Financial Performance Analysis and Cost-Benefit Analysis Assignment

Learning outcomes and pass attainment level:
• LO 1 Evaluate the financial performance of an organisation using financial and narrative information prepared under International GAAP
• LO 2 Apply appropriate costing and budgeting techniques to a specific scenario.
• LO 3 Evaluate alternate investment projects using appropriate techniques.
• LO 4 Evaluate alternative methods of corporate financing on financial performance.
• LO 5 Demonstrate a level of competence in the preparation and analysis of financial information.

There are three separate questions included within the assignment and you should attempt all three questions. There is no word limit to questions. If any part of the assignment is ignored this reduces the maximum marks which could potentially be awarded. The assignment answer should be carefully checked before submission for the use of appropriate and acceptable grammar. The correct use of English spelling is to be employed throughout.

All the numbers should be reported in 2 decimal points. Submission of the assignment

All three questions must be attempted and submitted in one document. You are advised to prepare your assignment in Word format and copy and paste contents from Excel where spreadsheets have been used to support your work. Only Microsoft Word file will be allowed for submission.

Your student ID number should be shown on each page of your assignment.

Your assignment should be submitted electronically via Moodle and you are advised to do this well in advance of the submission deadline to avoid any system related issues. Feedback on your assignment will also be provided via Moodle once the marking has been completed.

Question 1

Requirements

Prepare a business report, 6 pages long (+/- 10%), to the board of directors of Marks & Spencers Plc with tables and graphs that analyse the performance and financial position over at least 5 financial years and recommend actions that the board should take. Utilise search data about the subject company and its competitor(s) from university databases (FAME, MINTEL and Marketline Advantage) examined during seminars as well as the company financial reports and a range of other sources that you are to find for yourself.

Organise the ratios into 4 categories (Profitability, Liquidity, Efficiency, and Gearing) and calculate horizontal and vertical analysis. Apart from the graphs, put all the ratios, tables, and analysis in appendices. Your 6-page business report must include in-depth critical discussion with appropriate academic references and graphs.

Package A consists of a TV and a stand and is sold for a discounted price of £420. Package B consists of a TV, a stand and two speakers and is sold for a discounted price of £480. Currently packages are sold in a ratio of 2 Package As for every 3 Package Bs and 600 packages are sold each month. Fixed costs are expected to be £82,000 for the month.

Required

I. Calculate the contribution per package for Package A and Package B. 2
II. Calculate the break even point (in number of packages and sales revenue)
a. If only Package As are sold 1
b. If only Package Bs are sold 1
c. If both packages are sold in the current sales mix, calculate the breakeven point per mix first, the unit for each product and the total units. 2

III. Calculate the margin of safety (in number of bundles and as a percentage) if the current sales mix remains unchanged. 1
IV. Calculate the current expected profit. 3
V. Calculate the number of packages which need to be sold in order to achieve a profit of £15,000 in the month assuming the sales mix remains unchanged. 3
VI. Write a memo to management which considers:

a. Which is the best package sell and why
b. Whether this selling package is realistic and why or why not?
c. How else the profitability of the business could be improved

The board have approached you to get your opinion of their expansion plan, which includes a chain of factory outlet stores. Below are the figures for the first one that is planned for a central Birmingham location next year.

Company policy dictates that any decision should be based on the results of calculating Net Present Value (NPV) of 3 years cash flows using a cost of capital of 12%, Payback Period (PBP) must be less than 3 years, and the Internal Rate of Return (IRR) of the project should provide a 5% cushion in case of increases in inflation or interest rates. 

Using the information above and in accord with the above stated company policy you are required to calculate:

i. Net Present Value (NPV)
ii. Payback period (PBP) and Discounted Payback Period (DPBP)
iii. Internal Rate of Return
iv. Based on your calculations do you recommend the investment is made and the new outlet store is built? 2 marks
v. Critically discuss the limitations of the above project appraisal techniques used and any other recommendations to the board.

“It should be the most important document a shareholder reads - - but the annual report is often less useful than it ought to be and change is needed…It’s too difficult and detailed to see the wood from the trees. Despite the multiple disclosures, one report is far from comparable with another, so it’s hard to benchmark against competitors.”

“Its production was evidently left to people whose primary interest was not creating an efficient piece of communication. It fails, again and again, the first test of a management document, which is that the content must not be obscured by the presentation.”

Crosland, J. (2013) The perfect annual report. Investors Chronicle, August 30. Required: With reference to relevant academic literature and a range of companies, critically appraise the above statements. Your essay should critically evaluate the comparability issues and other limitations of the annual reports.