Understanding & Managing Finance Case Study Seminar

Revision Seminar Assessment Arrangements Learning Outcomes of the Module Sample Case Study Materials Keytronics PLC Background Approaches to the Case Study

Assessment Arrangements Examination (60% weighting) This will take place on XXXday May xx th xx.00am There are two different elements in the exam 20-question multiple choice – budgets 90-minute case study Keytronics

Assessment Arrangements Multiple Choice Questions (10%) Sample Questions are on the M & A website, chapters 12 & 13. You are advised that no questions relate to the calculation of variances. Case Study (50%) The Data has been available for the last week from the School Office. The assessment is based on material from lectures 1-9.

Summary of Learning Outcomes: Knowledge and Understanding You should understand the terms and definitions of: Balance Sheets [ M&A Chapter 2; Presentation 4 ] Profit and Loss Accounts [ M&A Chapter 3; Presentation 5 ] Cash Flow Statements [ M&A Chapter 6; Presentation 6 ] Budgeting [ M&A Chapters 12,13; Presentations10,11 ] You should be able to calculate and interpret: Financial Ratios [ M&A Chapter 7; Presentation 7 ] You will should be able to analyse and comment on Working Capital [ M&A Chapter 16; Presentations 8, 9 ]

Summary of Learning Outcomes: Skills You will need to ensure that you can: Interpret the items on the a Balance Sheet, a Profit and Loss Account, and a Cash Flow Statement and work out how a particular transaction will alter these. Calculate financial ratios from the above three statements for profitability, liquidity and efficiency, and interpret their meaning. In particular you should use the above to analyse the management of working capital and make suggestions as to how this might be improved

Summary of Learning Outcomes: Skills You will need to ensure that you can: Interpret the items on the a Balance Sheet, a Profit and Loss Account, and a Cash Flow Statement and work out how a particular transaction will alter these. Calculate financial ratios from the above three statements for profitability, liquidity and efficiency, and interpret their meaning. In particular you should use the above to analyse the management of working capital and make suggestions as to how this might be improved

John Richards Case Study John Richards is a monumental stonemason business with an annual turnover of about £8- 10m The Case Study Sample data asks you to undertake a ratio analysis, examine its profitability, cash flow and its use of working capital.

John Richards Ratio Analysis Profitability Low: Gross margin OK, others poor Profitability Low: Gross margin OK, others poor Liquidity Good: No Cash flow problems here. Liquidity Good: No Cash flow problems here. Efficiency Appalling: Stocks, Debtors far too high. Creditors could be higher. Efficiency Appalling: Stocks, Debtors far too high. Creditors could be higher.

John Richards Working Capital  Currently £3.7m; far too high.  Operating Cash Cycle is at days – excessive. Take immediate steps to: 1. Reduce both the amount of stock by around £1m AND reduce the stock turnover time by around 60 days. 2. Reduce the amount of trade debtors by around £1m and reduce the debtor payment period by around 35 days. 3. Increase the amount of trade creditors to around £1.25m and increase creditor payment period by around 20 days

John Richards Cash Flow  Cash Flow from Operating Activities: £720,000  This is very healthy, but not quite sufficient – net cash outflow of £52,000.  However, enough in Bank to cover this.

John Richards Main Recommendations Stock  ABC Stock Analysis  Purchase new machine, introduce internal JIT operations. Debtors  Ageing Schedule of Debtors  Introduce Debt Factoring Creditors  Extend Creditor Payment Period to almost 90 days

Keytronics Case Study Keytronics PLC is engaged in the manufacture of a range of electronic components in the form of keypad data entry devices. In late 2002, Keytronics successfully approached their bank with a plan to expand their business based on an innovative product. One year later, after a time of massive expansion, the company is about to go into full production of the new product. The directors are due to have a meeting with the business manager at the bank to review progress. The Case Study Assessment will be focused on the scenario as provided, the data, and the extracts from the end-of-year Report.

Keytronics Case Study You should ensure that you can answer the following:  What are the values for the 8 financial ratios, and what do they mean?  Is the company profitable currently, and likely to remain so?  Are there any short- or long-term liquidity problems, and if so, how will these be dealt with?  Is the company being managed efficiently?  How is the company managing their Working Capital cycle? If there are issues, what changes would you propose making to the elements which comprise Working Capital?

Approaches to the Case Study Background work: Read through the scenario as many time as you can. Become thoroughly familiar with it. Make a photocopy of the data and using a highlighter pen mark those things which look important, and are very different Make a list of everything that you think you could calculate from the data, even if it even if it doesn’t look relevant. Now calculate all the things that you think are relevant. Make a list of three headings: Profitability, Liquidity, and Efficiency. Under each heading note any issues which seem to suggest themselves a result of the highlighting and the calculations. How do these headings and issues interrelate? There is no Information on Cash Flow. Does this mean that I have forgotten it or that there won’t be any questions on it in the exam?

The Case Study Assessment The examination consists of a list of specific questions. Ensure that you: Answer the question you are asked. Don’t wander off the point or throw everything in just because you have calculated it. Include actual figures in your answer where possible. This might be directly quoting figures from the data, as well as figures derived from these (differences, sums, ratios etc.). You should give the interpretations of these figures, to show that you fully understand the situation. Where there is an issue or problem thrown up by your analysis, be prepared to offer a solution, even though you have not specifically been asked what you might do about it. You have been supplied with a set of sample questions as a guide.

Constraints 90 minutes is suggested, The time should be sufficient. Each question carries a number of marks; ensure that you read how many marks are allocated to each section. Answer all sections. If you leave things out, you cannot possibly hope to gain marks. This assessment assumes that you come to the Case Study fully prepared, and ready to answer. You may need to do some further calculations, but in general answers draw on what could have been done earlier. This should be your own work. Do not allow other students access to the results of your calculations or your analysis.

Plagiarism Clearly, the answers that you give to the questions should be your own. This should include both the words that use use to summarise situations, and the figures and ratios you use to support your case. I would expect figures ( data quoted, sums, differences, ratios) to be different for different students, depending on their answers and which methods have been used to calculate them. I would also expect occasional errors in calculations to be made by individual students. Plagiarism will be suspected whenever the work of two or more individuals includes: 1.Answers showing identical turns of phrase, sequences of analysis or methods of solution 2.Answers showing an identical range of results to calculations, especially where those answers are based on assumptions or contain inaccuracies. This will be the cases even where students are not in the same seminar group.