Purpose of the AssessmentPurpose of the Assessment
The purpose of this assignment is to test communication skills together with the ability to analyse, to interpret and to report. This assignment will also encourage research and investigation.
Assessment Task
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. Use proper Harvard referencing and citation use website like: https://www.refme.com/uk/referencing-generator/harvard/
Submission deadline: Your answers should be submitted through Turnitin on NILE no later than1st July 2016, at 11:59 PM (UK time). Please keep in mind that late submissions will not be allowed. If you have any mitigating circumstances that hinder your ability to submit on due date, please inform your module leader before the submission date. To learn more about the University’s mitigating circumstances policy please see the link below: http://tundra.northampton.ac.uk/results/searchresult.asp?Title=mitigating+circumstances&Description=&Author=&Department=&Date+Created=&Until+Date+Created=&Document+Type=&Perspectives=&submit=Search
Feedback: There will be a written feedback four weeks after the deadline for submission. You will be informed through NILE when the feedback is ready.
Question 1Housebuilding plays an important role in the UK economy.The following financial datais for twomajor UK housebuilding companies thatare listed on the London Stock Exchange.
1. Barratt development PlcYou will find non-financial ratios in their website and then compare with other company.http://www.barrattdevelopments.co.uk/sustainability/our-reports
Barratt Development PLc Annual Ratios [GBP Millions] 30-Jun-2015 30-Jun-2014 30-Jun-2013 30-Jun-2012 30-Jun-2011Financial Strength Current Ratio 3.33 3.36 3.02 3.38 3.30Quick/Acid Test Ratio 0.37 0.32 0.30 0.19 0.12Working Capital 3,290,600.0 2,735,800.0 2,410,300.0 2,413,600.0 2,393,000.0Long Term Debt/Equity 0.04 0.05 0.05 0.11 0.14Total Debt/Equity 0.05 0.06 0.11 0.12 0.14Long Term Debt/Total Capital 0.04 0.05 0.05 0.10 0.12Total Debt/Total Capital 0.05 0.06 0.10 0.10 0.12Payout Ratio 33.17% 33.02% 32.59% 0.00% 0.00%Effective Tax Rate 20.37% 21.81% 28.52% 32.60% -Total Capital 3,878,900.0 3,546,100.0 3,420,000.0 3,315,800.0 3,335,900.0 Efficiency Asset Turnover 0.68 0.63 0.54 0.49 0.41Inventory Turnover 0.79 0.78 0.70 0.62 0.54Days In Inventory 460.40 466.63 522.76 587.27 670.30Receivables Turnover 30.54 37.74 47.09 46.51 36.02Days Receivables Outstanding 11.95 9.67 7.75 7.85 10.13Revenue/Employee 629,627 548,566 521,240 516,311 508,850Operating Income/Employee 96,600 71,208 33,040 40,089 20,200EBITDA/Employee 97,153 71,555 33,360 40,444 20,650 Profitability Gross Margin 19.00% 16.77% 13.78% 12.75% 11.19%Operating Margin 15.34% 12.98% 6.34% 7.76% 3.97%EBITDA Margin 15.43% 13.04% 6.40% 7.83% 4.06%EBIT Margin 15.34% 12.98% 6.34% 7.76% 3.97%Pretax Margin 15.04% 12.37% 4.01% 4.30% -0.57%Net Profit Margin 11.95% 9.67% 2.87% 2.90% -0.68%COGS/Revenue 81.00% 83.23% 86.22% 87.25% 88.81%SG&A Expense/Revenue 3.66% 3.79% 4.09% 4.52% 4.56% Management Effectiveness Return on Assets 8.15% 6.11% 1.56% 1.41% -0.27%Return on Equity 12.75% 9.52% 2.47% 2.28% -0.47%
2. Persimmon HomesYou have to choose from non-financial ration from their website: for example,http://corporate.persimmonhomes.com/investors/our-business/key-performance-indicatorsNon-financial ratio like:1.Waste generated per home sold and % recycled2.The Reportable Injuries Disease and Dangerous Occurrences Regulations
Persimmon Homes plc Annual Ratios [GBP Millions] 31-Dec-2014 31-Dec-2013 31-Dec-2012 31-Dec-2011 31-Dec-2010Financial Strength Current Ratio 3.42 3.35 3.84 3.74 3.88Quick/Acid Test Ratio 0.53 0.38 0.40 0.15 0.29Working Capital 2,017,500.0 1,742,800.0 1,701,400.0 1,538,000.0 1,677,000.0Long Term Debt/Equity (This three ratios almost means the same thing choose just one of them, otherwise you will be repeating) 0.00 0.00 0.00 0.00 0.09Total Debt/Equity 0.00 0.00 0.00 0.00 0.12Long Term Debt/Total Capital 0.00 0.00 0.00 0.00 0.08Total Debt/Total Capital 0.00 0.00 0.00 0.00 0.11Payout Ratio 0.00% 0.00% 0.00% 27.64% 19.58%Effective Tax Rate 20.34% 23.70% 23.24% 25.95% 25.08%Total Capital 2,192,600.0 2,045,500.0 1,993,700.0 1,839,400.0 1,949,900.0 Efficiency Asset Turnover 0.81 0.72 0.64 0.58 0.57Inventory Turnover
(This three ratios almost means the same thing choose just one of them, otherwise you will be repeating) 0.87 0.78 0.70 0.64 0.65Days In Inventory 419.59 465.50 521.26 567.06 565.67Receivables Turnover 38.62 37.75 43.97 35.86 36.33Days Receivables Outstanding 9.45 9.67 8.30 10.18 10.05Revenue/Employee 745,410 747,367 684,453 631,168 650,166Operating Income/Employee 134,752 122,035 87,157 66,571 84,631EBITDA/Employee 136,548 123,647 88,787 68,257 86,620 Profitability Gross Margin 22.22% 20.20% 17.54% 14.53% 12.41%Operating Margin 18.08% 16.33% 12.73% 10.55% 13.02%EBITDA Margin 18.32% 16.54% 12.97% 10.81% 13.32%EBIT Margin 18.08% 16.33% 12.73% 10.55% 13.02%Pretax Margin 18.14% 16.16% 12.68% 9.59% 9.81%Net Profit Margin 14.45% 12.33% 9.73% 7.10% 7.35%COGS/Revenue 77.78% 79.80% 82.46% 85.47% 87.59% Management Effectiveness Return on Assets 11.66% 8.84% 6.24% 4.11% 4.18%Return on Equity 17.56% 12.74% 8.74% 6.08% 6.85%
You are required to:
