Managing finances and marketing principles

Qualification

Unit number title and level

BTEC Level 5 HND Diploma in Business

Unit 2: Managing Financial Resources and Decisions

Level : 4

Student name and ID number

Assessor name

Natalie Walker

Date issued

Completion date

Submitted on

12th May 2014

18th July 2014

Assignment title

Managing Financial Resources and Decisions

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

LO2

Understand the sources of finance available to a business

Understand the importance of financial planning and information needs.

1.1

Identify the sources of finance available to a business

1.2

Assess the implications of the different sources

1.3

Evaluate appropriate sources of finance for a business project

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

LO3

Be able to 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.

LO4

Be able 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.

Instructions

· An electronic copy of your assessment must be fully uploaded by the deadline date and time.

· You must submit one single PDF or MS Office Word document. Any relevant images or screenshots must be included within the same MS Office Word or PDF document.

· The last version you upload will be the one that is marked. Your paper will be marked if you have indicated this as your final submission.

· Review the mitigating circumstances policy for information relating to extensions.

· The file size must not exceed 20MB.

· Answer the criteria in order, clearly indicating the pass criteria number.

· Ensure that all work has been proof-read and checked prior to submission.

· Ensure that the layout of your documents are in a professional format with font style Arial, font size 12 for the text, font 14 for sub heading and font 16 for main heading, line spacing 1.5 and justified.

· Use the Harvard referencing system; otherwise it will be considered as plagiarised work.

· Ensure that you back-up your work regularly and apply version control to your documents.

· Ensure that any file you upload is virus-free, not corrupted and not protected by a password otherwise it will be treated as a non-submission.

· You must NOT submit a paper copy or email of this assessment to any member of staff at LSST.

· Your work must be original with the appropriate referencing

Student Name

_____________________

Student ID:

__________________

Signature:

_____________________

Date :

__________________

In addition to the above PASS criteria, this assignment gives you the opportunity to submit evidence in order to achieve the following MERIT and DISTINCTION grades

Grade Descriptor

Indicative characteristics

Contextualisation

M1Identify and apply strategies to find appropriate solutions

Effective judgements have been made.

M1:To achieve M , you are required to match the above ratios (i.e., current ratio, ROCE etc.) to the following interested parties; suppliers, investors and competitors. Provide clear justification for your answer. (Task 4)

M2 Select / design and apply appropriate methods / techniques

A range of sources of information have been used.

M2: To achieve M2, state which of the sources explored in 1.3 is a best fit for Fort Sport Ltd. Justify your choice and selection and explain why you consider this choice to be the best fit for Fort Sport Ltd’s future plans.

Present your answer clearly in a report format. (Task 1)

M3 Present and communicate appropriate findings

The appropriate structure and approach has been used.

M3: To achieve M3, you will identify the individual needs of the stakeholders in Fort Sport Ltd. This will be presented in a suitable business report format (a report or a formal letter) or comparison table and will include business terminology accurately.(Task 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.

D1: To achieve D1, you will justify the use of investment appraisal techniques and other financial planning methods in the process of strategic investment decision making for a business. (Task 3)

D2 Take responsibility for managing and organising activities

Importance of interdependence has been recognised and achieved.

D2: Use the draft balance sheet below. Please note that the balance sheet does not balance. Include a recent loan of £7,000 which will be paid back in 3 years time with a fixed charge of £1500 per year payable at year end. Show all your calculations that enables the financial report below to balance.(Task 2)

D3 Demonstrate convergent /lateral / creative thinking

Effective thinking has taken place in unfamiliar context.

D3: To achieve D3, you will explain the differences (and the importance of this differentiation) between:

i. Current and acid test ratios

ii. Gross profit and net profit (Task 4)

Assignment brief

Unit number, title and level

Unit 2:Managing Financial Resources and Decisions

Level : 4

Qualification

BTEC Level 5 HND Diploma in Business

Date Issued

12th May 2014

Completion date

18th July 2014

Assessor

Natalie Walker

Assignment title

Managing Financial Resources

and Decisions

Purpose of this assignment –

This unit is designed to give learners a broad understanding of the sources and availability of finance for a business organisation. Learners will learn how to evaluate these different sources and compare how they are used. They will learn how financial information is recorded and how to use this information to make decisions for example in planning and budgeting. Decisions relating to pricing and investment appraisal are also considered within the unit. Finally, learners will learn and apply techniques used to evaluate financial performance.

