Financial Status of

SINGER SRI LANKA PLC

Princy Priyadarshini John - 18031233

Assessment 2
MODULE AC7052
Accounting and Finance for Managers
1
 Guildhall School of Business and Law
Student Self-Assessment and Feedback / Feed forward Cover-Sheet
Assessment 2: Case Study- Individual assignment

Part 1.0 Student/module details

Student Number (s): Submission Deadline: Module Assessment

Princy Priyadarshini John Week 15 Contribution:
70%

Student name:
Princy Priyadarshini John
Module Code and Module Title: Module Leader:

AC7052
Accounting and Finance for Managers: Case Study-
Individual assessment 70%
Academic Year 2017-2018
Assessment Title: Module Tutor:
Case study (Individual assessment): 3,000 words

The assignment addresses the following learning outcome/s of the module:

This group report requires students to use information from corporate annual reports or databases with reference to
academic literature to demonstrate understanding of major theoretical and practical problems.

You will be marked, graded and assessed according to the following PG criteria:
Class Mark Characteristics
%
Excellent in every way. Knowledgeable, incisively analytical, conceptually sound,
widely-researched and well-structured. Displays a critical and sophisticated understanding of ideas,
Distinction 70 +
debates, methodologies and principles. Comprehensively cited and referenced. A degree of flair
apparent in the work.
Very good, well-researched, solid. Addresses question. Sensibly structured and well presented.
Evidence of analysis, reasoning and evaluation. May have some errors in emphasis but not in fact,
Merit 60 - 69
and may be limited in terms of supporting material and breadth of coverage. Appropriately cited
and referenced.
Pass 50 - 59 Average to good. Reasonable bibliography. Signs of effort, though more descriptive than
analytical. May have some errors but balanced by sound work. May not fully address the question

2
 with deficiencies in knowledge and understanding or directness and organisation.
Fail. Descriptive narrative. May be partly irrelevant. Indiscriminate. Lacks structure. Could be
more direct and explicit. Little independent research evident. Short bibliography.
Fail 40 - 49
May be confused or irrelevant. Heavily based on lecture notes, but a minimum of understanding to
justify a pass. Answers by inference.
Poor. Does not answer question directly. Little evidence of independent reading or lecture notes.
Major errors or too brief. Unstructured.
Fail 0 - 39
Very poor indeed. Fails in every respect to answer the question effectively. No evidence of
learning, reading or knowledge. Largely irrelevant. Very brief.

Part 2. Student self-assessment

2.1 Checking and proof reading

Proof reading:
4 3 2 1 0
please circle number of times

Checking: Spelling (inc. spell-checking) YES

Punctuation (inc. correct use of apostrophes) YES
Please indicate that you have checked the following Paragraphs (NB: one sentence is not a paragraph) YES
Illustrations (pay attention to referencing and titling) YES
in line with the assignment brief:
Citations and References (do they correspond?) YES
Presentation (inc. spacing and visual appeal) YES

2.2 Quality of submission

Please assess the following two aspects of your EXCELLENT GOOD ADEQUATE POOR INADEQUAT
work as: E
70+ 60+ 50+ 40+

BELOW 40

Quality of academic argument:

Introduction/Conclusion (effectiveness)
Arguments (structuring and coherence)

Evidence (supporting argument, referencing)

Application of Theory (relevance)

Focus (addressing task set)

3
Signposting (use of vocabulary)

Criticality (quality of academic writing)

Quality of presented work:

Titles and Subtitles (check appropriateness)
English (spelling, grammar, punctuation)

Figures, Tables, Plates and Equations

(appropriateness and quality)
Paragraphing & Layout (presentation)

Citations (accuracy)

References (accuracy)

Distinction Merit Pass Refer Fail

What grade do you think the work is worth?
70+ 60+ 50+ -50

Name/Number Signature Date

Princy Priyadarshini John 24th September 2019

AC7052
Accounting and Finance for Managers: Case
study 70%
Academic Year 2017-2018

Student Name: Princy Priyadarshini John First Marker:

Student ID: 18031233 Second Marker:

Title of essay: Financial Status of Singer Sri Lanka PLC

Assessment criteria Level of achievement

Distinction Merit Pass Refer/Fail Fail

Outstanding Good Average Poor Inadequate

4
 80+ 60+ 50+ 40+ -40

Excellent
70+

 Adequate use of information from

corporate annual reports or databases and
demonstrate understanding of major
theoretical and practical problems.
 Use of examples, theory linked with
practice

Weighting 40%

Notes from marker :

 Critically evaluation of arguments on all

sides of the chosen issue.

