Nathan started Cal Ltd five years ago. The company has experienced rapid growth and is operating in the manufacturing industry. Nathan has asked an external auditor to assess the financial position of the company as well as a business consultant to carry out a review of the processes and policies the company has in place.
As part of an external audit and consulting review, three key areas of concern were identified. Nathan has asked you to prepare a report around these three areas.
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Financial Management for Global Decision Makers
COURSEWORK 2 RESIT ASSIGNMENT
Nathan started Cal Ltd five years ago. The company has experienced rapid growth and is operating in the manufacturing industry. Nathan has asked an external auditor to assess the financial position of the company as well as a business consultant to carry out a review of the processes and policies the company has in place.
As part of an external audit and consulting review, three key areas of concern were identified. Nathan has asked you to prepare a report around these three areas.
Area 1
The business consultants advised that the financial health of the company needs to be understood in more detail. As a result, Nathan has asked for financial ratio analysis to be conducted in order to understand the health and financial position of the company. Financial Statements for the past two years have been provided below:
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Statement of Financial Position
As at 30 June
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2022
£m
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2021
£m
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Non-current assets:
Property, plant and equipment
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650
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437
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Current assets:
Inventory
Trade receivables
Bank
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140
110
-
250
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118
137
65
320
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Total assets
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900
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757
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Equity:
Share capital
Retained earnings
Non-current liabilities:
Long term loans
Current liabilities:
Trade payables
Bank overdraft
Tax payable
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150
336
486
80
224
50
60
334
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125
205
330
160
192
-
75
267
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Total equity and liabilities
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900
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757
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Statement of profit or loss
For the year ended 30 June
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2022
£m
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2021
£m
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Revenue
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1,251
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1,540
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Cost of sales
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(870)
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(910)
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Gross profit
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381
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630
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Distribution costs
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(35)
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(40)
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Administrative expenses
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(140)
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(110)
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Operating Profit
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206
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480
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Finance costs
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(10)
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(15)
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Profit before tax
Tax
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196
(65)
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465
(75)
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Profit for the year
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131
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390
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Note:
- In August 2020 a new competitor entered one of Cal Ltd’s markets and pursued a strategy of increasing market share by undercutting Cal Ltd’s prices and prioritising volume over sales. You had not expected this as you had been the market leader for the past few years.
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Required:
Calculate the appropriate ratios that will provide Nathan with useful insights into what has been happening in the company. Suggest possible causes and effects of the changes in the ratios you calculated and discuss the limitations of financial ratio analysis.
Area 2:
As part of the recent external audit it was identified that due to Cal Ltd’s rapid growth, there is little progress in terms of internal controls of the company.
Required:
Drawing on the academic literature, discuss what internal controls are, any frameworks that Nathan can use to develop internal controls and critically discuss the benefits of strong internal controls for rapidly growing organisations.
Area 3:
The consultants also believe that, in the near future, Cal Ltd will require funding of around £50 million to invest in profitable projects to secure the future competitiveness of the business.
Required:
Advise Nathan on potential means of financing this, discuss both internal and external sources of finance. Clearly identify the strengths and weaknesses of each of your proposals.
Note: Your submission should be 2,000 words in length (+/- 10%) excluding any tables and references.
This assignment will constitute 40% of your final assessment grade.
The written report should be submitted via Turnitin. Failure to do so will result in the award of no marks.
Please follow the marking scheme below and the GCU Referencing Policy