Scenario

You work as a finance manager within the Head Offices of Fort Sport Ltd.

You have been asked to assist the management team in preparing and forecasting the company’s expansion. Fort Sport Ltd is a small private company who began trading in April 2013. The company supplies fitness products online to the public; specialising in mid range sporting goods and equipment. In 2014, it wishes to increase its activity in the market and as such need to identify a variety of options for finance.

Your research has shown that the Bannatyne Group would be interested in investing in Fort Sport Ltd. This could be an option for the company and will be something for you to consider, however, in the event that this investment is not viable, other options of finance must be explored.

The Bannatyne Group has been keen to enter into a deal of this nature as market research indicates that internet related businesses are expected to grow in the UK and globally.

Your line manager has asked you to explore the cost and profit implications of various sources of finance that would be available to Fort Sport Ltd. In particular, the executives within the group want to know what the costs would be if the group were to accept the investment offer from the Bannatyne Group.

Please use the following case study as a reference:-http://businesscasestudies.co.uk/beeson-gregory/raising-finance-for-smes/intr.html#axzz2yDASkv00

Task 1 (This tasks offers you an opportunity to achieve L.O. 1: 1.1, 1.2, 1.3 and M2)

You have been asked to identify a range of sources of finance available to Fort Sport Ltd. These can include raising funds through a combination of finance areas. Please identify at least three sources (1.1).

Completion date: 16th May 2014

You should also assess the implications of your choices: What are the legal, financial and dilution of control implications (percentage ownerships); risks of bankruptcy.(1.2)

Completion date: 23rd May 2014

After assessing the possible sources of finance, you must choose a source(s)that would be appropriate for Fort Sport Ltd. You are required to:

· evaluate benefits of different sources for Fort Sport Ltd;

· match term of finance to term of project (1.3)

Completion date: 23rd May 2014

M2:

To achieve M2, State which of the sources explored in 1.3 is a best fit for Fort Sport Ltd. Justify your choice and selection and explain why you consider this choice to be the best fit for Fort Sport Ltd’s future plans.

Present your answer clearly in a report format.

Task 2 (This tasks offers you an opportunity to achieve LO2: 2.1, 2.2, 2.3, 2.4 and D2)

Analyse the financial costs of your chosen sources of finance for Fort Sport Ltd.(2.1)

Completion date: 30th May 2014

With reference to the financial planning of this task, you will need to explain in a report format why financial planning is important for the success of Fort Sport Ltd.(2.2)

Completion date: 30th May 2014

Assess different information needs for each decision maker within Fort Sport Ltd: Identify and assess the information that is needed for a range of decision makers.(2.3)

Completion date: 6th June 2014

Explain how the loan and investments (purchase of ordinary shares) impacts the balance sheet and income statement (2.4)

D2:

To achieve D2, Use the draft balance sheet below. Please note that the balance sheet does not balance. Include a recent loan of £7,000 which will be paid back in 3 years time with a fixed charge of £1500 per year payable at year end. Show all your calculations that enables the financial report below to balance.

Total Equity 18250

Task 3 (This tasks offers you an opportunity to achieve LO3: 3.1, 3.2, 3.3,M3 and D1)

Task 3a. Analyse budgets and make appropriate decisions:

The CEO of Fort Sport Ltd has asked you to prepare a Cash Budget for the four months ending October 2014, and identify whether the business has a surplus or a deficit. If Fort Sport Ltd has a surplus, suggest two ways in which it could utilise this and if it has a deficit, suggest two ways it could deal with this.(3.1)

Completion date: 13th June 2014

The CEO of Fort Sport Ltd has asked you to prepare the Cash Budget based on the following information:

1. The Bank Balance on 1st July 2014 will be £50,000.

2. Total monthly sales for the four month period ending October 2014 are forecasted as:

£

July 150,000

August 100,000

Sept 125,000

October 120,000

3. Cash purchases during the relevant period are:

£

July 52,000

August 32,000

Sept 74,000

October 82,000

4. A new supplier has offered Fort Sport Ltd two months credit starting July 2014; this means that materials bought on credit in July will be paid for in September and so on. Fort Sport Ltd plan to make the following credit purchases from this supplier:

£

July 46,000

August 20,000

Sept 30,000

October 20,000

5. Fort Sports Ltd pay rent of £15,000 per month quarterly in advance. Payments are due on 1st July, 1st October etc.

6. Other expenses are forecasted as follows:

£

July 10,000

August 15,000

September 20,000

October 20,000

7. Fort Sports Ltd is repaying a bank loan at the rate of £10,000 per month. The last installment is due in September 2014.