Weighting 40%

Notes from marker:

• Professional presentation of the essay

including introduction, coherence of
writing-style, conclusion and
bibliography /Harvard Referencing
Weighting 20%

Notes from marker:

Areas to concentrate on next time

Content Abstract Introduction Focus Discussion Argument

Examples Detail Work- Reflection Work-

related related
English Spelling Grammar Punctuation Paragraphs/sentences Vocabulary

Layout Contents Titles Subtitles Spacing Word

processing
Illustration Figures Tables Plates Equations Calculations

Referencing Citations Listing Range/Depth

Marker’s final comments

5
 2nd marker comments

Agreed Mark

Signatures: Date

Paper Information

Topic : Financial Status of Singer Sri Lanka

Paper Type : Individual Assignment

Word Count : 4100

Pages : 38

Referencing Style : Harvard Style

Educational Level : Masters in Business Administration

6
Table of Contents

Abbreviation.............................................................................................................................10

1. INTRODUCTION............................................................................................................11

2. ABOUT SINGER SRI LANKA......................................................................................11

3. INFORMATION FOR STAKEHOLDERS.....................................................................13

3.1 Financial Position, Profitability and Liquidity..........................................................13

3.2 Profitability and Gearing...........................................................................................14

3.3 Liquidity, Non-withdrawable portion of Equity........................................................15

3.4 Profitability and Efficiency.......................................................................................15

3.5 Education, Health and Youth Development (CSR)...................................................16

4. DIFFERENCE OF FINANCIAL STATEMENTS COMPARING LIMITED

COMPANIES WITH SOLE PROPRIETORSHIPS & PARTNERSHIPS..............................17

4.1 Features of Limited Liability Companies..................................................................17

4.2 The Income Statement...............................................................................................18

4.2.1 Profit...................................................................................................................18

4.2.2 Audit Fee............................................................................................................18

4.2.3 Dividend.............................................................................................................19
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 4.2.4 Transferred to General Reserve.........................................................................19

4.3 Balance Sheet............................................................................................................19

4.3.1 Corporation Tax.................................................................................................19

4.3.2 Equity.................................................................................................................19

5. THE BUDGETING PROCESS.......................................................................................20

5.1 Budgeting and Forecasting........................................................................................20

5.2 The Importance of Forecasts in Budgeting...............................................................20

5.3 Planning Process and its Factors...............................................................................20

5.4 The Interrelationship of Various Budgets.................................................................21

5.5 The Use of Budgets and using budgets for control...................................................22

5.6 Share factors of Organizations that Operates successful Budgetary Control Systems.
...................................................................................................................................24

6. WORKING CAPITAL CYCLE......................................................................................25

6.1 Working Capital relationship with Liquidity............................................................25

6.2 Working Capital Cycle..............................................................................................26

6.3 Elements of the Working Capital Cycle....................................................................26

6.4 Element to Consider During Managing Working Capital Cycle...............................27

6.4.1 Managing Inventories.........................................................................................27

6.4.2 Managing Receivables.......................................................................................28

6.4.3 Managing Cash...................................................................................................28

6.4.4 Managing Creditors............................................................................................28

7. SINGER SRI LANKA’S SOURCE OF FINANCE........................................................29

7.1 Internal and External Source of Finance...................................................................29

7.2 Long Term & Short Term Sources............................................................................29

7.3 Finance Sources and the Relevant Amounts of Singer Sri Lanka.............................30

7.4 Issues of Share and Overall Gearing.........................................................................30

8. CONCLUSION AND RECOMMENDATION...............................................................31

8
PERSONAL REFLECTIVE STATEMENT…………………………………………………
32
REFERENCE.........................................................................................................................323

Table 2-1 Employees Gender Base..........................................................................................11

Table 2-2 Key Indicators of Singer Sri Lanka…………………………………………………..…
12
Table 3-1 Financial Position....................................................................................................13
Table 3-2 Profitability..............................................................................................................13
Table 3-3 Liquidity..................................................................................................................14
Table 3-4 Profitability..............................................................................................................14
Table 3-5 Liquidity…………………………………………………………………………...15
Table 3-6 Efficiency......................................………………………………………….……..16

Table 6-1 Finance Sources.......................................................................................................30

Table 7-1 Finance Sources………………………………………………………………….30

Figure 5-1 Planning Process…………………………………….……………………………20

Figure 5-2 Interrelationship of Various Budgets……………….…………………………….22
Figure 5-3 Planning and Controlling Process…………………………………………………
23
Figure 6 -1 Working Capital Process…………………………...
…………………………….26
Figure 6-2 Working Capital Cycle
Elements………………………………………………....27
Figure 7-2 Source of Finance ……………………………..……………………………….…
29

Abbreviation

T/O Turn Over

PBT Profit Before Tax
9
PAT Profit After Tax
COGS Cost of Goods Sold
NP Margins Net Profit Margins
GP Margins Gross Profit Margins
NCOA Net Cash from Operating activities
CACE Cash and Cash Equivalents
SCF Statements of Cash Flows
SFP Statements of Financial Position
LLC Limited Liability Company

1. INTRODUCTION

Accounting is concerned with collecting, analysing and communicating financial

information. According to Peter Atrill & Eddie McLaney (2006), this information is useful
for those who need to make decisions and plans about businesses, and for those who need
to control those businesses. For example, the managers of businesses may need accounting
information to decide whether to: develop new products or services (such as a computer
manufacturer developing a new range of computers); increase or decrease the price or
quantity of existing products or services (such as a telecommunications business changing
its mobile phone call and text charges); borrow money to help finance the business (such
as a supermarket wishing to increase the number of stores it owns); increase or decrease
the operating capacity of the business (such as a beef farming business reviewing the size
of its herd); change the methods of purchasing, production or distribution (such as a
clothes retailer switching from one to another suppliers). The information provided should
help in identifying and assessing the financial consequences of such decisions.

