)
5 55,933.9 66.1
6 58,548.5 (1,048.5)
7 61,457.7 (2,457.7)
8 64,661.7 (1,661.7)
9 68,160.3 2,839.7
10 71,953.6 46.4