Task 3b.

Fort Sport Ltd is considering selling high quality ‘luxury’ exercise equipment.

Its costs for 500 units are as follows:

Total Direct Cost £20,000

Fixed Cost £10,000

Total Cost £30,000

Fort Sport is currently reviewing its selling prices and is considering cost-plus pricing based on:

Either a 33.33 % mark-up on cost price (i.e. profit is 33.33 per cent of cost price)

Or a 20 % return on capital employed.

Fort Sport will choose the method that provides the highest return.

Fort Sport Ltd has capital employed of £10,000.

Calculate the unit price based on both costing methods, and select the price you think is most appropriate. Explain why you think it is the appropriate price.

You may round up your figures to nearest £1 when calculating your answers. (3.2)

Completion date: 13th June 2014

…………………………………………………………………………………………………………………..

Task 3c.

Fort Sport Ltd has been presented with 3 new product opportunities. You have been asked to identify which product the company should produce and sell.

You need to use the Payback Period and Net Present Values (NPV) for each of the products. Based on the table below, identify which new product (A, B or C) you would select for manufacturing and selling by the organisation.

The estimated cost of capital is 10% per annum.

Note –The discount factors are as follows:

Year 1 = 0.909

Year 2 = 0.826

Year 3 = 0.751

Year 4 = 0.683

To assist Fort Sport Ltd to make a decision, you are required to calculate the following for each of the three projects. (3.3)

• Payback period

• The accounting rate of return(ARR)

• The net present value (NPV)

Completion date: 20th June 2014

M3:

To achieve M3, you will identify the individual needs of the stakeholders in Fort Sport Ltd. This will be presented in a suitable business format (a report or a formal letter) or a comparison table and will include business terminology accurately.

D1:

To achieve D1This question relates to 3.3.

Justify the use of investment appraisal techniques and other financial planning methods in the process of strategic investment decision making for a business.

Task 4 (This tasks offers you an opportunity to achieve LO4: 4.1, 4.2, 4.3, M1 and D3)

You have been asked to prepare a report for the Managing Directors of Fort Sport Ltd. They will attend the Bannatyne Group Head Office to meet with key decision makers in the venture capitalist department. They have asked you to provide them with an explanation of the purpose of the Trading Profit and Loss Account or Income Statements and the Balance Sheet. How would Fort Sport’s capital appear in the balance sheet and the income statement? (4.1)

Completion date: 27th June 2014

Compare appropriate formats for financial statements for different business organisations. That is, compare the balance sheet formats and also compare the income statements/profits and loss accounts formats. (4.2)

Completion date: 27th June 2014

XYZ Ltd runs a chain of small shops and you have just received the following extracts from the audited accounts for the period ending 30th September 2013.

PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 30th SEPT 2013

£ 000 £000

Sales 800

Cost of goods sold (150)

Gross Profit 650

Wages 400

Other Expenses 20

(420)

Net Profit 230

STATEMENT OF FINANCIAL POSITION AS AT 30 SEPT 2013 (Balance Sheet)

£000 £000

Fixed Assets 650

Current Assets

Stock 300

Debtors 100

Bank 280

680

Total Assets 1330

Financed by:

Equity and Liabilities

Share Capital 500

+Net Profit 230

Total equity capital 730

Non-Current Liabilities 150

Current Liabilities

Creditors 450

Total Equity and Liabilities 1330

Required:

(a) Calculate the following accounting ratios for XYZ Ltd:

• Current ratio

• Acid test ratio

• Return on capital employed (ROCE)

• Gross profit margin

• Net profit margin

For each ratio, include the formula in words and your workings and explain what each ratio measures. (4.3)

Completion date: 4th July 2014

M1:

To achieve M1, you are required to match the above ratios (i.e., current ratio, ROCE etc.) to the following interested parties; suppliers, investors and competitors. Provide clear justification for your answer.

D3:

To achieve D3, explain the differences (and the importance of this differentiation) between:

I. Current and acid test ratios

II. Gross profit and net profit

Task 1 (L.O. 1: 1.1, 1.2, and M2)

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Task 2 (LO2: 2.1, 2.2, 2.3, and D2)

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Task 3 (LO3: 3.1, 3.2, 3.3, and M3, D1)

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Task 4 (LO4: 4.1, 4.2, 4.3, M1 and D3)

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