IndexTask 1

Growth profitability and Financial ratio............................................. 2 Business structure of the organization.................................................................. 3 Compare finances of the business......................................................................... 4

Advice a potential investor on investing in the business...................................... 5

Suitable source of finance..................................................................................... 5

Managing working capital.................................................................................... 6

Task 2

Cash Flow Statement..................................................................................................................7Task 3 Financial Calculatio....................................................................... 7 Recommendation..................................................................................................10 References............................................................................................................. 11Task 1(A) Using set of published accounts from a real business organization, carry out ratio analysis for two years.

Growth Profitability and Financial Ratios for Mother Care

20132012

Revenue GBP Mil812.7793.6

Gross margin percentage6.36.3

Operating Income GBP Mil43.742.6

Operating Margin percentage3.44.1

EPS GBP1.824.7

Pay-out Ratio %78.458.7

Revenue100100

Cost of goods sold93.6993.69

Gross Margin6.316.31

Net Margin %0.060.09

Asset Turnover ratio (Average)1.281.27

Return on Assets %2.172.04

Financial leverage (Average)7.0514.06

Return on Equity %5.846.29

Return on Invested Capital %9.5619.67

Interest Coverage6.38.05

Cash & Short-Term Investments6.177.18

Inventory 99.1116

Total Current Assets175.6193.8

Total Assets338.4409.3

Accounts Payable12.0411.62

Total Current Liabilities(151.6)(139.4)

Total Liabilities(265.7)(216.5)

Total Stockholders' Equity72.8192.8

Total Liabilities & Equity100100

Current Ratio1.191.39

Quick Ratio0.500.59

Debt/Equity3.641.12

Payables Period5362

Receivables Turnover11.8511.57

Fixed Assets Turnover4.404.30

Asset Turnover3.452.28

(B) Comment on the business structure of the organization and the reporting requirement for the structure. Compare this with other possible business structure and explain the relative advantages of the structure of the chosen organization.

Mother care is large organization which is serving customers from almost four decades. Information is passed through a process, top management or leadership set a goals for the betterment of organization and then they allocate tasks to relevant department heads or leaders. Leader or manger of the relevant department passed the information to his team or groups and motivate them how goals can be achieved. In mother care information passed from one person to another until its get to the down level management. It is the responsibility of the management to pass the information to lower management and keep them up to date if there is any change in the organizational structure. If there is any changes in the task lower management should not wait to response from top management, they should have to know what they have to do in such kind of particular situation.

(C) Compare the figures for two years and comment on the finances of the business. According to annual report of the mother care, organization sales in the UK is decreasing from last few years while international sales are increasing there is increase in the net income of the organization. Which is however very healthy for the organization. Group revenue of the mother care is increasing as compare to last two years. There is 2.4% increase in group revenues which is healthy for the organization.Total capital expenditure for the year 2011/12 are 24.09 million. 3.4 million Was allocated for the intangible software. Revenues from the international market is increasing gradually while in UK revenue is decreasing. (D) Advice a potential investor on investing in the business compared to placing money in a deposit account. (Current deposit account interest rates should be sourced from local banks or Internet for comparison). The investor has 50 000 (or equivalent in other currency) to invest. (1.2)In modern world, banking sector is at his peak level it is very easier for the every investor to open a basic account with a small amount of money. There is not any particular deposit limit for such types of account. Interest rate is vary on the amount it could be increased or decreased depending on the amount how much you used. Interest rate applies if you overdraw for particular amount. Usually small amount is charged as a fees if your account balance dip to minimum. If you are not satisfied from the account you can closed your account at any time, there is no penalties for the early withdraw but in future if you are interested to open a new account then you have to offer high level of security. Otherwise it will be difficult for you to open an account because bank need security.

Risk is always involved in the investment, risk depend on the nature of business. Some business have high risk for example trading with other nations or countries. There is no unusual for the passbook accounts holders to pay lower interest or dividend rate than the inflation rate. In spit many deposit accounts pay relatively low returns, but there are number of attraction for the new investors. The most important and first thing is high liquidity.

