Question 1
Presented below are the simplified Consolidated Statement of Comprehensive Income and Consolidated Balance Sheet of Barratt Developments Plc for the financial years 2013 to 2015.
|
Statement of Comprehensive Income
for the Year ended 31st December
|
2015
|
2014
|
2013
|
|
Revenue
|
3,759.5
|
3,157.0
|
2,606.2
|
|
Cost of Revenue
|
(3,045.2)
|
(2,627.6)
|
(2,247.0)
|
|
Gross Profit
|
714.3
|
529.4
|
359.2
|
|
|
|
|
|
|
Selling/General/Admin. Expenses
|
(137.5)
|
(119.6)
|
(106.5)
|
|
Unusual Income (Expense)
|
0.0
|
0.0
|
(87.5)
|
|
Operating Income
|
576.8
|
409.8
|
165.2
|
|
|
|
|
|
|
Finance Expenses
|
(19.1)
|
(21.3)
|
(37.7)
|
|
Finance Income
|
45.9
|
43.8
|
10.9
|
|
Other Expenses
|
(38.1)
|
(41.7)
|
(33.9)
|
|
Net Income Before Taxes
|
565.5
|
390.6
|
104.5
|
|
|
|
|
|
|
Taxes
|
(115.2)
|
(85.2)
|
(29.8)
|
|
Net Income
|
450.3
|
305.4
|
74.7
|
Comprehensive Statement of Financial Position as of 31st December
|
2015
|
2014
|
2013
|
|
Current Assets
|
|
|
|
|
Cash and Short Term Investments
|
370.6
|
275.5
|
295.7
|
|
Trade Receivables
|
146.2
|
100.0
|
67.3
|
|
Inventory
|
4,173.6
|
3,508.6
|
3,209.8
|
|
Prepaid Expenses
|
12.6
|
11.8
|
7.9
|
|
Other Current Assets
|
--
|
0.0
|
25.6
|
|
Total Current Assets
|
4,703.0
|
3,895.9
|
3,606.3
|
|
|
|
|
|
|
Non-Current Assets
|
|
|
|
|
Property, Plant and Equipment
|
8.2
|
6.1
|
3.4
|
|
Goodwill
|
792.2
|
792.2
|
792.2
|
|
Intangibles
|
100.0
|
100.0
|
100.0
|
|
Long Term Investments
|
296.8
|
321.2
|
251.9
|
|
Other Long Term Assets
|
10.9
|
28.9
|
100.6
|
|
Total Non-Current Assets
|
1,208.1
|
1,248.4
|
1,248.1
|
|
Total Assets
|
5,911.1
|
5,144.3
|
4,854.4
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
Trade Payable
|
897.9
|
655.6
|
620.7
|
|
Accrued Expenses
|
359.4
|
334.3
|
326.1
|
|
Notes Payable/Short Term Debt
|
0.0
|
33.3
|
4.1
|
|
Current Port. of LT Debt/Capital Leases
|
13.2
|
5.1
|
176.1
|
|
Other Current liabilities
|
141.9
|
131.8
|
69.0
|
|
Total Current Liabilities
|
1,412.4
|
1,160.1
|
1,196.0
|
|
|
|
|
|
|
Non-Current Liabilities
|
|
|
|
|
Total Long Term Debt
|
163.3
|
161.7
|
166.6
|
|
Minority Interest
|
10.1
|
8.0
|
--
|
|
Other Liabilities
|
622.9
|
468.5
|
418.6
|
|
Total Non-Current Liabilities
|
796.3
|
638.2
|
585.2
|
|
Total Liabilities
|
2,208.7
|
1,798.3
|
1,781.2
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
Common Stock
|
99.5
|
98.5
|
98.0
|
|
Additional Paid-In Capital
|
219.1
|
214.8
|
213.4
|
|
Retained Earnings
|
3,383.8
|
3,032.7
|
2,761.8
|
|
Total Equity
|
3,702.4
|
3,346.0
|
3,073.2
|
|
Total Liabilities & Shareholders' Equity
|
5,911.1
|
5,144.3
|
4,854.4
|
Required
Prepare a business report for the board of directors which analyses the performance of Barratt Developments Plc over the financial years 2013 to 2015 and recommend any action the board should take.
