FINANCIAL ANALYSIS

Managing Financial Resources and Decisions



Managing Financial Resources and Decisions

Task 1

(a)

Yardley Wood Store Cash Budget

 

 

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Beginning Cash Balance

250000

- 385000

- 112000

356000

824000

1459000

2094000

2729000

Cash Inflows (Income):

Sales

500000

500000

640000

640000

640000

640000

640000

640000

Total Cash Inflows

750000

115000

528000

996000

1464000

2099000

2734000

3369000

Cash Outflows (Expenses):

Rent Expense

5000

5000

5000

5000

5000

5000

5000

5000

Plant and machinery

780000

-

-

-

-

-

-

-

Additional equipments

350000

160000

105000

105000

-

-

-

-

Operational running cost

0

62000

62000

62000

-

-

-

-

Total Cash Outflows

1135000

227000

172000

172000

5000

5000

5000

5000

Ending Cash Balance

- 385000

- 112000

356000

824000

1459000

2094000

2729000

3364000

(b)

Amount of finance needed in the first six months of the operation = 1135000 + 227000 + 172000 +172000 + 5000 + 5000 + 5000 + 5000 = £ 1726000

(c)

The above cash budget of the Yardley Wood Store indicates the expenses of the company that are based on the plant and machinery, additional equipments, operational running cost and rent expense. It is noted that in the first month, Yardley Wood Store incurred the highest expense in comparison to the other months that is £ 1135000.

Moreover, the inflow of Yardley Wood Store is mentioned over the given period. It can be noted that during the period, at the eight month the Yardley Wood Store got the highest inflow in comparison to the other months that is £ 3369000. From the cash budget, it can be stated that at the eight month the ending balance of the Yardley Wood Store was high that is £ 3364000.

Task 2

Costs and Pricing Decisions

Raw materials - Opening

4150

+

Purchases

90000

-

Raw materials - Ending

2400

RMU

91750

+

WIP - O

3650

-

WIP - E

2600

COGM

92800

/100 =

928

Selling price per unit =

928 * 1.10 =

1020.8

Electricity and water

100000

Production Overheads

150000

Plant and machinery

5000000

Other direct Expenses

15000

FOH

5265000

COGM

92800

Total cost

5357800

/100 =

53578

Selling price per unit =

53578 * 1.1 =

58935.8

Task 3

Plan A

Discounted Factor

15 %

Year

0

1

2

3

4

Net Cash flow

(60,000)

24,000

24,000

24,000

18,000

Cumulative Cash flow

(60,000)

(36,000)

(12,000)

12,000

30,000

Discounted Cash flow

(60,000)

20,870

18,147

15,780

10,292

NPV 5,088.96

Payback period 2.5 years

Plan B

Discounted Factor

15 %

Year

0

1

2

3

4

Net Cash flow

(75,000)

24,000 24,000 24,000 18,000

Cumulative Cash flow

(75,000)

25,000 25,000 25,000 25,000

Discounted Cash flow

(75,000)

20,870 18,147 15,780 10,292

NPV (9,911.04)

Year 1 years

Plan C

Discounted Factor

15 %

Year

0

1

2

3

4

Net Cash flow

(75,000)

36,000 36,000 36,000 27,000

Cumulative Cash flow

(75,000)

25,000 25,000 25,000 25,000

Discounted Cash flow

(75,000)

31,304 27,221 23,671 15,437

NPV = 22,633.44

Year = 0.7 years

After the above analysis of Plan A, Plan B and Plan C, it is noted that the net present values of all the Plans are positive which indicates that in view of NPV, all the plans are feasible for the company to peruse. However, there is another key factor that is important for the company to consider, which is the payback period. In view of the given case, it is found that the payback period of Plan A is 2.5 years, the payback period of Plan B is 1 years and the payback period of Plan C is 0.7 years. Keeping this in view, it can be said that the company should go for the Plan C as the payback period is 0.7 years which is less than other plans; moreover, the net present value of Plan C is positive that is 22,633.44 and the positive net present value of Plan C indicates that the investment should be undertaken.

Task 4

(a)

Purpose of Financial Statements

The purpose of financial statements is to inform the users, who are both under various ...