Assignment Brief
Department: NBS Accountancyand FinanceDivision
ModuleCode: ACC3015
Level:6
Academic Year: 2017/2018
Semester:One
Assessment Structure
Assessment Items Units Weighting
AS1- 1*2,500 word Case or Project 3 60
TC1- 2* Time Constrained Tests 2 40
For this module, two different kinds of assessments will be required. The first will consist of two
‘time constrained’ on-line tests to be submitted during the ‘taught’ period of the course. The
second, written assessment should be submitted after the student has fully completed the module.
The two ‘on-line’ tests will count as one assessment and together will contribute to 40% of the overall
module assessment. Each test is equally weighted.
The final written assessment will count for 60% of the assessment for this module. This final
assessment will require students to demonstrate wider and deeper learning and an ability to reflect
in a critical manner.
It is important that students complete and submit all their work in electronic file version.
ASSESSMENT CRITERIA
The emphasis on the time-constrained tests is to ensure that the student has engaged effectively
with the e-based learning materials and also to give early feedback to all parties as to progress. To
this end the learning outcomes assessed will largely be those which reflect time management,
engagement with the ‘e-learning’ technology, knowledge and understanding and ‘operational’
subject specific skills.
The 2,500 word project, however, seeks to assess communication, interpretational and critical
reflection skills. At the same time an opportunity will be taken to establish that the student has read
and researched widely and in depth.
Accounting and Finance for Managers- ACC3015
Year 2016
Case study
Detailed Instructions and Guidelines
Objective of the Case study: This case study aims at helping students to reflect on what they
learnt throughout the module.
Instructions: The case study consists of two sections- Section A consists of 70 marks and Section
B consist of 30 marks. Students are expected to read the case study thoroughly and to answer all
the required questions in a structured and organised manner with reference to published work. This
is an individual assignment and it is worth 60% of the total module mark.
Academic Honesty: Plagiarism will not be tolerated and could lead to your failure, so please
make sure you cite and reference correctly.
Please note that you are entitled to submit your assignment only once and the Turnitin originality
report will only be available on the due date. There will be no draft submission.
Question 1
The following financial data (a,b,c) is for three retail businesses, which are listed on the London
Stock Exchange.
a) Tesco PLC
Tesco PLC
Annual Ratios
[GBP Millions]
22-Feb-2014 23-Feb-2013 25-Feb-2012 26-Feb-2011 27-Feb-
2010
Financial Strength
Current Ratio 0.61 0.66 0.64 0.65 0.71
Quick/Acid Test Ratio 0.42 0.43 0.43 0.45 0.51
Working Capital -8,314.0 -6,520.0 -6,896.0 -6,123.0 -4,623.0
Long Term Debt/Equity 0.63 0.60 0.56 0.59 0.80
Total Debt/Equity 0.76 0.65 0.66 0.67 0.91
Long Term Debt/Total
Capital 0.36 0.37 0.34 0.35 0.42