(E) Suppose the business requires additional finance of 500 000. Advise on a suitable source of finance giving possible alternatives, implications of each and reasons for your recommendation. There are two kinds of sources of fund Internal sources

External sources

There are some types of internal sources of funds which are as follows

Friends and family

Credit card

Personal saving loans

External sources of funds

Loan from bank

Long term debentures

Internal sources: For internal sources of funds, investors try to arrange the finances his own. Investors try to arrange from his friends and family. The advantage of internal sources investors have to pay no interest rate or having very minor interest rate. If investor use his credit card he have to pay low interest rate and he can return amount any time he wants, he make small payments to refunds finance or set fixed amount which is deducted each moth form his account. It easier for the invertor to get finances through internal sources, interest rate is low and mange easily.External sources:

Bank loans:Bank are like supermarkets they provide short term loan as well as long term loan. Interest rate is variable it is depend on the size of loan, with similar amount costing a bit more. Cash flow could be generated by the investors to make the interest payment.

Long term debentures:Long term debentures could be used to arrange finance for the investment. Long term debentures are issued to stakeholders or general public to get the finances. If investor have any difficulty to gather finance he should give incentive or some extra amount to sell the debenture. Debenture issued at par value but redeemable at 10% premium could motivate to stakeholders to buy the debentures.(F) Advise on how working capital can be effectively managed within the business using figures from the accounts and your calculated ratios to illustrate your answer. (3.3)

Working capital could be negative or positive, it is depend on the financial situation of the organization. Working capital is a sort of cash available for day to day operation of the organization. Major sources of working capital are net income, long term loans, sales of capital assets and the funds provided by the stakeholders. Management can take advantages of adopting unexpected opportunities through working capital. Working capital could play vital role for bank loans and favourable credit trade terms. Working assets equal to working capital of organization in the average trade cycle of organization.Working capital is used to measure the efficiency of the company and short term financial policy. If there is difference in the current assets and current liabilities means current assets are more than current liabilities, then organization might be in trouble to pay back its loans or credits in such case organization could be declared bankrupt.

The organization earn a huge profit in the year 2010 fiscal year, they have managed business very strictly and as a result they generate a working capital inflow 3.4 million. With the passage of time organization working capital is increasing every year. Task 2

Green Limited is a wholesaler. The budgeted income statements for 6 months are as follows:

Cash Flow Statement

000

Cash flow from investing activitiesJulyAugustSepOctNov Dec

Cash receive from customers10611411812410496

Cash paid (expense less electricity)

Cost of goods sold-106-64-66-70-59-54

Expenses less electricity-30-30-30-30-30-30

Electricity charges-20-34

Cash generated from operations

Dividend Received

Interest Received

Tax paid

Net cash flow from Operating Activities-302022415-22

Cash Flow from investing activities

Additions to equipment(payment of van)-25

Replacement of Equipment

Proceeds from sales of equipment

Net cash flow from investing activities-3020-232415-22

Cash Flow from Financing Activities

Proceeds from capital contributed

proceeds from loan

payment of loan-135

Net cash flow from financing activities-3020-232415-157

Net increase/Decrease in Cash

Cash at the start of the period906080578196

cash at the end of the period6080578196-61

TASK 3

A) Assess the given projects using accounting rate of return, payback period, Net present values and internal rate of return. (3.2)

(1) Accounting rate of return = Initial investment- residual value)/ useful lifeARR for project 1= (200-7)/3 = 3.5%

ARR for project 2 = 5.33%(2) Payback period for project 1 and 2

Payback period for project 1 = 3 years and 8 months

Payback period for project 2 = 3 years 5 months

(3) NPV for project 1 and 2NPV for project 1 = -128.31

NPV for project 2 = 51.24

(4) IRR for both projects

IRR for project 1 = 3.64

IRR for project 2 = 9.24[Note: Financial calculator is used for calculation]

(B) Make recommendations based on calculations and explain reasons for recommended choice. (3.3)

According to calculation it is better for the organization to choose project 2. There are some reason to choose the project 2 because if we look at the NPV project 1 NPV is negative while project 2 NPV is much better. Project 2 IRR is better so it is strong reason for organization to select project 2. Payback period for project 2 is slightly lesser as compare with project 1.References:

http://www.accountingformanagement.com/variable_and_absorption_costing.htm- Accessed on 7 July 2014

McLaney, E & Atrill, P(2002)Accounting-An Introduction, 2nd edition, London: Prentice Hall, p.433-441.Upchurch, A (1998)

Management Accounting-Principles andPractice, London: Financial Times management, p.329-339.

http://www.letslearnfinance.com/advantages-and-disadvantages-of-marginal-costing.html http://www.letslearnfinance.com/advantages-and-disadvantages-of-marginal-costing.html - Accessed on 1 July 2014