2. ABOUT SINGER SRI LANKA

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Singer has been in Sri Lanka since 1877, when the first Singer sewing machines went on
sale at a Colombo store. Today, Singer (Sri Lanka) PLC is a large, diversified company
with unmatched presence throughout Sri Lanka. It remains a member of the worldwide
franchise of Singer. Beginning with the sewing machine, Singer's product portfolio has
diversified to encompass a highly successful multi-brand strategy combining products of
top world marques with the company's own products across a range of household,
industrial and financial categories. (Source: www.singersl.com, 2019).

Table 2-1 Employees Gender Base

Source: Annual Report of Singer Sri Lanka 2018/2019

Table 2-2-Key Indicators of Singer Sri Lanka

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 Source: Annual Report of Singer Sri Lanka 2018/2019

3. INFORMATION FOR STAKEHOLDERS

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3.1 Financial Position, Profitability and Liquidity

Singer Sri Lanka’s financial position for the last 3 years has not improved
significantly. But the Interest bearing loans and borrowings are high compare to last 2
years. Current liabilities has increased drastically from 2017 to 2019.

Also the company has invested a lot in current assets where a steady growth can be
seen for the last 3 years. Also the current asset also be very positive showing the
company that has a highest level of liquidity.

Table 3- 2 Financial Position

2017 2018 2019

Non-current Assets 8,655,989,247 8,555,623,731 8,913,090,833

Current Assets 20,174,372,893 25,471,697,875 28,190,397,965
Equity and Liabilities 5,933,803,055 4,799,691,875 4,635,982,236
Non-Current Liabilities 7,495,206,316 4,305,286,317 9,565,869,962
Current Liabilities 15,401,352,769 24,922,343,414 22,901,636,600
` Source: Annual Report of Singer Sri Lanka 2018/2019

Profit has dropped to 85.9% from 2018, this is mainly because of the heavy
competition faced by Singer Sri Lanka. There is big drop in 2019 but a positive
growth from 2017. The finance cost of the company also has increased from 2017.
This is mainly because of the heavy loan taken. Overall profitability has dropped
badly.

Table 3- 3 Profitability
2017 2018 2019

Revenue 39,267,202,832 50,910,032,892 43,617,889,429

Gross Profit 11,417,767,556 14,181,792,095 12,297,196,939
Finance Cost (1,281, 130,939) (2,149,727,102) (2,320,955,586)
Profit for the Year 1,104,444,667 999,023,274 140,550,439
Source: Annual Report of Singer Sri Lanka 2018/2019
One of the reason is also Government regulations imposing a 100% cash margin on
the import of most consumer durables affected the operating cash flows of Sri Lankan
consumer durable retailers. Demand for consumer durables had considerably declined
towards the end of 2018 as a result of the country’s lowered discretionary income
levels and rise in interest rates
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 Table 3-4 Liquidity
2017 2018 2019

Current Ratio (Times) 1.35 1.02 1.23

Quick Assets Ratios 0.80 0.59 0.70
Source: Annual Report of Singer Sri Lanka 2018/2019

Liquidity has been maintained for steadily for the last 3 years compare to slight drop
in 2018, due to the loan amount in 2018. Forecasting would be, this could even
improve in coming years. This is because company is maintaining a steady growth in
assets.

3.2 Profitability and Gearing

The below tables show profitability of the company has come down. For the Lenders
of the company it is important to see the below ratios. In 2017 the profitability was in
a good position where in 2019 it has dropped due to the industry not growing as
expected. Also the main reason was because of the loan amount that was taken in
2018 which affected the year 2019. Though the revenue and the gross profit have
been increased, the net profit has come down heavily.

The lenders may not be very keen to lend money until the loan taken to be settled
partially. Even the return on capital shows that capital has not been utilised optimum.

Table 3-5 Profitability

2017 2018 2019

Net Profit Margin 3.04% 2.17% 0.20%

Return on Capital 8.29% 9.72% 0.66%
Source: Annual Report of Singer Sri Lanka 2018/2019

3.3 Liquidity, Non-withdrawable portion of Equity

Table 3-5 Liquidity

2017 2018 2019

Current Ratio (Times) 1.35 1.02 1.23

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 Quick Assets Ratios 0.80 0.59 0.70
Source: Annual Report of Singer Sri Lanka 2018/2019

Analysing the table, it shows that Singer Sri Lanka has the capabilities to meet its
financial obligations without fail. The company has managed its liquidity to make
sure to face both normal and stressed conditions without incurring unacceptable losses
or risking damage to the company.

