Assignment: Accounting and Finance in the Organisation
Learning Outcomes: Knowledge and Understanding tested in this assignment:
1. Evaluate the role and limitations of published financial statements and identify and use the information produced;
3. Interpret key financial performance indicators and be able to use financial information to formulate future plans;
4. Analyse the role of sound financial management in the organisation;
5. Evaluate the financial requirements of a business or project;
Learning Outcomes: Skills and Attributes tested in this assignment:
6. Communicate effectively with financial and non-financial managers;
7. Present their ideas confidently and effectively on financial issues.
Detailed Brief for Individual Assessment
BORAKA ENGINEERING PLC
You are advising Boraka Engineering (UK) plc, a large company who are considering acquiring the whole share capital of Younger Machinery plc. Using the information given in the scenario below, you are required to write a report recommending whether or not your client should continue with the acquisition.
Background information:
Younger Machinery plc has been trading for over 75 years. Their main engineering plant is in South Wales but it has three other plants in the UK with the smallest one in Yorkshire, England...The company had been trading successfully but has been badly affected by the recession. As a response to increased competition and falling margins, the directors decided to restructure the business. They sold their smallest engineering plant in Yorkshire in July 2018.. In October 2018, they spent £750,000 on ‘retooling' their Welsh plant and invested £600,000 on staff training. This change has resulted in 45 semi skilled workers being made redundant. The company now employs 333 staff of whom 12%come from European Union countries outwith the United Kingdom.
The sales director is pleased that they almost managed to achieve their sales targets for the year ended 31 December 2018, although they did have to offer some customers special discounts and extended credit terms as inducements.
You are given the following information for Younger Machinery plc and its competitor Jones plc, who are also an engineering company. You are also given figures for the industry averages for key indicators.
Younger Machinery plc
|
Income Statement for the year ended
|
31 Dec 2018
|
31 Dec 2017
|
|
|
£'000
|
£'000
|
|
Revenue - Welsh plants
|
64,600
|
65,300
|
|
Other UK plants
|
6,800
|
7,200
|
|
|
70,400
|
72,500
|
|
Cost of sales
|
(64,608)
|
(65,418)
|
|
Gross profit
|
5,792
|
7,082
|
|
Selling and distribution costs
|
(1,080)
|
(900)
|
|
Administrative expenses
|
(1,272)
|
(1,092)
|
|
|
3,440
|
5,090
|
|
Exceptional items (advertising and training)
|
-
|
(2,700)
|
|
Profit on sale of Yorkshire plant
|
6,132
|
-
|
|
Profit from operations
|
9,572
|
2,390
|
|
Finance cost
|
(2,000)
|
(2,000)
|
|
Profit before tax
|
7,572
|
390
|
|
Taxation
|
(1,350)
|
(60)
|
|
Profit for the year
|
6,222
|
330
|
|
Statement of Financial Position as at
|
31 Dec 2018
|
31 Dec 2017
|
|
£'000
|
£'000
|
|
Assets
|
|
|
|
Non-current assets
|
38,601
|
35,906
|
|
Current assets
|
|
|
|
Inventory
|
951
|
950
|
|
Trade receivables
|
5,460
|
1,734
|
|
Bank
|
5,800
|
10
|
|
12,211
|
2,694
|
|
Total assets
|
50,812
|
38,600
|
|
Equity and Liabilities
Equity
|
|
|
|
Ordinary shares of £1 each
|
13,200
|
13,200
|
|
Retained earnings
|
13,941
|
7,715
|
|
27,141
|
20,915
|
|
Non-current liabilities
|
|
|
|
5% Loan notes - repayable 2019
|
15,000
|
15,000
|
|
42,141
|
35,915
|
|
Current liabilities
|
|
|
|
Payables
|
8,671
|
2,685
|
|
Total Equity and Liabilities
|
50,812
|
38,600
|
Limited Ratios for Younger Machinery PLC from previous years
|
Key ratios
|
Younger Machinery plc
|
|
|
2016
|
2014
|
2013
|
|
ROCE
|
7%
|
7.5%
|
7.6%
|
|
Op. profit margin
|
6.0%
|
6.4%
|
6.3%
|
|
Gross profit margin
|
10%
|
11%
|
12%
|
Major Competitor JONES PLC
|
Key figures
|
Jones plc
|
|
|
2018
|
2017
|
|
|
£'000
|
£'000
|
|
Revenue
|
11,200
|
10,700
|
|
Operating profit
|
800
|
780
|
|
Capital employed
|
18,500
|
17,800
|
|
Key ratios
|
Jones plc
|
Industry Average
|
|
|
2018
|
2017
|
2017
|
|
ROCE
|
4.3%
|
4.4%
|
5.5%
|
|
Op. profit margin
|
6.8%
|
7.1%
|
8.2%
|
|
Gross profit margin
|
15%
|
13%
|
14.6%
|
|
Inventory days
|
10 days
|
9 days
|
15 days
|
|
Trade receivables days
|
14 days
|
13 days
|
22 days
|
|
Trade payable days
|
29 days
|
27 days
|
25 days
|
|
Current ratio
|
0.7:1
|
0.6:1
|
0.8:1
|
|
Acid test ratio
|
0.5:1
|
0.6:1
|
0.65:1
|
REQUIRED
The first Question will be completed in class.
1. Calculate a range of ratios relating to profitability, liquidity and working capital for Younger for years ending 2017 and 2018 (50%)
The correct solutions for the Ratios will be given to the students and they will complete sections 2 at home.
2. Interpret the ratios and the information given in the scenario and advise Boraka Engineering plc as to whether or not they should invest in Younger Machinery plc (50%, about 1,200 words)
This should be completed as an informal report format.