Report on Financial Management for Mediterranean Delights Ltd

WRITING YOUR ASSIGNMENT:

• This assignment must be completed individually.

• You must use the Harvard referencing system.

• Your work must indicate the number of words you have used. Written assignments must not exceed the specified maximum number of words. When a written assignment is marked, the excessive use of words beyond the word limit is reflected in the academic judgement of the piece of work which results in a lower mark being awarded for the piece of work (regulation 6.74).

• Assignment submissions are to be made anonymously. Do not write your name anywhere on your work.

• Write your student ID number at the top of every page.

• Where the assignment comprises more than one task, all tasks must be submitted in a single document.

• You must number all pages.

Part 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.

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.

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 (10 marks)

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

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.