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Unit 7003 Financial Management TO BE FILLED IN BY THE ASSESSOR Action Date Outcome Task 1: Pass/Refer Task 2: Pass/Refer First

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I confirm that the work within the completed assignment is all my own work, and does not include any work completed by anyone other than myself unless referenced. I have completed the assignment in accordance with CMI instructions and within the time limits set by my CMI Approved Centre. By signing my name below I am agreeing that I have read and understood the Learner Statement of Authenticity

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Introduction:
SkyePharma is now trying to become the one of the best drug supplying organization in the world. It was come into existence in 1996 and it supplies the oral and inhalation technologies. SkyePharma strives to deliver a clinical benefit for patients by using its multiple delivery technologies to create enhanced versions of existing pharmaceutical products as well as products incorporating new chemical entities. Combining established pre-clinical, clinical and regulatory expertise with the capability to formulate and manufacture drugs, both for clinical studies and commercial sale, SkyePharma identifies and develops potential new therapeutic products for out-licensing as well as working with partners to develop their concepts through to marketable products. There are twelve products approved in the areas of oral, inhalation and topical delivery and additional products submitted for approval that incorporate the Groups proven proprietary technologies. The Groups products are marketed throughout the world by leading pharmaceutical companies. This assignment is an attempt to demonstrate that I have achieved the following three tasks

Task 1: 1.1 Write a summary to describe the main sources of financial data available within and outside the organisation, and provide examples of how the information would be used to review financial performance. 1.2 Examine the data and identify areas that you consider deserve further investigation/analysis, explaining how and why you consider this to be necessary. 1.3 Describe the types of data on other organisations that you may require from time to time for instance if you were considering entering into a trading relationship or a financial investment stating any limitations in availability. 1.4 You will be expected to show an appreciation of different organisation structures. For at least three of the examples described, explain how you would test the validity of the data. Be able to analyze financial data. Determining how to obtain financial data and assess its validity:
Abcam Plc is a well known pharmaceuticals company and I have selected it to answer these questions and to analyze the financial data. Financial data can be gathering from many different sources for its analysis and for obtaining result about its performance and financial health. The public companies must have to provide this information to the stakeholder and public to follow the international accounting standards implemented by government bodies. And it also show the all document to the public about its operation. These are very large organization that affects the many people it is the responsibility of the manager to take check and balance by all sorts. And he liable for producing corrects, and punctuates information in all aspects for everyone.

External sources:
The different type of information can be gathered by stock exchange, libraries and financial website for providing it to the general public. The exact and true information about any organization can be achieved by annual reports of any organization. And every organization does this for informing their stakeholders. This annual report is published by all type of firms like government, charities and educational institutions. And this annual report has the information about the different statements of the firm which include income statement and balance sheet and the cash flow statement for the year ended. The firm has to provide the accurate and reliable information to meet and fulfil the checks and balances. To improve the reliability and consistency must follow the accounting standards. There are many difficulties in manipulation by tax regulation.

For the more accuracy and reliability hire an external auditor for auditing. And these auditors make an honest audit report about the affairs of organization.

Internal sources:
Information can be collected from customers record, suppliers and managers and these are all known as internal source of information. And accounting system is used for recording these all transactions. They put the all information and accounts into their related categories and make a summary for more processes. Therefore it not an easy task and it is time consuming and required more effort for reliability, accuracy and to reduce the mistakes and errors.

Task 2 2.1 Using either your own organisations financial data, or that of an organisation of your choice, calculate at least six of the following accounting ratios on the last two available year end accounts, selecting those that you consider to be the most appropriate measures of financial performance for your chosen organisation: 2.2 Gross profit as a percentage of sales Net profit as a percentage of sales Return on Capital Employed Gearing Asset Turnover Current ratio Acid Test Average age of debtors in days Average age of creditors in days Average age of stock (using closing stock) in days 2.3 What conclusions can you draw from the data? What are the strengths and weaknesses of the organisation based on this analysis? 2.4 Make recommendations of ways in which any shortcomings could be addressed. State the limitations of the use of ratios in the measurement of financial performance. Applying different types of analytical tools and techniques to a range of financial documents and formulate conclusions about performance levels and needs of stakeholders.
When the organization performs any activity it always has an effect on the stakeholders. The stakeholder may be any customer, supplier, consumer group, competitor, government and media. The stakeholders use this information in different ways for utilizing it. And at the corporate level this information is very important because they use it for future decision and to check that what is going right and what is wrong inside the organization. And to gather this information some tools are used and in the financial management term these are as Ratio analysis and the major groups of ratios are: Profitability ratios Liquidity ratios Efficiency ratios Shareholders ratios

These all ratios are calculated by obtaining data from the financial statement of the organization.

Profitability ratio

When the organization has to check its profitability it uses the profitability ratio analysis. And an on gross profit ratio and operating profit ratio these are very easy to calculate. And this also tells us that our investment is safe and we are running our business in good situation.

