FINA1156 – Corporate Financial Management – Assessment Brief
Assessment – Report Instructions
Please read the following case scenario and the five briefs and complete the questions
after each brief. Next to each question there is an indicative wordcount of the words that
should answer the question fully. The report has a wordcount limit of 3,500 words +/-10%
and there is penalty of a deduction of 5 points from your final mark if you go outside the
wordcount limits. In the total report please cite at least 12 but no more than 15
reference sources when answering your questions.
References are not included in the final wordcount.
Summary of Indicative Wordcount
Brief 1- 540 words
Brief 2- 820 words
Brief 3- 970 words
Brief 4- 900 words
Brief 5- 270 words
Total – 3,500 words
Case Scenario
You are the assistant to the chief financial officer (CFO), Simone Marshall-Begum, in a
conglomerate called Encircle International which owns several companies. She has asked
you to meet with the financial officers of some of the companies in the group. They have
presented some issues and have asked you and your team to advise them on some
decisions that needs to be made. Review each brief and answer the questions that follow.
Brief 1
Espirito Bezona has run a pasta restaurant for several years, trading as Italy’s Best’s. He
also provides a pasta delivery service to homes and a lunchtime delivery service to local
offices, some of whom are supplied on credit terms. In the year ended 31 March 20X4 he
has opened a new branch in another town, obtaining a mortgage loan to buy freehold
premises, and to pay for some alterations to the premises. Espirito did not spend much on
fixtures and fittings; he had some unused tables, crockery and so on in the storeroom of the
existing premises and he transferred these over to the new branch.
Market Research Consultant recommendations
Espirito is keen to expand the business further and would like to draw up a formal expansion
programme. He commissioned a market research survey of a representative sample of his
customers from a firm of consultants. The consultant concludes that, although the standard
of the product is high and there are many satisfied customers, there are quite a lot of
staffing, shabby premises-related and delivery problems and customer experience problems.
He recommends re-equipping the restaurants and replacing the existing managers with
higher paid staff. Espirito accepts both the criticisms and the recommendations but realizes
that he probably does not have enough cash to address all the problems straight away.
Espirito has asked his accountant to prepare a statement of cash flows in addition to the
usual accounting statements. Details of his statement of profit or loss for the year ended 31
March 20X4, his statements of financial position at 31 March 20X4 and 31 March 20X3, and
the cashflow statement for the year ending 31 March 2024 are supplied below.
Italy’s Best’s: Statement of profit or loss for the year ended 31 March 20X4
£ £
Revenue 341,077
Cost of sales
Opening inventory 5,630
Purchases 91,889
97,519
Closing inventory (6,186)
Cost of sales (91,333)
Gross profit 249,744
Expenses
Restaurant heat and light 18,450
Premises costs 18,295
Salaries and wages 78,904
Delivery expenses 6,411
Phone and broadband 6,349
Advertising and marketing 6,904
General administration expenses 5,966
Italy’s Best’s: Statements of financial position at 31 March 20X4 and 20X3
20X4 20X4 20X3 20X3
£ £ £ £
ASSETS
Non-current assets
Land and buildings 147,900 44,900
Less: accumulated depreciation (11,140) (9,140)
136,760 35,760
Fixtures and fittings 18,290 16,251
Less: accumulated depreciation (12,419) (10,590)
5,871 5,661
Delivery vehicles 21,603 12,920
Less: accumulated depreciation (8,313) (8,450)
13,290 4,470
155,921 45,891
Current assets
Inventory 6,186 5,630
Consultants’ fees 12,500
Insurance 3,690
Accounting and taxation advice 3,850
Legal fees 1,000
Sundry expenses 775
Depreciation on buildings 2,000
Depreciation on fixtures and fittings 1,829
Depreciation on delivery vehicles 4,763
Profit on disposal of delivery vehicle (520)
(171,166)
Operating profit 78,578
Interest received (280)
Interest paid 4,617
(4,337)
Profit for the Year 74,241
Trade receivables and prepayments 5,914 7,419
Cash at bank 3,240 15,160
15,340 28,209
171,261 74,100
CAPITAL AND LIABILITIES
Capital
Capital brought forward 67,760 50,816
Profit for the year 74,241 59,444
Drawings (53,000) (42,500)
89,001 67,760
Non-current liabilities
Mortgage loan 73,750 –
Current liabilities
Trade payables and accruals 8,510 6,340