Total Debt/Total Capital 0.43 0.39 0.40 0.40 0.48
Interest Coverage 24.82 32.63 – 217.61 72.02
Payout Ratio 62.15% 77.40% 37.51% 42.00% 44.49%
Effective Tax Rate 15.36% 25.72% 21.64% 23.73% 26.45%
Total Capital 25,928.0 27,477.0 29,524.0 27,610.0 27,869.0
Efficiency
Asset Turnover 1.27 1.26 1.30 1.30 1.24
Inventory Turnover 16.27 16.14 17.31 18.78 19.38
Days In Inventory 22.43 22.61 21.08 19.43 18.84
Receivables Turnover 11.87 12.76 13.90 14.61 15.95
Days Receivables Outstanding 30.75 28.61 26.26 24.98 22.89
Revenue/Employee 124,513 125,097 122,993 123,795 120,548
Operating
Income/Employee 5,154 4,700 8,047 8,021 7,323
EBITDA/Employee 8,177 7,766 10,855 10,929 10,254
Profitability
Gross Margin 6.31% 6.55% 8.44% 8.48% 8.10%
Operating Margin 4.14% 3.76% 6.54% 6.48% 6.07%
EBITDA Margin 6.57% 6.21% 8.83% 8.83% 8.51%
EBIT Margin 4.14% 3.76% 6.54% 6.48% 6.07%
Pretax Margin 3.55% 3.24% 6.32% 6.02% 5.58%
Net Profit Margin 3.01% 2.42% 4.94% 4.57% 4.09%
COGS/Revenue 93.69% 93.45% 91.56% 91.52% 91.90%
SG&A Expense/Revenue 2.61% 2.34% 2.52% 2.71% 2.68%
Return on Assets 3.81% 3.03% 6.46% 5.96% 5.10%
Return on Equity 12.22% 8.90% 18.40% 17.74% 16.96%
SECTION A -70 marks
Valuation
Free Cash Flow/Share 0.00 -0.02 0.09 0.09 0.22
Operating Cash Flow/Share 0.36 0.35 0.55 0.53 0.59
Current Market Multiples
Market Cap/Earnings TTM) 17.55
Market Cap/Equity (MRQ) 1.12
Market Cap/Revenue TTM) 0.24
Market Cap/EBIT (TTM) 6.02
Market Cap/EBITDA (TTM) 3.75
Enterprise Value/Earnings (TTM) 28.04
Enterprise Value/Equity (MRQ) 1.79
Enterprise Value/Revenue (TTM) 0.39
Enterprise Value/EBIT (TTM) 9.62
Enterprise Value/EBITDA (TTM) 5.99
b) Morrisons PLC
WM Morrison
Supermarkets PLC
Annual Ratios
[GBP Millions]
02-Feb-2014 03-Feb-2013 29-Jan-2012 30-Jan-2011 31-Jan-2010
Financial Strength
Current Ratio 0.50 0.58 0.57 0.55 0.51
Quick/Acid Test Ratio 0.16 0.20 0.21 0.21 0.19
Working Capital -1,443.0 -992.0 -981.0 -948.0 -1,060.0
Long Term Debt/Equity 0.53 0.46 0.29 0.19 0.21
Total Debt/Equity 0.65 0.47 0.31 0.19 0.25
Long Term Debt/Total Capital 0.32 0.31 0.22 0.16 0.17
Total Debt/Total Capital 0.39 0.32 0.24 0.16 0.20
Payout Ratio -127.08% 44.28% 40.10% 40.10% 35.96%
Effective Tax Rate – 26.39% 27.14% 27.69% 30.30%
Total Capital 7,725.0 7,662.0 7,094.0 6,472.0 6,169.0
Efficiency
Asset Turnover 1.66 1.78 1.86 1.84 1.81
Inventory Turnover 20.34 21.96 23.54 25.24 26.79
Days In Inventory 17.95 16.62 15.50 14.46 13.62
Receivables Turnover 87.31 81.97 78.15 88.84 77.05
Days Receivables Outstanding 4.18 4.45 4.67 4.11 4.74
Revenue/Employee 337,953 322,481 308,961 282,722 276,646
Operating Income/Employee -1,816 16,893 17,020 15,509 16,283
EBITDA/Employee 5,620 23,373 22,827 20,982 21,776
Profitability
Gross Margin 6.07% 6.66% 6.89% 6.97% 6.89%
Operating Margin -0.54% 5.24% 5.51% 5.49% 5.89%
EBITDA Margin 1.66% 7.25% 7.39% 7.42% 7.87%
EBIT Margin -0.54% 5.24% 5.51% 5.49% 5.89%
Pretax Margin -1.00% 4.85% 5.36% 5.30% 5.57%
Net Profit Margin -1.35% 3.57% 3.91% 3.84% 3.88%
COGS/Revenue 93.93% 93.34% 93.11% 93.03% 93.11%
SG&A Expense/Revenue 2.01% 1.85% 1.86% 1.96% 2.04%
Management Effectiveness
Return on Assets -2.24% 6.35% 7.26% 7.06% 7.04%
Return on Equity -4.80% 12.18% 12.76% 12.19% 12.63%