There is a Restriction on the right of shareholders to make drawings of their claim.

According to Peter Atrill & Eddie McLaney (2006), the law does not specify how
large the non-withdrawable part of a particular company’s shareholders’ claim should
be, but simply that anyone dealing with the company should be able to tell from
looking at the company’s balance sheet how large it is. In the light of this, a particular
prospective lender, or supplier of goods or services on credit, can make a commercial
judgement as to whether to deal with the company or not. Singer Sri Lanka, does not
have a non-withdrawable fund for Lenders shown in the Annual Report.

3.4 Profitability and Efficiency

Since the profitability ratio has been discussed heavily in the above sections, we will
discuss the Efficiency ratio. This is used to measure the efficiency with which
particular resources have been used within the business.

Efficiency of the company has few fluctuation, but has a very high growth compare to
2017 in terms of sales revenue per employee. Human capital has been used optimum
to make sure these resources are used carefully.

This ratio examines how effectively the assets of the business are being used to
generate sales revenue. In terms of Assets, there has been a drop in 2019 compare to
2018, but a positive growth compare to 2017. It has maintained or used its assets more
productively in the generation of revenue. Also we could understand, it could be over
trading in 2018, ‘overtrading on its assets’, that is, it has insufficient assets to sustain
the level of sales revenue.

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 Table 3-6 Efficiency
  2017 2018 2019
Sales revenue per 4,034,025.32 18,195,151.14 15,588,952.62
employee
Asset Turnover Ratio 4.05 7.32 4.63
Source: Annual Report of Singer Sri Lanka 2018/2019

3.5 Education, Health and Youth Development (CSR)

Corporate Social Responsibility is an important aspect of Singer Sri Lanka’s long-

term strategy. In a world where consumers are increasingly conscious of where their
products are sourced from and employees seek a sense of pride, fulfilment, and
substance from their workplace beyond a pay cheque, there has to be a congruence of
values between the Company and its employees. Singer has Corporate Social
Responsibility (CSR) initiatives, particularly in the areas of education, health, and
youth development. Singer engages in all activities in an environment-friendly
manner and safeguards the interests of the society and engages heavily in CSR
activities. (Source: Annual Report 2018/2019)

Accordingly to the report, Singer has identified its primary stakeholders to be

customers, employees, shareholders, suppliers, community, and Government
authorities. Other key stakeholders can include bankers, financial institutions,
depositors, assurance services providers and competitors. Above statistic shows that
company has a steady growth in terms of assets to liabilities. Also it has maintained a
steady efficiency of the assets and employee.

The unsteadiness of the figures shows that company is facing heavy threat by the
unstable government. This is not only affecting Singer Sri Lanka, but as a whole.
Stakeholders should be content to the performance carried out by Singer Sri Lanka
despite all PESTEL factors.
4. DIFFERENCE OF FINANCIAL STATEMENTS COMPARING
LIMITED COMPANIES WITH SOLE PROPRIETORSHIPS &
PARTNERSHIPS

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4.1 Features of Limited Liability Companies

A limited company is a general form of incorporation that limits the amount of

liability undertaken by the company's shareholders. It refers to a legal structure that
ensures that the liability of company members or subscribers is limited to their stake
in the company by way of investments or commitments. According to Peter Atrill and
Eddie McLaney (2006) limited company is an artificial person that has been created
by law. The company is a legal identity and it is totally separated from the owner.
Whereas in Sole Proprietorship and Partnership the legal identity is not separated
from the owner. The Limited companies may be owned by one person, or more. The
owners are known as members or shareholders. The ownership of a company is
normally divided into a number, frequently a large number, of shares, each of equal
size. Each owner, or shareholder, owns one or more shares in the company.

The primary benefit of a limited company is the separation of assets and income from
the corporation and the owners and investors through limited liability. This means that
if a company goes bust, shareholders can only lose as much as their original
investment and no more creditors or other stakeholders cannot claim owners' personal
assets or income like sole proprietors and partnership. Because of limited liability,
investors are more eager to risk capital since their losses are limited in that sense.

Another important benefit of LLC is the perpetual life, the existence of a company
will continue even if an owner of some or all the shares dies, those shares of deceased
owner will be transferred to the particular nominee already nominated by the owner
where the operations of LLC doesn’t stop at that point; this means that the life of a
company is separated from the life of the owner.

4.2 The Income Statement

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There are no major difference between the income statements of LLC and Sole
proprietorship and partnership business, it is almost identical, but there are few
features that needs consideration.