171,261 74,100
Note
- Land and buildings
Movements in the year ending 31 March 20X4 on land and buildings at cost and on
accumulated depreciation are as follows:
Cost £
Land and buildings at cost 1 April 20X3 44,900
Additions at cost 103,000
Land and buildings at cost 31 March 20X4
Depreciation £
Accumulated depreciation 1 April 20X3 9,140
Depreciation for the year 2,000
147,900
Accumulated depreciation 31 March 20X4
Carrying amount 31 March 20X4: £147,900 – 11,140 = £136,760 - Fixtures and fittings
Movements in the year ending 31 March 20X4 on fixtures and fittings at cost and on
accumulated depreciation are as follows:
Cost £
Fixtures and fittings at cost 1 April 20X3 16,251
Additions at cost 2,039
Fixtures and fittings at cost 31 March 20X4
Depreciation £
Accumulated depreciation 1 April 20X3 10,590
Depreciation for the year 1,829
Accumulated depreciation 31 March 20X4
Carrying amount 31 March 20X4: £18,290 – 12,419 = £5,871 - Delivery vehicles
Movements in the year ending 31 March 20X4 on delivery vehicles at cost and on
accumulated depreciation are as follows:
Cost £
Delivery vehicles at cost 1 April 20X3 12,920
Disposal of vehicle* (6,500)
Additions at cost 15,183
Delivery vehicles at cost 31 March 20X4
11,140
18,290
12,419
21,603
Depreciation £
Accumulated depreciation 1 April 20X3 8,450
Disposal of vehicle* (4,900)
Depreciation for the year 4,763
Accumulated depreciation 31 March 20X4
Carrying amount 31 March 20X4: £21,603 – 8,313 = £13,290
*The vehicle was sold for £2120. The carrying amount at the point of sale was £6,500 –
4,900 = £1,600. Profit on sale was, therefore, £2,120 – 1,600 = £520 (This amount of £520 is
included in the statement of profit or loss for the year).
Italy’s Best: Statement of cash flows for the year ending 31 March 20X4
£ £ Notes
Operating profit 78,578 From P&L
Add back: depreciation on buildings 2,000 From P&L
Depreciation on fixtures and fittings 1,829 From P&L
Depreciation on delivery vehicles 4,763 From P&L
Profit on sale of delivery vehicle (520) From P&L
8,072
86,650
Less: increase in inventory (6,186 – 5,630) (556) From BL
Add: decrease in trade receivables (5,914 – 7,419) 1,505 From BL
Add: increase in payables (8,510 – 6,340) 2,170 From BL
3,119
Cash generated from operations 89,769
Interest received 280 From P&L
Interest paid (4,617) From P&L
(4,337)
Net cash inflow from operating activities 85,432
8,313
Questions: (indicative wordcount 540 words)
Discuss, as far as possible from the information given, the financial implications of Espirito
following the consultant’s advice.
Brief 2
Imran Chung has decided to give up his full-time job and start an up-market juice shop. He
has discussed his plans with Norris, a chartered accountant, because he knows that he will
need to have a business plan and a budget.
Imran spends several months planning the opening of his new business. He identifies
suitable premises and observes the competition nearby. There are two other juice shops in
town. One is in the shopping centre, attached to a large department store. It attracts quite a
high volume of business despite the fact that the juice is not very good. The other juice shop
is on the other side of town and Imran does not regard it as a serious competitor.
Norris has been very helpful in forcing Imran to think carefully about costs. Together they
decide upon the assumptions set out below: - Volume of trade: Imran reckons that trade will increase as people get to know about his
juice bar, and about the good quality juice that he plans to serve. He estimates that he
should attract somewhere between 55 and 65 customers on an average day once the
Cash flows from investing activities
Purchase of non-current assets (103,000 + 2,039 +
15,183)
(120,222) From BL
Proceeds of sale of non-current asset 2,120 4
Net cash outflow from investing activities (118,102)
Cash flows from financing activities
Capital returned to owner (drawings) (53,000) From BL
Mortgage loan 73,750 From BL
20,750
Net decrease in cash (11,920)
Cash at beginning of period 15,160 7
Cash at end of period 3,240 7
business gets established. To be on the safe side, he estimates 55 customers per day for
the first three months of trading, 60 per day for the fourth and fifth months of trading, and
65 per day after that. Each month contains, on average, 26 days when the juice shop will
be open. - Average spend per person: Imran estimates that most people will buy at least one juice
plus a biscuit or cake. Average spend is estimated at £4.50. - Gross profit percentage is estimated at 72%.