a) Selection and justification of at least 10 financial ratios from each company (the same from both) and calculate 2 non-financial ratios to analyse the performance and financial position and investment potential of the two companies. You are expected to use charts to compare performance of the two 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. Clear ranking is expected for each ratio (ratios which are in red don’t choose all of the just one from each, otherwise you will be repeating. Prepare Charts and graphs for each ratio, financial strength, efficiency, gearing, profitability, management effectiveness, which doing well. For each ratio you need example like; in company one gearing is less which means that the company which has less gearing is better, because the having less loan, paying less interest and it’s better for shareholders. Analyse the numbers, you don’t need to apply the formula, you have to understand what is ratio about and analyse, summarize each ratio briefly.You don’t need to calculate the financial ratios they been given already, just non-financial for both companies.Create a graph for each ratio from company 1 and 2 and under analyse, where it’s decries or increase in each year and why, ranking decision? Why non-financial ratios are important, because financial ratios don’t give bigger picture.(40 Marks)
b) Summarise the ranking and create a consolidated ranking template. You can use ratio averages for the past five years. You need to decide on the weighting of each ratio in your overall rating. Discuss the reasons for the variations in performance over the past five years. (10 Marks)
c) Write a memo to the managing director of the number two (poor performing) company with recommendations of how the financial performance of the business can be improved. (10 marks)
d) Discuss the limitations of only using ratio analysisas a tool to interpret companyperformance? Limitation, financial ratios can be manipulating the gap of 6 months between two companies, have freedom to choose the dates, financial ratios can be narrow, not everything give a clear picture from it. (10 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: Investment Appraisal
Your company has the option to invest in either projects T14 and R26 but finance is onlyavailable to invest in one of them.You are given the following projected data:
Project T14 R26Initial Cost (70,000) (60,000)Year 1 15,000 20,000Year 2 18,000 25,000Year 3 20,000 (50,000)Year 4 32,000 10,000Year 5 18,000 3,000Year 6 – 2,000
You are told:
(1) All cash flows take place at the end of the year apart from the original investment inthe project which takes place at the beginning of the project.(2) Project T14 machinery is to be disposed of at the end of year 5 with a scrap value of£10 000.(3) Project R26 machinery is to be disposed of at the end of the year 3 with a nil scrapvalue and replaced with new project machinery that will cost £75000(4) The cost of this additional machinery has been deducted in arriving at the profitprojections for R26 for year 3. It is projected that it will last for three years and have a nilscrap value.(5) The company’s policy is to depreciate its assets on a straight line basis.(6) The discount rate to be used by the company is 14%.
Required:1) Calculate the annual cash flows for each of the projects. (5 Marks)
2) Using the investment appraisal methods calculate the ARR, Payback and NPV. (15 Marks)
3) Advise the company on whether this project should be accepted or rejected based on methods used above. Provide a clear explanation of what the calculations mean for the company (10 Marks)
ADDITIONAL GUIDANCE1. 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 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 numberede. 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.9. Submit online and on time, late submissions will not be accepted.10. For extensions or deferral of assessment, please refer to the University policy on mitigating circumstances.
Accounting and Finance Penalties1. 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. Accounting & Finance Front SheetACC3015NB. This sheet must be attached to any submission of Accounting & Finance field module coursework ONLINE. No assignment will be accepted without it.Student IDs _________________________________________ Student Name Title of Coursework ACC3015 Case Study Marking Tutor Hand in Date 1st July 2016
Checklist before submission
1. Have you read, understood and acted in accordance with the referencing guidelines set out in the appropriate Accounting & Finance Module Guide.2. Where you have quoted directly from or where you have paraphrased the work of others, have you acknowledged and appropriately referenced the source of your quotation in the body of the text?3. Have you placed all direct quotations in inverted commas?4. Have you listed and correctly cited all your sources in your bibliography?Declaration by the candidate named above1. I confirm that this is my own work (or, in the case of a group assignment, the work of my group) and that, although I may have consulted others in the course of assembling material for the work, the finished article has been completed without help or participation of any other person (other than, in group assignments, other members of the same group).2. The work contains no material drawn from unattributed sources.
Student Signature ________________________
Date Signed ________________________