Liquidity ratio
Checking profitability is good but it is also important that check that how much quickly we can convert our business into cash at the time of the cash requirement. And therefore you should have enough cash to meet the financial needs of the firm for growing and to compete in the market. The other names of the liquidity ratio are acid test ratio, quick ratio and current ratio.

Efficiency Ratios
We talk about the resources of the organization and how the organization is changing them into the most liquid asset. And for checking this organization uses the efficiency ratio. And this also includes the stock turnover and debtors turnover ratio.

Shareholders ratios
This ratio is beneficial for the stakeholders because this provide them the information and they took decision on its basis that in which they have to invest and which shares are to buy and which are to sell. And the investors always analyze the dividend yield, sales growth and PE ratio. This data is collected from the annual reports of Abcam plc and Sky pharma for the year ended 2009 for calculating these ratios. We did not make the full statement of these two organization but we take the data we need for performance of these ratios.

Continuing operations Revenue Cost of sales Gross profit Administration Expenses Research and development expenses Pre-exceptional Operating profit Exceptional items Operating profit/(loss) Interest Fixed Assets Current Assets Inventories Trade and other receivables Cash & Cash Equivalents Non-current assets held for sale Short term deposits Derivatives Total Current Assets Total Assets Current Liabilities Total Shareholders' Equity (Net

Abcam 2009 2008 000 000 56801 36598 19420 14389 37381 22209 18433 12421 3076 2417 15872 7371

Skyepharma 2009 2008 m m 55.9 62.2 15 19.6 40.9 42.6 6.2 6.6 19.6 25.1 15.1 1.4 13.7 13.3 38.9 10.9 28.5 -17.6 14.7 44.9

15872

7371

4995

6796 6486 25501

4506 4860 13473 1020

1.3 16.5 27

1.5 19.4 35.7 3.9

1338 40121 45116 8565 36468

23859 23859 4748 24122

44.8 83.7 28.1 -79.6

60.5 105.4 40.4 -89.8

Assets/Liabilities) Non-current Liabilities Total Capital

83 36551

187 24309

135.2 55.6

154.8 65

These are the different type of ratio that we calculated by using the above data.

Profitability: GP Operating Profit Ratio ROE ROCE Liquidity: Current Ratio Quick Ratio Efficiency: Return on Assets Stock Turnover A/R turnover Shareholder Ratios: EPS PER Debt/Equity Debt Ratio (Total Debt/ Total Assets) Interest cover Sales growth Gross Profit growth

Abcam 2009 65.81% 27.94% 43.52% 43.42%

2008 60.68% 20.14%

Skyepharma 2009 2008 73.17% 27.01% 68.49% 17.52%

30.56% -18.97% -12.14% 30.32% 27.16% 16.77%

Sector 2009 70.00 % 25.96 % 43.00 % 47.55 %

4.68 3.89

5.03 4.08

1.59 1.55

1.50 1.46

1.7 1.3

35.18% 2.86 8.76

30.89% 3.19 7.53

18.04% 11.54 3.39

10.34% 13.1 3.21

10.00 % 2.9

34.83 16.88 (6.0)p (247.4)p 25.29 2.9 n/a n/a -1.7 -1.71 0.19 0.21 1.95 1.85 N/A N/A 0.97 -0.83 55% 68% 49% 53% -10% -4% 50% 67%

10.03

By analyzing these ratio we came to know that the sky pharma is very weak if we compare it with the Abcam and it is in the establish stages and for paying off its losses and to give dividend to its employees and share holders it must have to work hard and earn profit for few future years.

Identifying the strengths and weaknesses and giving feedback on the proposal
Making a financial proposal is not an easy task and it required lot of time and efforts. And for fair decision making the thorough study of this proposal is very necessary for proper feedback. Sometime in various situations the weakness become the strength and strength become the weakness. The strengths and weaknesses for the production plant are stated below:

Strengths

Weaknesses

Simple and easy to understand. It does not Possibly over-simplified lacking detail. The involve complex calculations breakdown of costs should have been

included Assuming that forecasts are fairly reliable, it The underlying assumptions should have provides a quick payback period. been included that were used to forecast the sales and expenses figures. Focuses on the new project without mixing it with the existing operations. This is useful when there is good expectation of reliable measurement of cash flows in the future but can be a weakness in some cases. Only provides one option a more useful version would include more than one alternatives to choose from and provide a means of comparative analysis.

Before approving the final version the management revised it many times. The feedback system should have certain capabilities to assess projects including: Financial viability Strengths and weaknesses Impact on organisational objectives Organisational risks Impact of financial ratios

The decision making machinery should also be capable of prioritising between various proposals as to the best cost-benefit ratio, lowest risks etc.

