Financial Time Series: Market analysis techniques based on ...
Financial Techniques
-
Upload
raina-wehvaria -
Category
Documents
-
view
219 -
download
5
Transcript of Financial Techniques
OPAL COLLEGE LONDON
Extended Diploma in Management & Leadership
Unit No: 13
Unit Title: Managing Financial Principles and Techniques
Assignment No: 1
Assignment Title: Financial and Investment analysis
Date Set: 27th January 2014
Due Date: 18th April 2014
Learning Outcomes Covered:
1. Be able to apply cost concepts to the decision-making process2. Be able to apply forecasting techniques to obtain information for decision
making3. Be able to participate in the budgetary process of an organisation4. Be able to recommend cost reduction and management processes for an
organisation5. Be able to use financial appraisal techniques to make strategic investment
decisions for an organisation6. Be able to interpret financial statements for planning and decision-making.
GRADING OPPORTUNITIES AVAILABLEOutcomes/ Grade Descriptors P1.1 P1.2 P1.3 P21 P2.2 P3.1 P3.2 P3.3 P3.4 P4.1
√ √ √ √ √ √ √ √ √ √
Outcomes/ Grade Descriptors P4.2 P5.1 P5.2 P5.3 P6.1 P6.2 P6.3√ √ √ √ √ √ √
OUTCOMES/GRADE DESCRIPTORS ACHIEVED (please tick)
Outcomes/ Grade Descriptors P1.1 P1.2 P1.3 P21 P2.2 P3.1 P3.2 P3.3 P3.4 P4.1
Outcomes/ Grade Descriptors P4.2 P5.1 P5.2 P5.3 P6.1 P6.2 P6.3
COMMENTS:
Assessor: Korsima Lindsay Signature: Date:
IV COMMENTS:
IV: Signature: Date:
OPAL COLLEGE LONDON
Financial and Investment AnalysisAssignment BriefScenario 1London Manufacturing company (LMC) is a profit making company. At present, it is producing
and selling a single product on a semi automated machine on a mass scale and adopting full cost
plus profit approach while pricing its product. However, it is planning to expand its business and
make the manufacturing facilities as flexible manufacturing facilities with fully automated
production environment to meet the requirements of various customers by producing 5 improved
products over the existing one. Mr John Williams, the CEO of the company decides the targets and
communicates the targets set by him at the beginning of each year. His prime objective is profit
maximisation and he reviews the performance of organisation as well as of managers at the end of
each year.
(You can choose your own company)
Based on the costs records, the costs and revenues for last 6 months are as follows
Month Number of units Costs
(Amount in £ ’000)
Revenue(Amount in £
‘000
July 10000 1500 2500
August 12500 175
0
2750
September 14250 1925 2925
October 18000 2300 3300
November 21500 2650 3650
December 24300 2930 3930
The budgeted performance and actual performance for the last year based on financial records are
as follows
Details Budgets Actual
Sales quantities 300000 240000
Sales revenue £ 3.5 mill £ 3.00 mill
Material cost £ 1.2 mill £ 1.10 mill
Labour cost £ 0.80 mill £ 0.60 mill
Other direct costs £ 0.10 mill £ 0.08 mill
Fixed production costs £ 0.50 mill £ 0.50 mill
Fixed on production costs £ 0.25 mill £ 0.30 mill
On conducting research it identified two alternative investment avenues as detailed below for its
expanded business
OPAL COLLEGE LONDON
Alternative 1 Alternative 2
Investment amount £1 million
Disposal proceeds £200000
Demand (in units) 1st yr 500000 2nd yr 600000
3rd yr 800000
The initial investment will be made on the first
day of the new accounting year
The selling price per unit is expected to be £3
and the variable cost is £2 per unit. Both these
figures are given in today’s terms
Tax paid at 30% one year after the accounting
period concerned
Tax depreciation is at 25% on reducing
balance
The real cost of capital is 8% and the general
inflation is 5%. However, the selling price is
expected to inflate at 3% and variable costs by
5% PA
Investment amount £ 1 million
Disposal proceeds £ 100000
Demand (in units ) 1st yr 200000 2nd yr 250000
3rd yr 300000
The initial investment will be made on the first
day of the new accounting year
The selling price per unit is expected to be £5
and the variable cost is £3 per unit. Both these
figures are given in today’s terms.
Tax paid at 30% one year after the accounting
period concerned
Tax depreciation is at 40% on reducing
balance
The real cost of capital is 10% and the general
inflation is 5%. However, the selling price is
expected to inflate at 2% and variable costs by
3%
Scenario 2The summarised financial statements of three different companies for the year 31st December 2013
is as follows
Summarised statement of financial positions as on 31st December 2013 Particulars London
Manufacturing co
31st December 2013
£ ’000
Leeds Trading co.
31st December 2013
£ ’000
Oxford Exports Ltd.
31st December 2013
£ ’000
Non-current assets less depreciation
Current assets
Inventory
Receivables
Cash
Total assets
Equity and liabilities
Share capital
400
500
100
2200
1000
3200
350
400
50
1800
800
2600
1000
1500
500
5000
3000
8000
OPAL COLLEGE LONDON
Ordinary share capital (1£ each)
Preference shares (10%) (1£ each )
Reserves
Non-current liabilities
Loan notes 10% secured
Current liabilities
Payables
Corporate tax
Dividends
Total equity and liabilities
400
100
100
1000
200
800
2000
600
600
3200
500
50
50
1000
200
300
1500
500
600
2600
800
600
100
1000
3000
1000
5000
1500
1500
8000
Summarised income statement for the year ended 31st December 2013
ParticularsLondon
Manufacturing Co.31st December 2013
£ ’000
Leeds Trading Co.31st December
2013£ ‘000
Oxford Exports Ltd.