Valuation
Free Cash Flow/Share -0.13 0.05 0.05 0.12 -0.06
Operating Cash Flow/Share 0.31 0.47 0.37 0.34 0.28
Current Market Multiples
Market Cap/Earnings (TTM) -12.70
Market Cap/Equity (MRQ) 0.88
Market Cap/Revenue (TTM) 0.24
Market Cap/EBIT (TTM) 6.64
Market Cap/EBITDA (TTM) 4.09
Enterprise Value/Earnings (TTM) -20.63
Enterprise Value/Equity (MRQ) 1.43
Enterprise Value/Revenue (TTM) 0.39
Enterprise Value/EBIT (TTM) 10.78
Enterprise Value/EBITDA (TTM) 6.64
c) Sainsbury PLC
J Sainsbury plc
Annual Ratios
[GBP Millions]
15-Mar-2014 16-Mar-2013 17-Mar-2012 19-Mar-2011 20-Mar-2010
Financial Strength
Current Ratio 0.64 0.61 0.65 0.59 0.66
Quick/Acid Test Ratio 0.48 0.25 0.33 0.27 0.36
Working Capital -2,403.0 -1,214.0 -1,104.0 -1,221.0 -940.0
Long Term Debt/Equity 0.37 0.45 0.46 0.43 0.47
Total Debt/Equity 0.46 0.48 0.48 0.44 0.49
Long Term Debt/Total Capital 0.26 0.30 0.31 0.30 0.32
Total Debt/Total Capital 0.32 0.32 0.33 0.31 0.33
Payout Ratio 45.83% 52.19% 50.36% 43.86% 44.22%
Effective Tax Rate 20.27% 22.02% 25.16% 22.61% 20.19%
Total Capital 8,787.0 8,619.0 8,488.0 7,837.0 7,396.0
Efficiency
Asset Turnover 1.64 1.86 1.88 1.90 1.91
Inventory Turnover 22.65 22.88 24.09 26.34 27.15
Days In Inventory 16.11 15.95 15.15 13.86 13.44
Receivables Turnover 25.04 85.67 78.64 93.17 129.22
Days Receivables
Outstanding 14.58 4.26 4.64 3.92 2.82
Revenue/Employee 484,798 474,603 456,844 438,711 422,072
Operating
Income/Employee 20,425 17,963 17,910 17,692 15,011
EBITDA/Employee 31,579 28,493 28,135 27,713 25,137
Profitability
Gross Margin 5.79% 5.48% 5.43% 5.50% 5.42%
Operating Margin 4.21% 3.78% 3.92% 4.03% 3.56%
EBITDA Margin 6.51% 6.00% 6.16% 6.32% 5.96%
EBIT Margin 4.21% 3.78% 3.92% 4.03% 3.56%
Pretax Margin 3.75% 3.31% 3.58% 3.92% 3.67%
Net Profit Margin 2.99% 2.58% 2.68% 3.03% 2.93%
COGS/Revenue 94.21% 94.52% 94.57% 94.50% 94.58%
SG&A Expense/Revenue 1.82% 1.98% 1.88% 1.98% 2.00%
Management
Effectiveness
Return on Assets 4.90% 4.81% 5.04% 5.75% 5.60%
Return on Equity 12.09% 10.42% 10.73% 12.32% 12.52%
Valuation
Free Cash Flow/Share 0.01 -0.06 -0.10 -0.16 -0.02
Operating Cash Flow/Share 0.49 0.52 0.56 0.46 0.54
Current Market Multiples
Market Cap/Earnings (TTM) 185.15
Market Cap/Equity (MRQ) 0.83
Market Cap/Revenue (TTM) 0.19
Market Cap/EBIT (TTM) 5.26
Market Cap/EBITDA (TTM) 3.15
Enterprise Value/Earnings 248.56
Enterprise Value/Equity (MRQ) 1.12
Enterprise Value/Revenue 0.26
Enterprise Value/EBIT (TTM) 7.06
Enterprise Value/EBITDA (TTM) 4.23
You are required to:
(a) Select and justify at least 10 financial ratios and calculate 2 non-financial ratios to analyse
the performance and financial position of the three companies. You are expected to use
charts to compare performance of the three companies. You will need to look at the audited
financial statement and carry out further research to explain the performance of the
company over the five years. For clarity, you are expected to rank the companies based
on the individual benchmarks and overall. (50 Marks)
(b) Write a memo to the managing director of the worst performing company with
recommendations of how the financial performance of the business can be improved. (15
