ASSIGNMENT COVER SHEET

UNIVERSITY OF SUNDERLAND

Student ID:

Student Name:

Module Code: PGBM 01

Module Name / Title: Finance Management & Control

Centre / College: Segi College Subang Jaya

Due Date: Hand in Date:

Assignment Title: Finance Management & Control

Table of Contents

Students Signature: (you must sign this declaring that it is all your own work and all
sources of information have been referenced)
PART 1: Fox Sdn Bhd...............................................................................................................2
A) Financial Ratio Calculation.........................................................................................2
B) Analysis and Comments..............................................................................................3
(i) Profitability....................................................................................................................3
(ii) Efficiency.....................................................................................................................4
(iii) Liquidity......................................................................................................................5
(iv) Investment Ratio..........................................................................................................5
Conclusion..............................................................................................................................6
PART 2 – MICO SDN BHD......................................................................................................7
(a) Total funds need to raise by Mr. Alfred for acquisition..............................................7
(b) Net cost of debt of the bond issued.............................................................................7
(c) WACC for the total funds raised by the acquisition.........................................................8
(i) Proposed Option of Funding.........................................................................................9
(ii) Calculations..................................................................................................................9
Recommendation..............................................................................................................12
PART 3 – Investment Scheme X and Y...................................................................................13
(i) Scheme Calculation for both scheme X and Y Payback Period............................13
(ii) Accounting Rate of Return.....................................................................................14
(iii) Net Present Value..................................................................................................14
(iv) Internal Rate of Return (IRR)................................................................................15
(v) Discuss the superiority of IRR over NPV in appraising investment decision.......17
References................................................................................................................................19

1
 PART 1: LOYD PLC

A) Financial Ratio Calculation

Formula Year 2020 Year 2021

a. Gross Profit Margin (GPM) £ 30,000−£ 8,000 £ 40,000−£ 9,000
¿ ×100 %¿ ×100 %
Sales−Cost of sales £ 30,000 £ 40,000
¿ × 100 %
Sales ¿ 73.33 % ¿ 77.50 %

b. Net Profit Margin (NPM) £ 16,000 £ 18,500

¿ ×100 % ¿ × 100 %
Net Income £ 30,000 £ 40,000
¿ ×100 %
Sales ¿ 53.33 % ¿ 46.25 %

c. Current Ratio (CR)

£ 30,200 £ 41,000
Current assets ¿ ¿ 1.81 ¿ ¿ 1.33
¿ £ 16,700 £ 30,800
Current liabilities
d. £ 30,200−£ 4,900 £ 41,000−£ 13,700
Quick Ratio/ Acid Test Ratio (QR)
¿ ¿
Current assets−Inventory £ 16,700 £ 30,800
¿
Average receivables ¿ 1.51 ¿ 0.89
e. Receivables Collection Period £ 8,800 £ 11,600
¿ ×365 days ¿ × 365 days
Average tradereceivable £ 30,000 £ 40,000
¿ ×365 days
Credit sales ¿ 107 days ¿ 106 days
Earnings per Share (EPS) £ 16,000 £ 18,500
¿ ¿
Net Income−Preferred Stock Dividends 20,000units 20,000units
¿
Average common shares outstanding ¿ 0.80 Pence ¿ 0.93 Pence
g. Price Earning (PE) Ratio
£ 2.50 £ 3.30
¿ ¿ 3.13 ¿ ¿ 3.55
Stock price per share 0.80 Pence 0.93 Pence
¿
Earnings per share
h.
Dividend Yield 0.18 Pence
0.12 Pence ¿ ×100 %
¿ ×100 % £ 3.30
Dividend per share £ 2.50
¿ × 100 % ¿ 5.45 %
Market price per share ¿ 4.80 %
Source: Corelli, 2018; Posthurnus, Basson, Olivier and Watney, 2000; Kimmel, Weygandt
and Kieso, 2011; Bragg, 2002.

B) Report to the Management

2
Category of Financial Ratio Loyd plc. Industry Average
Ratio 2020 2021 (2021)
Profitability Gross Profit Margin 73.33% 77.50% 65.00%
Net Profit Margin 53.33% 46.25% 55.00%
Efficiency Receivables Collection Period 107 days 106 days 68 days
Liquidity Current Ratio 1.81 1.33 -
Quick Ratio 1.51 0.89 -
Investor Earnings Per Share 0.80 Pence 0.93 Pence 0.50 Pence
Ratio Price Earning Ratio 3.13 3.55 6.50
Dividend Yield 4.80% 5.45% 3.20%
Source: From Part 1 (A) computation

i. Profitability

The Gross Profit Margin of Loyd plc has increased from 73.33% in 2020 to 77.50% in
2021. The increase is mainly contributed by the increase in price of the finished goods
due to rise in cost of sales where the increase in price of finished goods is higher than
the increase of cost of sales (Scott,2012).

However, the Net Profit Margin has reduced from 53.33% in 2020 to 46.25% in 2021.
This is due to high operating cost or higher interest rate of debt (Brigham and
Houston, 2015; Bowers, 2019).

Loyd’s Gross Profit Margin in 2021 is better than the Industry average in 2021 but the
Net Profit Margin in 2021 is lower compared to the Industry average in 2021.
Therefore, Loyd can adopt the following strategies to improve its Net Profit Margin:

o Propose lower interest rate to the creditors (Bowers, 2019).

o Reduce the operating cost (Brigham and Houston, 2015).

ii. Efficiency

The receivables collection period of Loyd has reduced from 107 days in 2020 to 106
days in 2021. However, it is still higher than the industry average of 68 days which
means Loyd’s creditors take a longer time than the industry average to pay for the
products purchased from Loyd. This might be due to the poor credit collection
management of Loyd (Bamber and Parry, 2014).