Your report should utilise key ratios, horizontal and vertical analysis.
Question 2
You have started working at Fintech Plc as a finance director and have reviewed a recent investment proposal for producing and selling a new product which was rejected because it did not earn the company's target return on capital employed of 11%
The appraisal appeared as follows:
|
Year
|
|
0
|
1
|
2
|
3
|
4
|
|
|
|
|
|
|
|
|
Sales
|
|
|
1,600
|
1,800
|
1,884
|
1,200
|
|
Direct materials
|
|
|
(400)
|
(450)
|
(500)
|
(250)
|
|
Direct Labour
|
|
|
(600)
|
(675)
|
(750)
|
(375)
|
|
Overheads
|
|
|
(200)
|
(200)
|
(200)
|
(200)
|
|
Interest
|
|
|
(80)
|
(80)
|
(80)
|
(80)
|
|
Depreciation
|
|
|
(225)
|
(225)
|
(225)
|
(225)
|
|
Profit
|
|
|
95
|
170
|
129
|
70
|
|
Initial Outlay
|
|
|
|
|
|
|
|
Working Capital
|
|
150
|
|
|
|
|
|
Machinery
|
|
900
|
|
|
|
|
|
Feasibility Study
|
|
80
|
|
|
|
|
|
Market Research
|
|
70
|
|
|
|
|
|
|
1,200
|
|
|
|
|
ROCE = Average Annual Profit / Initial Investment = 116000/1200000 = 9.67%
Following additional information is provided to you:
1. The amount of overheads charged to the project includes both fixed production overheads and variable production overheads. About half of the overheads are fixed, and half vary with the level of production.
2. The feasibility study was paid for before the project commenced; the market research study has been completed and been paid off.
3. The market research study had recommended that the new product should be launched with a major marketing campaign costing £150,000 immediately before sales begin. This had been ignored in the above appraisal.
4. The company's cost of capital is 14%
Use following discount rates @ 14%:
|
Year
|
0
|
1
|
2
|
3
|
4
|
|
DCF
|
1
|
0.88
|
0.77
|
0.67
|
0.59
|
Required:
You are required to re-evaluate the proposal using discounted cash flow, and explain where and why your treatment of particular items differs from the above appraisal.
Outsourcing Production of Bolts
Eastside Turbines is considering outsourcing production of the B657 bolts used in the assembly of its standard turbines. The B657 bolts must be manufactured to high levels of precision in order for the turbine assembly to operate efficiently.
The company currently uses these bolts in high volumes (approximately 4,000 per year) and employs two dedicated machinists on flexible contracts solely to manufacture these parts.
The costs of manufacturing each batch of 100 bolts in house is shown below.
|
B657 Bolts - Batch of 100
|
|
Materials
|
£250
|
|
Labour
|
£85
|
|
Variable overhead
|
£45
|
|
Fixed overhead
|
£50
|
Boston Bolts, a small local start up business, has offered to supply all the bolts required at a price of £1,880plus a £40 delivery charge per 500 bolts.
Required:
Critically appraise the proposal to outsource production of the B657 bolts from a financial and non-financial perspective and recommend as to the appropriate course of action for management.
Question 3
Fintech plc has share capital comprising 10 million 20p shares; the amount has not changed during the last 5 years. Additional information is available, as follows:
|
Year
|
1
|
2
|
3
|
4
|
|
Retained profit at the end of year
|
£200,000
|
|
|
|
|
10% Debentures
|
£1,000,000
|
£1,200,000
|
|
|
|
8% Debentures
|
|
|
£1,400,000
|
£1,800,000
|
|
Operating Profit
|
£300,000
|
£180,000
|
£360,000
|
£396,000
|
Amounts shown for debentures at the year-end should be assumed to apply for the whole of the year that ends on that date.
Assume that Corporation Tax on profits is 30%
The company pays out 50% of after tax profits as dividends.
Required:
a) Calculate for each year (1) Net profit after tax, (2) Capital gearing ratio, (3) Interest Cover, (4) Retained Earning and (5) Earnings per share
b) Assess the importance of capital gearing making specific reference to the results of your calculations in part a.