4.2.1 Profit

There are four types of profits of an income statement of a LLC, operating

profit, net profit (profit before tax) net profit after tax and profit for the year.
Operating profit reflects the residual income that remains after accounting for
all the costs of doing business, operating profit is the best indicator that shows
how well the company is doing in its business. Second measure is net profit or
profit before tax is calculated by deducting interest charges from operating
profit, the income statements of sole proprietorship and partnership generally
ends with net profit (profit before tax). The third measure is net profit after tax
is the profit that is calculated after paying tax to government since the
company is a separate legal entity it is liable to pay tax to the government
whereas the sole proprietorship or partnership the company is not liable to pay
tax but the owner since the company is not separated from owner, The profit
after tax is often a better assessment of what a business is really earning and
hence can use in its operations than its total revenues. It is the portion that is
available for shareholders. The final measure of profit is retained or
unappropriated profit which is available to pay dividend to shareholders of the
company.

4.2.2 Audit Fee

The limited companies which are normally bigger than a particular size is must
have their financial statements audited from professional auditors and auditor’s
fee is included in the income statement under the operating expenses. Even
though sole proprietor or partnership also can have their financial statements
audited it is not done in that manner or not everyone do, therefore there is no
requirement to include a component in the income statements sole proprietor
or partnership.

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 4.2.3 Dividend

Cash dividends are a distribution of a company's profits, the dividends that are
paid during the year and approved the shareholders before year end whether
paid or not will be appeared in the income statement following net profit after
tax.

4.2.4 Transferred to General Reserve

Transferred to general reserves are the balance amount appear in the income
statement after deducting the dividend from net profit after tax, this amount in
common practice reinvested or ploughed back to the company’s operations. In
general directors feel that taking this amount out of income statement and
placing them in reserves indicate an intention to retain the funds in the
company permanently for its operations and not to pay out dividend.

4.3 Balance Sheet

The Balance Sheet is a statement used to determine the financial strength and
weakness of a business. It lists everything a company owns and everything a company
owes at a specific point in time. There are five major components in a balance sheet
that is non-current assets, current assets, owner’s fund, non-current liability, current
liability. The balance sheet of a LLC and sole proprietor or partnership is mainly
differentiated by equity and tax component.

4.3.1 Corporation Tax

The corporation tax is calculated after the net profit, when LLC makes taxable
profit it has to pay corporation tax to the government. The corporation tax are
normally paid in arrears. This appears under short term liabilities in balance
sheet of LLC.

4.3.2 Equity

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 As mentioned above equity of a LLC appears in the balance sheet is different
from others. It includes share capital, retained earnings and other revenue and
capital reserves.
5. THE BUDGETING PROCESS

5.1 Budgeting and Forecasting

Organizations sets objectives, once the objectives are set, plans are drawn to achieve
those objectives. Plans can be in both qualitative and quantitative. When plans are
expressed quantitatively that is in numbers, monetary amounts and quantities it is
known as budgets. The process of converting plans into budgets is known as
budgeting. Budget is not a forecast, forecasts tend to be predictions of the future state
of the environment, forecast are very helpful to the planner/budget setter but budget
and forecast are distinctly different.

5.2 The Importance of Forecasts in Budgeting

Budgeting and forecasting should work in cycle with each other. Forecast will be used
to determine how companies should allocate their budget for future period of time.
The short term and long term forecasts will be used to create and update company
budget.

5.3 Planning Process and its Factors

Figure 5-3 - Planning Process

Identify business objectives

Consider options available to fulfil the objectives

Evaluate options and make a decision

Prepare long term plans to Budgets

Prepare Budgets (Long Term)

Source: Source: Accounting and Finance for Non Specialist – Fifth Edition

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 Any kind of businesses need to develop a plan for its future on whatever it is trying to
achieve. The 1st step of a planning process is identify the organizational objectives
that needs to be achieved. Organizational objectives must align with other division or
department’s objectives of the company, once the organization has identified the
objectives it considers the options available achieve the objectives meaning consider
the pros and cons of the options available, evaluate the options and make a best option
that can be used to achieve the particular objectives, once the best option has been
identified thereafter the company must make plans for the long term budget and then
prepare the long term budget of the company.

5.4 The Interrelationship of Various Budgets

A business prepares various budgets to plan for its future operations. Such budgets
plan the finances of the entire company and allow the business to coordinate the
various facets of its operations the various budgets contributes significantly in
preparation of the organization’s master budget which contains an income statement
and a balance sheet. The cash flow statement is considered to be a third master
budget. The sales budget begins by predicting the sales volume of the company over a
future period of time, the company may arrive at this estimated figure by analysing its
sales history, its competitors and the economic conditions. The sales budget then
calculates the amount of income it will earn from sales activities over the coming time
period. The production budget uses the data from the sales budget to calculate the
number of products the company has to produce over the period of time. The demands
of manufacturing, in combination with the business’s policy on raw materials
inventories, define the raw materials inventories budget. The purchases budget will be
dictated by the materials inventories budget, which will, in combination with the
policy of the business on payables payment, dictate the trade payables (creditors)
budget. One of the determinants of the cash budget will be the trade payables budget;
another will be the trade receivables (debtors) budget, which itself derives, through
the receivables collection policy of the business, from the sales budget.