- Expenses: Imran and Norris establish a list of expenses that the business will incur in its
first year, and the estimated timings of their payment:
Category £ Estimated timing
Legal fees 3,000 To be paid in month 1
Launch party 2,300 To be paid in month 1
Advertising 1,600 £1,000 in month 1, £400 in month 3 and £200
in month 6
Wages 2,800 £233 or £234 per month
Rental of premises 20,000 £5,000 in months 1, 4, 7 and 10
Business rates 2,600 £2,600 in month 3
Water rates 860 £71 or £72 per month
Power, heat and light 1,600 £400 in months 3, 6, 9 and 12
Phone charges 800 £200 in months 3, 6, 9 and 12
Insurance 500 £500 in month 1
Accountant’s fees 1,200 £800 in month 5 and £800 in month 12
37,260
Wages are payable to an assistant who will help Imran out on two days per week for 50
weeks of the year. He or she will be paid for 5 hours per day at a rate of £5.60 per hour. - Shop-fitting: the shop needs some work. Costs will be kept as low as possible because
Imran and his brother Dave will do a lot of the work themselves. Estimated costs to be
incurred before opening are:
£
Refurbishment and decoration 5,000
Fixtures and fittings (tables, chairs etc) 3,000
Juice machine 5,000
Imran will use savings of £15,000 to meet part of these initial costs. Dave will work on the
shop for free, and he also transfers to Imran £3,000 out of his own savings to make a loan to
the business. Dave does not require any interest payment, and there is no fixed date for
repayment of the loan.
The costs of refurbishing the premises and buying essential equipment will be treated as
non-current assets, to be depreciated on a straight-line basis over five years, and on the
assumption that there will be no residual value at the end of that time. - Drawings: £2,000 per month.
- Initial cash balance: It is assumed that all the set-up costs will be incurred and paid for
before the business opens. Imran’s capital plus the loan from Dave = £18,000, out of
which £13,000 (see point 5 above) will be paid. Therefore, the business will start out with
£5,000 in the bank. - In order to keep things simple, the cash flow forecast should be done on the basis that no
interest is payable or receivable.
Imran would like to know if he needs to borrow any money in his first year of trading.
Questions: (indicative wordcount 820 words)
a) Present the workings you need to use (i.e., the calculations required) in order to
calculate both the sales and cost of goods sold each month to be used a cash flow
forecast for Imran’s first year of trading, as far as possible from the information given, the
financial implications of following the consultant’s advice. (Indicative wordcount 130
words)
b) Using the answer and information from a) and prepare a cash flow forecast for
Imran’s first year of trading. (Indicative wordcount 230 words)
13,000
c) Advise Imran on whether or not he is likely to need to borrow any money in his first
year of trading and, on the basis of the budget statement prepared, assess his prospects
of success. (Indicative wordcount 260 words)
Brief 3
Arrow Investment Company provides investment advice to its clients. They have a wealthy
client Lord Reiner, who has asked for some advice and analysis since he is trying to decide
on whether to invest in either Sainsbury’s or Tesco. The following information has been
provided to you by Arrow Investment staff for you to provide your advice:
Tesco and Sainsbury’s
Lord Reiner has recently been left some money in a will. He is thinking about making some
investments in shares on the UK stock market but feels that he needs some advice. He has
asked us, to take a look at the financial statements of two major UK retailers, Tesco and
Sainsbury’s. He doesn’t want to be confused by lots of figures, so we agreed to extract some
of the most significant numbers from recent sets of accounts of both companies.
We have prepared the following schedules of information showing extracts from the most
recent set of annual financial statements for each company. - J Sainsbury plc
The most recent set of annual financial statements is for the 52 weeks ended 9 March - Relevant extracts from the income statement and balance sheet are given below.
Notes
i. the information has been simplified for ease of understanding. You should appreciate that
there is a great deal more information in the annual report of J Sainsbury plc. It can be
accessed via the company’s corporate information website at:
www.about.sainsburys.co.uk/investors/results-reports-andpresentations#2019
ii. both Sainsbury’s and Tesco use a mixture of traditional and international terminology in
naming their accounting statements: income statement and balance sheet (rather than
‘statement of profit or loss’ and ‘statement of financial position’ as used throughout the
book). This approach is currently quite common in UK accounting by listed companies.
Income statement and balance sheet extracts – Sainsbury
2019 2018
£m £M
Revenue 29,007 28,456
Cost of sales (27,000) (26,574)
Gross profit 2,007 1,882
Admin expense less other income (1,695) (1,364)
Operating profit 312 518
Finance income 22 19
Finance costs (99) (140)
Post-tax profit from joint ventures* 4 12
Profit before Taxation 239 409
Income tax expense (20) (100)
Profit for the financial year 219 309
Earnings per share 9.1p 13.3p
Equity 8,456 7,411
- Joint ventures are businesses which are owned jointly by Sainsbury’s and other
businesses. International Financial Reporting Standards require that the results of
Sainsbury’s share of joint venture profits or losses are reported in the income statement as
shown above.
Five-year record of key figures
2019 2018 2017 2016 2015
£m £m £m £m £m
Revenue including VAT, fuel sales
and financial services
32,412 31,741 29,112 25,829 26,122
Underlying profit before tax 635 589 581 587 681
Underlying basic earnings per share 22.0p 20.4p 21.8p 24.2p 26.4p
Extracts from strategic report
Sainsbury’s store numbers and retailing space
Number Area 000 sq ft
At 10 March 2018 1,423 23,209
New stores 13 187
Disposals/closures/other changes (8) (252)
At 9 March 2019 1,428 23,144
Note: these figures do not include Argos stores. At 9 March 2019 there were 883 Argos
stores.
