1 PLAN

Role: Aspen Spencer – business analyst in Moore & Charlton

Audience: MachineShop Board
Format: report 
Skill: scepticism skills – reason for the potential acquisition of FRG
Marks: 20+4
Timing: 48 min
Task: Evaluate the potential acquisition of FRG and recommends whether MachineShop should
acquire FRG.

1 ANSWER

To: MachineShop Board

From: Aspen Spencer – business analyst in Moore & Charlton
Subject: Report on acquisition of FRG
Date: 5 May 2022

Introduction
This report provides the board of MachineShop with an independent evaluation of potential acquisition in respect
of suitability, acceptability and feasibility including my recommendation.

Suitability

Suitability is concerned with whether the new strategy – an acquisition of FRG is consistent with current strategy.

Acceptability

Acceptability is concerned with the expected outcome of the new strategy in respect of expected return,
stakeholder reactions and risks.

Acceptability is concerned with the expected outcomes of a strategy. These can be seen in context of stakeholder
reactions, risk and
return.
In the context of MachineShop, the primary stakeholders, the board, are likely to be excited by a
foreign acquisition. It provides you
with the high profile and the business excitement which you enjoy.
However, in financial performance, the potential purchase of FRG looks less attractive. Any financial
ratios calculated for FRG cannot
really be compared with MachineShop, because the nature of the customers is quite different, with 65% of
MachineShop’s sales
being made to retail consumers. The country and culture of the two companies is also different. However, whilst
acknowledging this
limitation, an analysis of the latest financial figures (Table 1) does not appear to paint a particularly attractive
picture. FRG has gross
profit and operating margins well below that of MachineShop. FRG also has a relatively low return on capital
employed (ROCE) of
6·45%, compared to 17·5% for MachineShop. The gearing ratio is higher (20·16%) and the interest cover is lower
(2·67) than
MachineShop.
Feasibility

Feasibility is concerned with whether a company has necessary resources and competencies to deliver the
strategy.

Conclusion

FRG does not appear to be financially performing well (based on the calculations above) and has no experience
of selling to retail customers. Furthermore, MachineShop has no experience of acquiring a company outside
Arboria and in general experience with acquisition had a poor results.
Overall, the proposed acquisition of FRG appears to be very risky and MachineShop might be better looking
elsewhere for a more suitable acquisition.

2 PLAN

Role: audit manager at Moore & Charlton

Audience: Viola Wang, CFO of MachineShop
Format: briefing notes
Skill: scepticism skills – reason for the potential acquisition of FRG
Marks: 20+4
Timing: 48 min
Task: Advice on whether it would be appropriate for and internal audit function to be set up.

2 ANSWER

From: audit manager at Moore & Charlton

To: Viola Wang, CFO of MachineShop
Subject: establishing an internal audit function

These briefing notes were prepared to advise on the appropriateness to MachineShop of establishing an internal
audit function.

The companies may have a many different reasons for establishing an internal audit function, e.g.structural
changes, increasing diversity and complexity of operations or increasing number of employees.

In respect of MachineShop, when company operated a small number of stores, the directors were able to
exercise control by monitoring the stores directly.

Due to successful expansion of operations in Arboria, MachineShop has grown in recent years and internal audit
function seems to be more appropriate. The number of stores has increased and it will be more difficult for
directors to control each store directly.

An internal audit function would be able to monitor the larger number of stores by visiting each store on a regular
basis and performing audit and other review procedures to ensure that each store is performing well.

There have also been operational difficulties recently as a result of expansion, with some stores experiencing
stock outs. An internal audit function would have the expertise to recommend improvements to the operating
systems, including the logistics and procurement processes which have led to the problems.

Internal audit would also be able to make a contribution to Mr Butcher’s proposal to use more IT, by ensuring that
appropriate controls are included within any IT systems developed.

