Financial Management Assignment: Cashflow, Working Capital, and Budgeting

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. 

 

Submitting Your Assignment: 
In order to achieve full marks, you must submit your work before the deadline. Work that is submitted late – up to five working days after the published submission deadline - will be accepted and marked.  However, the element of the module’s assessment to which the work contributes will be capped with a maximum mark of 40%. 

Work cannot be submitted if the period of 5 working days after the deadline has passed (unless there is an approved extension). Failure to submit within the relevant period will mean that you have failed the assessment. 

Requests for short-term extensions will only be considered in the case of illness or other cause considered valid by the iCentre Adviser. Please contact [email protected].  A request must normally be received and agreed by the iCentre Adviser in writing at least 24 hours prior to the deadline.

Assignment Question 
Part 1 
BrightLawns Ltd (“BLL”) owns and operates three factories in London, Birmingham and Manchester producing valves and fittings for garden hoses.   The company last year had turnover in excess of £50 million. 

The company is managed by Simmo, the grandson of the founder.  Simmo owns 25% of the shares in the company, while the remaining 75% is split between three other grandchildren. 

Most of BLL’s clients are large retailers in the UK and EU.  Two key customers are C&P DIY Ltd and BricoFrance SA, which are both large chains of DIY and garden centres in the UK and France. 

 

The other shareholders are concerned about the business.  Although there seems to be plenty of work 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.  Simmo has started talking about the need for the other shareholders to invest more money to reduce the debt. (they have to borrow money two million in cash; profit and cash is different; they are doing all right for profit but not for cash;)

Part 1: BrightLawns Ltd - Working Capital and Cashflow

 

Towards the end of last year BLL acquired a 30% stake in a company which designs ornamental garden fountains and water features.  BLL invested £10 million in the company to acquire the shares and has agreed to pay an £8 million advance fee for exclusive use of the designs. 

The company is owed £1.5 million pounds for a series of large orders placed by C&P last year.  There is also an outstanding dispute about a £2 million consignment for BricoFrance completed in 2017.  This has led to payment being withheld while negotiations continue between lawyers and technical specialists.

There is a further problem that Simmo believes the BricoFrance issue arose from faulty workmanship by a contractor which BLL engaged in 2017.  He has refused to pay the contractor who is now threatening legal action.  Because this area of work has been suspended, a large stock of materials and supplies has built up at the company’s London site.  Simmo insists that the company needs to have this level of stock for when the dispute is sorted out.  He is also reluctant to press his key customers too hard for payment. 

The other shareholders have approached BLL’s accountants to review the situation.   

Requirements: 
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. (definition)
b. what is meant by Working Capital and, the meanings of Receivables, Inventory and Payables (definition)
c. how changes in Working Capital affect Cashflow (definition) (25 marks) 

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. (apply to senior in part one)   (10 marks) 
iii. Analyse and recommend what steps should now be taken to improve this company’s cashflow through better Working Capital management. (apply to senior in part one)  (15 marks) 

Part 2 – Write as an essay 
Cash flow statement. 
Think what type of budget they can use?
What kind of business?
BoatWorld Plc is an international leisure company which rents boats to holiday makers.  The company operates in the UK and France.  
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, James, is the CEO and owns 15% of the shares.   

The company headquarters is located in Woking which accommodates 20 staff including management, sales, finance, HR and administration.  It has three operations in the UK and five in France.  In these centres it employs 125 staff assisting customers and maintaining the boats. (sort of cost for the staff they have in the moment; existing) 

The company is planning to open a new outlet in the Netherlands and two in Germany.   This will lead to the rollout of 30 new boats with support facilities.   

The company has always used a traditional budgeting system.  The Finance Director, Hayley, joined 3 years ago but is concerned that this approach might not be the most appropriate.  However, if a change of budget approach is going to be made, she thinks it should happen in time for next year’s budget process.  That way any “bugs” can be ironed out before the company goes through more significant changes in the following years.

Requirements: 
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 (25 marks) (we need to think about the cost cause we have a lot of staff; different type of budget; strengths and weaknesses- what is good and bad)

 

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) (think about source of cote in current business and new business)

 

iii. Analysing whether a traditional or alternative budgetary system is appropriate to all or any parts of the business in its planned future form. (15 marks)

For the existing business which method you can choose- O based/ 0based with rolling- think about for the future business.