Loyd can adopt the following strategies to improve its receivables collection period
(Bamber and Parry, 2014):
o Provide discount for early payment (within a certain period).
o Improve credit collection management by chasing late payments.

3
iii. Liquidity

Liquidity ratios are used to determine the capacity of a company to meet its short-term
obligations. (Scott, 2012)

The current ratio of Loyd has decreased from 1.81 in 2020 to 1.33 in 2021. This shows
the current assets of Loyd has reduced from £1.81 to £1.33 for every £1.00 of its
current liabilities.

Quick ratio is simply current ratio by removing inventory from its calculation.
Inventory can’t be easily converted into cash within the next 1-2 months unlike other
current assets. Therefore, quick ratio indicates the ability of a company to settle his
short-term obligations without the need to convert its inventory into cash. The quick
ration of Loyd has decreased from 1.51 in 2020 to 0.89 to 2021. Loyd’s quick ratio is
below 1.00 in 2021, which indicates that it might be in trouble to borrow money from
lenders and purchase goods in credit in the future (Berman, Knight and Case, 2013).

It is notable that the inventory of Loyd has increased significantly from 2020 to 2021.
Therefore, Loyd should prioritize its inventory and clear its obsolete inventories.
(Berman, Knight and Case, 2013).

iv. Investor Ratio

For investors, earnings per share is a crucial measurement of a company’s share

performance (Atrill and McLaney, 2006). Loyd’s earnings per share has increased
from 80 pence in 2020 to 93 pence in 2021. When comparing to the Industry average
to 50 pence, investors do see Loyd as an attractive investment.

The price earnings ratio of Loyd has increased from 3.13 in 2020 to 3.55 in 2021. This
indicated that share’s capital value has increased from 3.13 times to 3.55 time higher
than its current earning level. Due to the increase of the price earnings ratio, investors
will be more confident on the future earning power of Loyd (Atrill and McLaney,
2006). However, the price earnings ratio is much lower when compared to the Industry
average of 6.50. This indicates that Loyd’s stock price is undervalued compared to the
industry.

Loyd’s dividend yield has increased from 4.80% in 2020 to 5.45% in 2021. Loyd’s
dividend yield is higher compared to the industry average of 3.20% which means it is
an attractive investment.

Conclusion

4
 Loyd must make improvement to their liquidity ratio and efficiency ratio by
improving its inventory management and credit collection management. By improving
the mentioned ratios, Loyd will eventually improve its cashflow management.

From an investor’s perspective, the investor ratio seems positive thus Loyd is an
attractive investment opportunity.

PART 2: Investment Scheme of Futsal and Restaurant

i) Accounting Rate of Return

FORMULAS SCHEME FUTSAL SCHEME

(k£) RESTAURANT (k£)

5
Average Annual Profit 20+30+40+ 40+50 30+30+40+50+ 30
¿ ¿
Total Profit 5 years 5 years
¿
Number of Years ¿ 36 ¿ 36

Average Annual Depreciation 82−18 82−22

¿ ¿
Cost of Investment −Residual Value 5 years 5 years
¿
Number of Years ¿ 12.8 ¿ 12.0
Average Annual Profit after Depreciation ¿ 36−12.8¿ 23.2 ¿ 36−12
¿ Average Annual Profit−Average Annual Depreciation ¿ 24

Average Investment =82−¿182

Initial Investment + Residual Value ¿ 50
¿
2
Accounting Rate of Return = 23.2 x100% = 24 x100%
Avegare Annual Profit after Depreciation 50 52
¿ ×100 %
Average Investment = 46.4% = 46.35%

6
References

1. Brigham, E.F. and Houston, J.F. (2015). Fundamentals of Financial Management,

Concise Edition. 8th ed. South Western: Cengage Learning.
2. Bowers, S.L. (2019). Accounting and Corporate Finance for Lawyers. New York:
Wolters Kluwer.
3. Corelli, A. (2018). Analytical Corporate Finance. 2nd ed. Switzerland: Springer
Nature Switzerland AG.
4. Posthurnus, L.C., Basson, N., Olivier, P. and Watney, A. (2000). Principles of
Financial Management. South Africa: Juta & Co Ltd.
5. Bragg, S.M. (2002). Business Ratios and Formulas: A Comprehensive Guide. New
Jersey: John Wiley & Sons.
6. Kimmel, P.D., Weygandt, J.J. and Kieso, D.E. (2011). Financial Accounting: Tools
for Business Decision Making. 6th ed. New Jersey: John Wiley & Sons.
7. Scott, P. (2012). Accounting for Business: An Integrated Print and Online Solution.
United Kingdom: Oxford University Press.
8. Bamber, M. and Parry, S. (2014). Accounting and Finance for Managers: A Decision-
Making Approach. Great Britain & United States: Kogan Page.
9. Berman, K., Knight, J. and Case, J. (2013). Financial Intelligence: A Manager’s
Guide to Knowing What the Numbers Really Mean. Revised ed. Boston,
Massachusetts: Harvard Business Review Press.
10. Atrill, P. and McLaney, E. (2006). Accounting and Finance for Non-Specialists. 5th
ed. England: Pearson Education.