Business Simulation Tasks
Assessed Task 1: Financial Analysis
The Board of directors has asked you to perform a review of the financial performance and financial position of the business based on the company's 2032 financial statements and key financial ratios, and using any other available information which you consider to be relevant.
Required:
Prepare a report for the Board of Directors in which you analyse the company's financial performance and financial position and which specifically addresses the company's profitability, efficiency, liquidity and stability.
Word limit: 1,200 words (excluding tables and appendices)
Task Guidance: Format and Structure
Present your report in an appropriate format. For example:
Subject:
Date:
Introduction
Please include a short paragraph that introduces:
- The objective of the task.
- Some background context (i.e. who is your company and what do they do?)
Sub-heading (For example: ‘Efficiency' or ‘Liquidity')
Break up your report into smaller sections that have appropriate sub-headings. This helps to organise your report and to signpost the reader to significant matters.
For each sub-section organise your narrative so that it is clear, concise and meets the specific criteria of the marking guide. The following structure is recommended:
1. Introduce the area of analysis and why it is important in understanding the company's financial position and performance: i.e. if you are analysing some aspect of liquidity explain to the reader what this is and why understanding a company's liquidity is part of financial analysis.
2. Identify the key trend you wish to discuss, i.e. what is the ratio you are discussing and how does it compare to the previous year.
3. Where relevant, suggest plausible reasons why this trend has occurred, i.e. was it the result of a business decision made by your group.
4. Where appropriate, provide some sort of appropriate benchmark for discussing the ratio, e.g. is the ratio particularly good or bad when compared to a target ratio or to competitors.
5. Explain the actual or potential significance of the trend to the company.
Here is an example showing how to structure an answer - let's assume we are analysing the liquidity of a company and we have identified a significant decrease in the current ratio:
Liquidity Analysis
Liquidity refers to the ability of a company to generate sufficient cash to meet its short term obligations.If a company has poor liquidity it may not be able to make payments when they fall due. The current ratio is a measure of liquidity which compares current assets with current liabilities. The liquidity of ABC Plc appears to have deteriorated during the year. This is evidenced by the reduction in the current ratio from 1.3 in 2013 to 1.1 in 2014. The reduction in the current ratio means that ABC Plc have less current assets, such as inventory and trade receivables, at their disposal to generate cash internally to meet their short term obligations.
The level is well below the traditional benchmark for the current ratio of 1.5 and is also below their main rival, XYZ Plc, who reported a current ratio of 1.7 in 2014.
The key driver of this trend is the fact that the company has no inventory in 2014, which reduces the value of current assets. This trend was caused by a decision to reduce production in 2014, meaning that no goods are left in stock at the year end. This could be significant as it means sales have been lost.
Conclusions
You should include the following in your conclusions:
- Abriefsummarise of the key findings of the analysis.
- A suggestion of recommendations which may improve your company's financial position and performance in the future.
- A brief overview of the key limitations of your analysis.
Appendices
Please supply all the working to the ratios calculated for all periods of review for your analysis.
Note that the word count for this task is 1,200 words. You do not have enough word count to discuss every ratio in the same amount of detail, so while you should ensure that all ratios are mentioned, you should focus your discussion on the ratios which are most significant for your company.
Attachment:- ElectroServe Plc.pdf