Reviewing and questioning financial data:


Data source is very important where we collect it for the purpose of decision making for further investment and its reliability and accuracy is also dependent on it. Some of the measures that are used to ensure the quality of financial information are: Some organization relies on their internal auditors for checking the accuracy and reliability of the data. For making the beneficial decision through it. The authority matrix of an organisation The accounting and management information systems External audits

The assurance that in an organisation e.g. Abcam the systems of producing financial information are robust and well maintained will have impact on the authenticity of the annual report and particularly the financial statements thus providing a realistic picture of the actual business.

Task 3 3.1 Describe the various forms of budgeting models and explain, with reference to the links to any financial constraints, the achievement of organisational targets, legal requirements and accounting conventions, which you determine would be the most effective model to use in your organisation, or for the organisation of your choice. Be able to assess budgets based on financial data to support organizational objectives.
Infect the all other criticise the budgeting procedure and also use of it. But all the organizations use these techniques a various forms. The new theories and concept are not taking and leading but the budgeting method is still alive and is in progress because of its simplicity with which they can be prepared and modified as well on a continuous basis. Many tools and techniques are used to predict the future and these could be business plan. Strategic plan and balance scorecard.

Identify how a budget can be produced taking into account financial constraints and achievement of targets, legal requirements and accounting conventions

The budget which is discussed is of the production company who manufactured the chemical for the pharmaceutical like Sky pharma and Alliance pharma. We still used very old technique of incremental budgeting where the future budget is prepare on the basis of last year budget and consumption. The budgeting estimation is the responsibility of the CFO committee and the members of this committee are the Sales and Marketing Director, Director HR, Production manager, Purchasing Manager and the Management Accountant. Every year in October the budgeting process is started and all departments are requested to provide the estimated budget for the next year by reviewing the performance of the current year. When the department provide the budgets then financial statements are set according to the pre set budgets.

Sales Budget:
When we talk about the sales budget it looks very simple but it has some financial constraints Some products are demand by the customers and it is very difficult because every day the current market has a changing its nature and some products are use at large scale and much fluctuated demand. Price also effect the sale budget because sometime we sales the goods at cost price to compete in the market. There is also very important issue of innovation and research and developments to stand in the competitors. Raw material, labour cost and other expenses are estimated when the cost of the product is finalized. Then the production budget is allocated to the said department.

Production Budget
Direct labour of the workers, raw material, and indirect labour is always prepared from the production budget. Labour cost and the direct and indirect labour affect the performance of production department. Human resource department and purchasing department are very important to meet the target budget of the production and there is a need of close relation and works together for these departments to achieve their targets. And purchase department should have to purchase the goods at low prices but no compromise with quality and standard. Always hire the skilled labour to manage the competitive job market of today. And fulfil their all conditions and trained them well to ensure that you have the best working force.

Task 4 4.1Analyse the budget shown below, and discuss any issues raised regarding cash flow and legal requirements. 4.2 Suggest at least three alternative courses of action the organisation could take to help overcome the issues identified. 4.3 For the purpose of this exercise, please assume that the organisation has an agreed overdraft of 750,000 with its bankers. Analysing the budget outcomes against organizational objectives and identifying alternatives:
Evocern management keeps a very close and punctual control on monthly base performance of the production but it uses the old budgeting methods but in some different and modified form. The Evocern always compare the performance of the organization against the organization and this also provides the solution for taking the accurate step to allocate the budget. First there were very strict and inflexible rules that were to follow but now it applies the very flexible method to promote the annual budget. And by this flexibility it breakdown the annual budget into monthly budget into twelve part and then it become very easy to maintain and allocate it. And these accomplish their demands very easily. Before we can relate the budgetary control system to our organisational goals, it is useful to present the organisational goals here: Always maintain the status of preferred supplier for certain material. Just in time relationship with clients for more arrangement of the products. Always try to improve and take a look on the improvement of the supply and demand for abnormal profit and produce good and quality product for the consumer. Complete the all operation in efficient and effective manner to save the cost but no compromise with the quality. Since budget is only a numerical representation of financial plans of an organisation, the above stated goals of Evocern production are the sources of all the budgets that are prepared annually and monthly. As discussed above a whole set of budgets is prepared on an incremental basis and then actual performance is monitored by using variance analysis. Major variances used at Evocern are as follows: Sales price variances Sales volume variances Raw materials price variances

Raw materials usage variances Labour rate variances Labour efficiency variances. To Maintains the financial and operational control these variances are calculated and analyzed continuously. Certain causes of variances are given below with examples:

Cause of Variance Examples from recent past Incorrect budget Assumptions


The annual sales volume of xcd-3843 was forecast at 234,000 litres for the year 2010 on the basis of 10% more than the previous year but the customer who purchased this product is phasing down its use over coming years. The actual demand for it for 2010 will only be 176,000 units. There was a failure of information gathering and communications between the client and marketing department. Timing some of the components used in our products has increased in price but the change has been applied to the costs of production straightaway. Most of these components are in stock for about 3 months hence the new price should have been only applied on the new supplies. Price & Cost changes Volume changes Human error