accounting report year one

Introduction to Accounting

End of Semester Report Assessment – Spring 2019

Information:

· The total marks available for this assignment is 100. The assessment is 70% of your overall module grade. The pass mark is 40%.

· The total word count for this assignment (not including figures and calculations) is 1500 (+/- 10%).

· The deadline for submitting your assignment is Monday 8th April 2019 at 23.55 hours. Please upload to Canvas.

· Assignments received after the deadline will be subject to the rules for late submission

Submission Format Instructions

· Please ensure that all submissions are preceded by a front sheet that includes the assignment title – in this case ElijaFoods Finances.

· The front cover sheet should also include your Course Name and Teaching Group in addition to your Sussex Candidate ID number . Do NOT include your name.

· All work should be word processed and typed in Arial font, 11 point with one and a half line spacing with a minimum of 2.5cm margin down both sides of the page.

Following these instructions is important as marks are awarded for presentation

( 1 )

Brief:

You have been appointed as the new finance manager of ElijaFoods and asked to analyse the situation of the business and advise on a number of financial issues facing it (refer to the below case information). You are to write a report to the managing director, Mr Samuel Abraham, to address specific issues brought to your attention as follows.

Part A: Financial Performance of ElijaFoods:

i. Calculate relevant ratios to complete the table in appendix C, and use the information in the table to support your answers to the other questions in this part. Present the completed table as an appendix to your report.

ii. Evaluate the financial performance of ElijaFoods for the year ending 31st December 2017. Your evaluation should cover the use of profitability, liquidity, efficiency and risk ratios.

iii. Express your opinion and give reasoned recommendations as to whether ElijaFoods should continue to use financial ratios in assessing business performance or not.

Part B: Proposed Acquisition of ElishaFoods

i. Prepare cash budget for ElishaFoods using information in appendix E, and use the results to discuss the future cash situation of ElishaFoods. The budget should be presented as appendix B to your report.

ii. Given the cash and liquidity situation of both ElijaFoods and ElishaFoods together with any information you may consider relevant, advise whether or not ElijaFoods should enter into negotiations to acquire ElishaFoods. Give reasons.

iii. Assuming that management may decide to go ahead with the acquisition plan, suggest measures that may need to be implemented to enhance the management of cash in ElishaFoods.

Part C: Other expansion options

i. Perform an investment appraisal of the two other expansion options opened to ElijaFoods. Use the Net Present Value (NPV) method, the Pay Back method and any other method of your choice (three methods altogether).

ii. Advise the management of ElijaFoods which of the two options they should consider. Give reasons to justify your recommendation. Your recommendation should also take into account the superiority of each method of appraisal.

ElijaFoods Finances

background:

ElijaFoods is a medium size food retailer located in Brighton, Sussex. It has been trading for four (4) years now, selling and delivering healthy food to university students. Students are

able to buy and have delivered on campus small weekly orders, at a cost lower than the minimum spend of most supermarkets. ElijaFoods also sells printers and cartridges, which students can pay for in twelve monthly instalments.

ElijaFoods has partnered with Aldi Supermarket to source food. The business (ElijaFoods) is known for its healthy products, and as being a fair and ethical organisation. It promotes itself partly through its approach to Corporate Social Responsibility (CSR) and ethical issues. The business also encourages students to register with it so that they can place orders on credit. Many students take advantage of this practice, which appears to be prevalent within the industry.

financial performance:

The financial statements of ElijaFoods for the year ending 31st December 2017 can be found in appendices A and B. The former finance manager, Ms Lucia CHAN, who has just retired from work was an avid lover of financial ratios and used them extensively in all organisations that she worked, including ElijaFoods, to evaluate business performance.

Appendix C is a table of comparative ratio statistics prepared by Lucia. She used specific formulas for all her calculations as is common within the industry- see appendix D.

HoseaFoods, located in Falmer, Sussex, is one of the competitors of ElijaFoods. At a recent exhibition of peer organisations Mrs Kimi Johnson, who is the business strategy manager of HoseaFoods, is reported to have said that financial ratios have limited application in evaluating and managing business performance. She disclosed that HoseaFoods sparingly uses ratios.

expansion strategy 1:

The management of ElijaFoods is currently considering a proposal to acquire the business of ElishaFoods, which is located in Hove, Sussex. However, the managing director of ElijaFoods is concerned about the cash situation and viability of ElishaFoods. Available financial information about ElishaFoods is shown in appendix E – estimates of cash activities for 2019. The financial performance of ElishaFoods generally tracks that of the industry in which it operates. ElishaFoods operates in the same industry as ElijaFoods.

other expansion options:

ElijaFoods has two other possible investment opportunities that may help them expand their business other than acquiring ElishaFoods.

Option 1: ElijaFoods can open another shop in Bromley which is in Greater London, to establish its own brand name as a retailer. Start-up costs are likely to be around £1,000,000.

Option 2: ElijaFoods can develop a website and start to trade online. This would cost ElijaFoods an initial outlay of £240,000. If this becomes popular, further investment would

be required to manage inventory, packing and delivery. This will result in no job losses and will generate possible new jobs in the future.

Each of the projects will have a projected life of 5 years (after initial set-up). Projected cash flows are as follows:

Investments:

Option 1 £1,000,000

Option 2 £240,000

Discount factors (at 10% rate):

Year: 1 2 3 4 5

Discount factor 0.9091 0.8264 0.7513 0.6830 0.6209

APPENDICES

Appendix A: Income Statement of ElijaFoods for the year ended 31st December 2017