21
 Figure 5-2 - Interrelationship of Various Budgets

Trade Receivables Trade Payables

Cash Budget
Budget Budget

Raw
Capital Direct
Sales Overheads Materials
Expenditure Labour
Budget Budget Purchasing
Budget Budget
Budget

Finished Inventories Raw Material

Production Budget
Budget Inventories Budget

Source: Accounting and Finance for Non Specialist – Fifth Edition

5.5 The Use of Budgets and using budgets for control

Budgets motivates managers for better performance meaning budget defining the
required level of achievement motivates managers to achieve their objectives It is felt
that managers will be better motivated by being able to relate their particular role in
the business to its overall objectives. Since budgets are directly derived from
corporate objectives, budgeting makes this possible.

Budgets provides basis for a system control meaning that control is concerned with
ensuring that events conforms to plans, budgeting is the yardstick to measure actual
performance with planned performance.

Budgets promotes forward thinking and identification of short term problems meaning
if the potential problem is picked up early the ideas or suggestions to overcome those
problems can be explored early, it gives managers time to calm and rational
consideration to overcome those problems.
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Budgets helps coordination between various sections of the business meaning it is
important that in any business the activities of various departments or sections are
inter linked so that the activities of one are balancing to those of another.
Figure 5-3 – Planning and Controlling Process

Identify business objectives

Consider options available to fulfil the objectives

Evaluate options and make a selection

Prepare long term plans to budgets

Prepare budgets (long term)

Perform and collect information on actual performance

Analyse variances

Respond to variances and exercise control

Revise plan or budget if necessary

According to Peter Atrill and Eddie McLaney (2006) budgets provides useful basis
for exercising control over the business, because control is usually seen as making
events conform to a plan. Since the budget represents the plan, making events
conform to it is the obvious way to try to control the business. If plans are drawn up
sensibly, there is a basis for exercising control over the business. It also requires to
have the means of measuring actual performance in the same terms as those in which

23
 the budget is stated. If they are not in the same terms, comparison will not usually be
possible. Taking steps to exercise control means finding out where and why things did
not go according to plan and seeking ways to put things right for the future. One of
the reasons why things may have gone wrong is that the plans may, in reality, prove to
be unachievable. In this case, if budgets are to be a useful basis for exercising control
in the future, it may be necessary to revise the budgets for future periods to bring
targets into the realms of achievability. This last point should not be taken to mean
that budget targets can simply be ignored if the going gets tough. However, budgets
may prove to be totally unrealistic. This could be for a variety of reasons, including
unexpected changes in the commercial environment. In this case, nothing whatsoever
will be achieved by pretending that the targets can be met.

Once the objectives have been determined, the various options that can fulfil these
objectives must be evaluated in order to prepare the long-term plan. The budget is a
short-term plan set within the framework of the long-term plan. Control can be
exercised through a comparison of budgeted and actual performance. Where a
significant divergence emerges, some form of corrective action should be taken. If the
budget figures prove to be based on incorrect assumptions about the future, it may be
necessary to revise the budget.

5.6 Share factors of Organizations that Operates successful Budgetary Control Systems

According to Peter Atrill and Eddie McLaney (2006) following are the common share
factors of an organization that operates successful budgetary control system. A serious
attitude taken to the system by all levels of management, right from the very top. It is
important that senior managers let their junior managers know that they are taking a
note on the monthly variance reports and the actions on them.

 Clear demarcation between areas of managerial responsibility so that

accountability can more easily be ascribed for any area that seems to be going out
of control. There should be a clear idea as to which manager is responsible for
each aspect of the business.

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  Budget targets being reasonable, so that they represent a hard yet achievable
target, managers being involved in setting their own targets increase the
managers’ commitment and motivation. Established data collection, analysis and
dissemination routines, which take the actual results and the budget figures, and
calculate and report the variances. This is a part of the business’s regular
accounting information system that enables report generations monthly

 Reports aimed at individual managers, rather than general-purpose documents so

that they take ownership.

 Fairly short reporting periods, typically a month, so that things cannot go too far
wrong before they are picked up.

 Variance reports being produced and made available to managers shortly after the
end of the relevant reporting period.

 Action being taken to get operations back under control if they are shown to be
out of control, the managers must take actions to ensure things are in right place
for future.

6. WORKING CAPITAL CYCLE

6.1 Working Capital relationship with Liquidity

The size and composition of working capital can vary between industries. For some
types of business, the investment in working capital can be substantial. For example, a
manufacturing business will typically invest heavily in raw material, work in progress
and finished goods, and will normally sell its goods on credit, giving rise to trade
receivables. A retailer, on the other hand, will hold only one form of inventories
(finished goods), and will usually sell goods for cash. Many service businesses hold
no inventories. Most businesses buy goods and/or services on credit, giving rise to
trade payables. Few, if any, businesses operate without a cash balance; though in

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 some cases it is a negative one (bank overdraft). Working capital represents a net
investment in short-term assets.

Example - A retailer, distributor or manufacturer may have a large amount of working

capital. However, if most of its current assets are in slow-moving inventory, the
company may not have the liquidity to pay its obligations on the agreed upon due
dates. Similarly, if a company is unable to collect its accounts receivable, it may not
have the liquidity to pay its obligations.