31st December 2013
£ ‘000
Revenue
Cost of sales
Gross profit
Operating expenses
Operating profit
Interest
Profit before tax
Taxation
Profit after taxation
Ordinary dividend proposed
and paid
Preference dividend
Retained profit for the year
Quoted price of share
3000
(2000)
1000
(600)
400
(60)
340
(180)
160
125
20
15
1.40
2500
(1800)
700
(500)
200
(40)
160
(100)
60
20
20
20
1.22
8000
(6500)
1500
(1000)
500
( 100)
400
(200)
200
20
100
80
0.80
Tutor Notes
Your assignment should be handed in by the deadline.
This assignment must be your own work and original.
All sources of reference must be included .
You will be expected to check spelling mistakes and grammar.
Your name, student no and unit no should be in the footer of every page.
OPAL COLLEGE LONDON
Your answer must be in report format
All relevant working must be shown clearly
Tasks
Suppose that you, as a finance manager in a business organisation called London Manufacturing co,. Your tasks are, therefore, going to be as follow.Task 1
In this first task, you need to apply cost concepts to the decision-making process based on scenario 1. To do that, you need to:
1.1 Explain the importance of costs in the pricing strategy of an organisation (not more than 600 words)
1.2 Design a costing system for use within an organisation
1.3 Propose improvements to the costing and pricing systems used by an organisation (not more than 400 words)
Task 1 covers assessment criteria 1.1, 1.2, 1.3
Task 2
In this second task, you need to apply forecasting techniques to obtain information for decision-making based on scenario 1. To do that, you need to:
2.1 Apply forecasting techniques to make cost and revenue decisions in an organisation
2.2 Assess the sources of funds available to an organisation for a specific project (not exceeding 1000 words)
Task 2 covers assessment criteria 2.1, 2.2
Task 3In this third task, you need to participate in the budgetary process of an organisation based on scenario 1. To do that, you need to
3.1 Select appropriate budgetary targets for an organisation
3.2 Participate in the creation of a master budget for an organisation
3.3 Compare actual expenditure and income to the master budget of an organisation
3.4 Evaluate budgetary monitoring processes in an organisation
Task 3 covers assessment criteria 3.1, 3.2, 3.3, 3.4
OPAL COLLEGE LONDON
Task 4
In this fourth task, you need to recommend cost reduction and management processes for an organisation based on scenario 1. To do that, you need to
4.1 Recommend processes that could manage cost reduction in an organisation (not more than 500 words)
4.2 Evaluate the potential for the use of activity-based costing
Task 4 covers assessment criteria 4.1, 4.2
Task 5
In this fifth task, you need to be able to use financial appraisal techniques to make strategic investment decisions for an organisation based on scenario 1. To do that, you need to:
5.1 Apply financial appraisal methods to analyse competing investment projects in the public and private sector
5.2 Make a justified strategic investment decision for an organisation using relevant financial information
5.3 Report on the appropriateness of a strategic investment decision using information from a post audit appraisal (not more than 500 words)
Task 5 covers assessment criteria 5.1, 5.2, 5.3
Task 6In the sixth task, you need to be able to interpret financial statements for planning and decision making based on scenario 2 . To do that, you need to:
6.1 Analyse financial statements to assess the financial viability of an organisation
6.2 Apply financial ratios to improve the quality of financial information in an organisation’s financial statements
6.3 Make recommendations on the strategic portfolio of an organisation based on its financial information (not more than 300 words)
Task covers assessment criteria 6.1, 6.2 and 6.3
Criteria for PASS
Learning outcomes Assessment criteria1 Be able to apply cost concepts to thedecision-making process
1.1 explain the importance of costs in the pricing strategy of an organisation1.2 design a costing system for use within an organisation1.3 propose improvements to the costing and pricing systems used by an organisation
2. Be able to apply forecastingtechniques to obtain information fordecision making
2.1 apply forecasting techniques to make cost and revenue decisions in an organisation2.2 assess the sources of funds available to an organisation for a specific project
3 Be able to participate in thebudgetary process of an organisation
3.1 select appropriate budgetary targets for an organisation
OPAL COLLEGE LONDON
3.2 participate in the creation of a master budget for an organisation3.3 compare actual expenditure and income to the master budget of an organisation3.4 evaluate budgetary monitoring processes in an organisation
4 Be able to recommend cost reductionand management processes for anorganisation
4.1 recommend processes that could manage cost reduction in an organisation4.2 evaluate the potential for the use of activity-based costing
5 Be able to use financial appraisaltechniques to make strategicinvestment decisions for anorganisation
5.1 apply financial appraisal methods to analyse competing investment projects in the public and private sector5.2 make a justified strategic investment decision for an organisation using relevantfinancial information5.3 report on the appropriateness of a strategic investment decision using information from a post audit appraisal
6 Be able to interpret financialstatements for planning and decisionmaking
6.1 analyse financial statements to assess the financial viability of an organisation6.2 apply financial ratios to improve the quality of financial information in an organisation’s financial statements6.3 make recommendations on the strategic portfolio of an organisation based on its financial information