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.
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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.
MODULE & ASSESSMENT INSTRUMENT
Area 1
Analysis of the accounts: Ratio analysis and highlighting areas of concern that require further investigation. Limitations of ratio analysis
Area 2
Drawing on the academic literature, discuss what internal controls are, any frameworks that Mike can use to develop internal controls and critically discuss the benefits of strong internal controls for rapidly growing organisations.
Area 3
Advise Nathan on potential means of £50m of financing, discuss both internal and external sources of finance (using academic literature). Clearly identify the strengths and weaknesses of each of your proposals.