In contrast, consider a company that sells popular products online and customers pay
with bank credit cards or debit cards when they order. Further, the company's
suppliers allow the company to pay 60 days after it purchases the products. This
company may have very little in working capital, but it may have the liquidity it
needs.

6.2 Working Capital Cycle

According to Peter Atrill & Eddie McLaney (2016), the working capital needs of a
particular business are likely to change over time as a result of changes in the business
environment. This means that working capital decisions are constantly being made.
Managers must try to identify changes in an attempt to ensure that the level of
investment in working capital is appropriate.

Figure 6 -1 – Working Capital Process

CASH

FINISHED FINISHED
GOODS GOODS

TRADE RECEIVABLES

WORK IN RAW MATERIALS TRADE

PROGRESS INVENTORIES CREDITORS

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6.3 Elements of the Working Capital Cycle

According to Peter Atrill & Eddie McLaney (2016), Working capital is defined as
current assets less current liabilities. The major elements of current assets are: n
inventories (stock); n trade receivables (debtors); n cash (in hand and at bank). The
major elements of current liabilities are: n trade payables (creditors); n bank
overdrafts.

Figure 6-2 Working Capital Cycle Elements

Source: financialmanagementpro.com, 2019

6.4 Element to Consider During Managing Working Capital Cycle

6.4.1 Managing Inventories

A business may hold inventories for various reasons, the most common of
which is to meet the immediate day-to-day requirements of customers and
production. According to Peter Atrill & Eddie McLaney (2016), a business

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 may hold more than is necessary for this purpose if it is believed that future
supplies may be interrupted or scarce. Similarly, if the business believes that
the cost of inventories will rise in the future, it may decide to stockpile.

6.4.2 Managing Receivables

Selling goods or services on credit will result in costs being incurred by a

business. These costs include credit administration costs, bad debts, and
opportunities forgone in using the funds for more profitable purposes.
According to Peter Atrill & Eddie McLaney (2016), these costs must be
weighed against the benefits of increased sales resulting from the opportunity
for customers to delay payment. Selling on credit is very widespread, and
appears to be the norm outside the retail trade. When a business offers to sell
its goods or services on credit, it must have clear policies concerning: which
customers should receive credit; how much credit should be offered; what
length of credit it is prepared to offer; whether discounts will be offered for
prompt payment; what collection policies should be adopted; how the risk of
non-payment can be reduced.

6.4.3 Managing Cash

Most businesses hold a certain amount of cash. The amount of cash held tends
to vary considerably between businesses. According to Peter Atrill & Eddie
McLaney (2016), there are 3 reasons why companies hold cash. 1. To meet
day-to-day commitments, 2. If future cash flows are uncertain for any reason,
3. To put itself in a position to exploit profitable opportunities as and when
they arise. The decision as to how much cash a particular business should hold
is a difficult one. Different businesses will have different views on the subject.

6.4.4 Managing Creditors

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 Trade credit rises because businesses buy their goods and service requirements
on credit. Suppliers are lending the business money, interest free, on a short-
term basis. According to Peter Atrill & Eddie McLaney (2016), trade payables
are the other side of the coin from trade receivables. One business’s trade
payable is another one’s trade receivable, in respect of a particular transaction.
Trade payables are an important source of finance for most businesses. It has
been described as a ‘spontaneous’ source, as it tends to increase in line with
the increase in the level of activity achieved by a business. Trade credit is
widely regarded as a ‘free’ source of finance and, therefore, a good thing for a
business to use.

7. SINGER SRI LANKA’S SOURCE OF FINANCE

7.1 Internal and External Source of Finance

Sources of finance could be internal or external for Singer Sri Lanka. If it is internal,
Singer Sri Lanka could retain profits, tight control over debtors, reducing inventories
level, delaying payment to creditors. If it is external, Singer Sri Lanka could issue
Ordinary shares and Preference shares and go for term loans and leases, and also bank
overdraft and finally debt factoring.

7.2 Long Term & Short Term Sources

Singer Sri Lanka could source its finance in several ways that is internal and external.
Even under internal and external, it could be categorized further to Long term and
short term. Under internal, Singer can retained profits, which is a long term and
tighter control over debtors, reducing inventories levels and also by delaying payment
to creditors. Under external, Singer can issue ordinary shares, preferences share, and
take bank overdraft and do debt factoring.

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 Figure 7-4 Source of Finance

Long term
Internal
Short term
Sources of finance
Long term
External
Short term

7.3 Finance Sources and the Relevant Amounts of Singer Sri Lanka

The below table shows from where Singer Sri Lanka has financed the required cash for
their operation function.