Extracts from chairman’s statement:
The chairman, Martin Scicluna, comments as follows: In the current retail market, it is
obvious that standing still is not an option. We must continue to adapt to market forces and
meet the needs of our customers. We were, therefore, very disappointed by the Competition
and Markets Authority’s decision on our proposed merger with Asda. We strongly believe
that the deal would have benefited our customers and our business’.
But he concludes:
The retail market remains highly competitive. We have the right strategy in place and a clear
plan for the year ahead. Combined with committed, hard-working colleagues led by a
talented, experienced leadership team, I believe we are well placed for the future.
Extract from segment reporting section of the Annual Report
‘The Group trades predominantly in the UK and the Republic of Ireland and consequently the
majority of revenues, capital expenditure and segment net assets arise there. The profits,
turnover and assets of the businesses in the Republic of Ireland are not material to the
Group’.
- Tesco plc
The most recent set of annual financial statements is for the 52 weeks ending 23 February - The same point applies as for J. Sainsbury plc: there is a great deal more information
in Tesco’s annual report. Tesco’s financial information can be accessed at
www.tescoplc.com
Income statement and balance sheet extracts
2019 2018
£m £m
Revenue 63,911 57,493
Cost of sales (59,767) (54,141)
Gross profit 4,144 3,352
Administration expenses less other income (1,991) (1,513)
Operating profit 2,153 1,839
Finance income 22 67
Finance costs (536) (600)
Share of post-tax profits (losses) of joint ventures and
associates 35 (6)
Profit before Tax 1,674 1,300
Taxation (354) (306)
Profit for the year 1,320 994
Profit for the year from discontinued operations – 216
Earnings per share 13.65p 14.80p
Equity 14,834 10,480
Five-year record of key figures
2019 2018 2017 2016 2015
£m £m £m £m £m
Revenue excluding VAT 63,911 57,493 55,917 53,933 56,925
Operating profit 2,153 1,839 1,017 1,072 (5,750)
Dividend per share 3.67p 3.00p – – 1.16p
Number of stores (around the world)
6,993 7,033 6,809 6,733 6,849
Total sales area (000s of square feet) 91,298 92,983 89,041 91,195 95,811
Number of stores (UK) 3,961 3,952 3,739 3,743 3,710
Extracts from chairman’s statement:
John Allen, the chairman writes: ‘This has been a significant year for Tesco – not just
because of its historical importance, as we celebrate 100 years of great value – but also
because of the strong position we have built in our ongoing turnaround.’
Extract of information from segment reporting section of the Annual Report
Tesco’s total revenue for 2019 is £63,911 million. Of this £51,636 million was generated in
the UK and the Republic of Ireland, with the remainder generated in Tesco’s other markets
(Czech Republic, Hungary, Poland, Slovakia, Malaysia and Thailand).
Questions: (indicative wordcount 970 words)
a) Calculate relevant accounting ratios for both companies.
b) Analyse the horizontal trends for both companies, using the five-year record of key
figures.
c) Write a brief report comparing the performance of the two companies.
d) Explain any factors that may impact on the comparability of the two sets of company
data.
Brief 4
Evergreen Technologies is a company in the Encircle International conglomerate that has
recently been purchased. They have asked you to research two banks that provide
corporate services and provide a comprehensive report and range of services they
provide. They have also suggested that for each of the banks, summarise two of the
insights articles they list on their website with one of the articles being on the topic of
sustainability and also providing a description of the bank’s projects and services in
this area. You must include a screenshot of the bank’s website you received
your information and for each service and article you describe provide the
website address you found the information. (Indicative wordcount 900 words)
Brief 5
Simone Marshall-Begum has asked you to reflect on the challenges you have
experienced in learning the module during the Term and what skills you feel you
have developed. Using a reflective cycle, like Driscoll’s (What, So what, Now what)
cycle write your reflection (Indicative wordcount 270 words)
References
Note to student: Please include all references in the Harvard format. Do not only use textbooks, but
use journal articles to support your work. The format for the Harvard style is:
Books are in this format:
Bryman, A., Bell, A. and Harley B. (2018) Business Research Methods (5th edition). Oxford University
Press: Oxford, UK.
Saunders, M.N.K., Lewis, P. and Thornhill. A (2019) Research Methods for Business Students (8th
edition). Pearson Education. Harlow, UK.
Journals are in this format:
Irvine, A., Drew, P. and Sainsbury, P. (2012) ‘Am I not answering your questions properly?’
Clarification, adequacy and responsiveness in semi-structured telephone and face-to-face interviews.
Qualitative Research 13(1) 86-106.