marks)
(c) Outline the limitations of relying on financial ratios to interpret firm performance? (5 Marks)
You are expected to research for more information on the companies and cite the material
correctly. You can use the Global Business Browser database to access analysts’ and SWOT
reports.
Question2
Sound Equipment Ltd was formed five years ago to manufacture parts for hi-fi equipment. Most of
its customers were individuals wanting to assemble their own systems. Recently, however, the
company has embarked on a policy of expansion and has been approached by JBZ plc, a
multinational manufacturer of consumer electronics. JBZ has offered Sound Equipment Ltd a
contract to build an amplifier for its latest consumer product. If accepted, the contract will increase
Sound Equipment’s turnover by 20%.
JBZ’s offer is a fixed price contract over three years, although it is possible for Sound Equipment to
apply for subsequent contracts. The contract will involve Sound Equipment purchasing a specialist
machine for £150 000. Although the machine has a 10-year life, it would be written off over the three
years of the initial contract as it can only be used in the manufacture of the amplifier for JBZ.
The production director of Sound Equipment has already prepared a financial appraisal of the
proposal. This is reproduced below. With a capital cost of £150 000 and total profits of £60 300, the
production director has calculated the return on capital employed as 40.2%. As this is greater than
Sound Equipment’s cost of capital of 18%, the production director is recommending that the board
accepts the contract.
Year 1 (£) Year 2 (£) Year 3 (£)
Total
Turnover 180 000 180 000 180 000 540 000
Materials 60 000 60 000 60 000 180 000
Labour 40 000 40 000 40 000 120 000
Depreciation 50000 50000 50000 150000
Pre-tax profit 30 000 30 000 30 000 90 000
Corporation tax at 33% 9 900 9 900 9 900 29 700
After-tax profit 20 100 20 100 20 100 60 300
SECTION B -30 marks
You are employed as the assistant accountant to Sound Equipment Ltd and report to John Green,
the financial director, who asks you to carry out a full financial appraisal of the proposed contract.
He feels that the production director’s presentation is inappropriate. He provides you with the
following additional information:
i) Sound Equipment pays corporation tax at the rate of 33%;
ii) The machine will qualify for a 25% writing-down allowance on the reducing balance;
iii) The machine will have no further use other than in manufacturing the amplifier for
JBZ;
iv) On ending the contract with JBZ, any outstanding capital allowances can be claimed
as a balancing allowance;
v) The company’s cost of capital is 18%;
vi) The cost of materials and labour is forecast to increase by 5% per annum for years 2
and 3.
John Green reminds you that Sound Equipment operates a just-in-time stock policy and that
production will be delivered immediately to JBZ, who will, under the terms of the contract,
immediately pay for the deliveries. He also reminds you that suppliers are paid immediately on
receipt of goods and that employees are also paid immediately.