Table 7-1 - Finance Sources

2017 2018 2019
Retained Profits 4,242,212,861 3,326,088,413 2,851,601,145
Debtors 1,888,466,783 12,150,611,598 1,432,236,418
Inventory 7,793,495,049 10,741,281,063 12,135,241,818
Creditors 4,590,536,979 6,076,063,211 5,114,175,724
Loans 6,000,000,000 2,532,149,832 7,373,929,275
No of Shares 375,628,830 375,628,830 375,628,830
Source: Annual Report of Singer Sri Lanka 2018/2019

According to the above table, Singer Sri Lanka has finance them self mostly via loans and
debtor control. Loan has increased in 2019 heavily while debtor control has been done
strategically. Debtors have been reduced more than 100% in 2019. The retained profits
have decreased mainly because the retained profits in 2017 was high. So maybe for the
benefit of the shareholders, company must have realised higher about of profits to the
shareholders.

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 The inventories have increased compare to 2017, this is mainly because of the high tax on
imports and competitors. Singer could not finance them self by reducing its inventories.

7.4 Issues of Share and Overall Gearing

There had been no shares had been issued for the last 3 years. Debt-to-Equity Ratio is
1.5% and Debt Ratio is 0.19%. This shows that the company’s gearing is well under
control comparing to the assets and the total equity. The overall gearing is positive
based on the industry and could manage the debt efficiently.

8. CONCLUSION AND RECOMMENDATION

In the year 2019, macroeconomic conditions were not as conducive for business due to
multiple reasons such as increase in tax rates for Motor Vehicles, fluctuating liquidity
positions in the market, rupee depreciating significantly, and rise in interest rates. This was
further aggravated by political instability.

The year 2019 was a challenging year. Lower growth in GDP and per capita income
together with continuous drought in the dry zone of the country in first half of the year
coupled with political instability during the latter part of the year 2018 adversely affected
consumer purchasing power of large market segment. Depreciation of Sri Lankan Rupee
against the US Dollar was one of the key adverse impacts, due to the lagging effect to
adjust the market prices. The Interest rates too remained at a higher levels than expected.
All these facts resulted in an adverse impact to the local Consumer Durables industry, in
which Singer Sri Lanka operates. The Consumer Durables industry is more susceptible to
market and economic conditions than other business sectors. When the customer’s
disposable income and markets sentiments decrease, the demand for consumer durables is
well below that of the general market and vice versa.

The factors that could be controlled by Singer, can be handled well. Specially, the cost of
purchasing foreign brands can be further reduced to be competitive in the market. And

31
 also to focus more on the benefit that the consumer can have financially pushing them to
purchase more. Since the US dollar rate is increasing, Singer could also focus on local
brands or local manufacturers. Also they could focus on more CSR projects to rural areas
to increase the use of home appliances and engage in entrepreneurs’ development based on
the product portfolio.

PERSONAL REFLECTIVE STATEMENT

This finance course helped me to develop skills to interpret financial statement of the
companies, especially Limited Liability companies in decision making process. This lecturer
made me understand how the value of the business or the strength of the business is seen in
the financial statements, by learning the fundamentals accounting concepts, principles, ratios
analysis, and accounting technique in relation to financial statements. Also I learned
management accounting technique and how to use those technique to make management
decisions process.

Also I learned about how company could finance themselves internally and externally, how
the company could manage cash flows, debts, credits and long term loans, and how these
factors affect the business in long run. I was also able to develop knowledge and critical
understanding of the theoretical models, analytical methods and practical aspects of corporate
financial decision making in a competitive business environment.

This module gave me a vast understanding of management accounting and financial

accounting and its importance for a MBA manager in the workplace. I believe that these
knowledge is much needed for a manager in competitive working environment.

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REFERENCE

Atrill, P. and McLaney, E. (2006). ACCOUNTING AND FINANCE for Non-Specialists. 5th
ed. Prentice Hall Europe: Pearson Education Limited, pp.119,120, 122, 123, 124,125, 283,
281, 299, 316, 372, 381, 389, 390, 392, 393, 396, 397.

Investopedia. (2019). Does Working Capital Measure Liquidity?. [online] Available at:
https://www.investopedia.com/ask/answers/100915/does-working-capital-measure-
liquidity.asp [Accessed 22 Sep. 2019].

Pinches, G.E., 1992. Essentials of Financial Management. 4th Edn., HarperCollins

Publishers, New York, ISBN: 0-06-500450-7.

Sri Lanka, Singer. (2019). Annual Report 2018/2019. [ebook] Colombo: Smart Media.
Available at: https://www.hayleys.com/singer-sri-lanka-plc-annual-report-2018-2019/
[Accessed 24 Sep. 2019].

Sri Lanka, Singer. (2019). Annual Report 2017/2018. [ebook] Colombo: Smart Media.
Available at: https://www.hayleys.com/singer-sri-lanka-plc-annual-report-2017-2018/
[Accessed 24 Sep. 2019].

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Walpita, S. (2019). Financing the Business.

WOOD, F. and SANGSTER, A. (2005). Business Accounting 1. 10th ed. England: Pearson
Education Limited.

WOOD, F. and SANGSTER, A. (2005). Business Accounting 2. 10th ed. England: Pearson
Education Limited.

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