Notes:
For the purpose of this task, you may assume the following:
(a) the machine would be purchased at the beginning of the accounting year;
(b) there is a one-year delay in paying corporation tax;
(c) all cash flows other than the purchase of the machine occur at the end of each year;
(d) Sound Equipment has no other assets on which to claim capital allowances.
REQUIRED:
Write a report with recommendations to the financial director. Your report should include:
a) Use the net present value technique to identify whether or not the initial three-year contract
is worthwhile. (10 Marks)
b) Explain your approach to taxation in your appraisal. (6 Marks)
c) Discuss two other investment appraisal methods that could be used to evaluate this
project. (8 Marks)
d) What others factors would need to be considered before making a final decision.
(6 Marks)
You are expected to research for theoretical information on investment appraisal
techniques and cite the material correctly. All assumptions made should be clearly stated.
ADDITIONAL GUIDANCE
1. All calculations must be detailed and presented clearly.
2. Use of published work (citing references) within text is expected.
3. A full list of references should be presented at the end of the case study.
4. Please avoid the use of ‘I, We, Us’ in your case study. You are expected to write in third
person.
5. Include the assignment front sheet and marking scheme which is attached to the
assignment brief.
6. Your answer should not repeat the question as it will be included in your word count.
7. Formatting:
a. Font Type: Arial.
b. Font size 11/12.
c. Line spacing 1.5 to 2.
d. All pages must be numbered
e. All graphs, charts and tables should have a number and a title.
f. All text must be aligned to the left.
8. Good use of English, referencing, presentation will earn marks.
Accounting and Finance Penalties
1. Word Count*: All assessments have a word count with a tolerance of 10% only.
Submissions that exceed the word count will be penalised as follows-one grade point* for
every 150 words or part thereof.
2. Missing References – penalty is three grade points minimum (see module guide for further
details).
3. Front sheet missing-penalty one grade point.
4. Word count missing or inaccurate-penalty one grade point.
** Front sheet, contents page, references and any appendices do not count in the word
count.
Student Name:
Student ID Number:
Marking Criteria-Please note word limit of 3,000 words (excluding
bibliography and any appendices) Marks
FINANCIAL RATIOS
Justification and analysis of the ratios to be used to determine
success/failure of the companies. Ratios should cover all the main ratio
groups and also incorporate market data. To determine the financial
strength of the company in areas such as profitability, liquidity, investor
ratios, gearing, and share price performance-other financial information of
use. Use tables and charts to summarise data and show trends. Rank best
and worst for each ratio analysed. Justify the chosen ranking method and
discuss results.
40
Marks for FINANCIAL RATIOS
40
NON-FINANCIAL RATIOS
Justification and presentation of the non-financial ratios to be used to
determine success/failure of the company offer. Undertake these
calculations and tabulate data. Ratios should be important to the retail
sector. Rank best and worst for each ratio analysed. Justify the chosen
ranking method.
10
Marks for NON-FINANCIAL RATIOS
10
Memo to MD of WORST performing Company
Present summary ranking for each ratio group and explain reasons for poor
financial and no-financial performance. Outline and explain strategic
recommendations to improve the firm performance in the medium term (3-5
years).
10
Marks for MEMO 10
LIMITATIONS OF FINANCIAL RATIOS
10
Marks for Discussion 10
Total Marks
70
Question 1 MARKING GUIDE (70%)
Marking Criteria
2 a
Report format (to, from, date, subject) /1
Calculation of net cash flows /4
Project NPV /1
Tax computation /3
Recommendation /1
2 b
Explanation of tax computation (detailed citation required) /6
2 c
Two investment appraisal techniques. Define, explain and critique of ARR,
NPV, IRR, Payback, or Discounted Payback. (detailed citation required)
/8
2 d
Discuss at least three other factors that need to be considered. (detailed
citation is requires)
/6
TOTAL /30
Note –
Submission deadline and the procedure will be informed to students by the academic office of
London School of Marketing.
Question 2 MARKING GUIDE 30%