The expansion so far has not resulted in any major change in the complexity of the organisation. Each new store
is simply copying the format and operations of the existing stores. Similarly, there have been not any changes in
key risks or changes in external events.

If the company does decide to expand abroad, perhaps through the acquisition of FRG, then the complexity of
operations would increase. While FRG operates in the same industry as MachineShop, there are differences in
the way it works, for example, it only sells to trade customers. There would also be additional risks, such as
currency risks and credit risks of selling to trade customers. Internal audit could ensure that procedures are in
place to monitor these risks.

The benefits of greater control must be weighed against the costs of setting up a new function. The largest cost
would be the salaries of the staff who would have to be brought in to perform the function. There would also be
additional office costs and costs of travelling to the various stores, with overnight stays at hotels.

In conclusion, the setting up on an internal audit function now would enable management to monitor the
operations of the stores better, and would help overcome some of the operations difficulties which are being
experienced. These advantages would most likely justify the costs of setting up such a function.
3(a) PLAN

Role:
Audience:
Format: slides+notes
Skill:
Marks:
Timing:
Task: Big Data (mind map 23)

2(a) ANSWER

Slide 1

What is Big Data?

Accompanying notes

Big Data are extremely large data sets which may be analysed to reveal patterns, trends and associations relating
to human behaviours.
In case of MachineShop, information about the customers may be analysed to identify patterns and draw
conclusion to improve its strategy.
There are 5 characterises of Big Data:
- Variety – it means that data may have different format, e.g structured, unstructured, text, audio, etc.;
- Volume – it means that there is a huge amount of data, which need to be stored and analysed;
- Velocity – it menas that new data arrive continually and in real time;
- Veracity – it means that data used for further analysis need to be reliable as these data are used for
decision making;
- Value – investment into big data need to bring benefit for the company, e.g improve inefficient
processes, identify and implement new strategies, etc.

Slide 2

Applications to MachineShop:
- Data mining
- Predictive analytics
- Text (social) analytics
- Statistical analytics

Accompanying notes

Data mining
Predictive analytics
Text (social) analytics
Statistical analytics

3(b) PLAN

Role:
Audience: Machine Shop Board
Format: briefing notes
Skill:
Marks:
Timing:
Task:

3(b) ANSWER
From: audit manager at Moore & Charlton
To: Machine Shop Board
Subject: e-procurement and its potential application at MachineShop

These briefing notes were prepared to provide information about e-procurement and its potential application at
MachineShop.

Procurement involves purchasing and related activities such as supplier selection. E-procurement looks at the
opportunities presented by automating various aspects of procurement through the use of IT.

In the case of MachineShop, procurement of the goods which are sold in the stores is carried out by a central
warehouse, based on requisitions which are sent from each store twice weekly. The goods are sent to the stores
from the central warehouse.

System based on a pre-determined re-order level, may become inappropriate if sales demand
increases/decrease and do not reflect an seasonal changes.

Thus one area of procurement which could be automated would be setting the re-order level. A more advanced
system is required which predicts sales trends more accurately and can therefore predict when inventory levels
are falling faster or slower than expected. This would enable the company to avoid stock outs of popular products,
or holding excessive inventory of low selling items.

Another solution which has been adopted by several retailers is the use of electronic data interchange (EDI),
whereby orders are placed automatically with suppliers when inventory levels are running low.

Each of MachineShop’s stores could be linked directly with its suppliers rather than via the central warehouse,
with suppliers delivering directly to the stores rather than through the warehouse. This would not only reduce lead
time, but would enable the company to make a large saving on running a central warehouse and the costs of
holding inventory there.

It may also enable the company to sell LogTrans, as it would no longer need to have its own logistics company if
suppliers deliver directly to the stores.

Overall, the company could make better use of e-procurement to automate aspects of its business and this may
well bring more reliable supplies and significant savings.

4 PLAN

Role: Aspen Spencer – business analyst in Moore & Charlton

Audience: Viola Wang, CFO of MachineShop
Format: report
Skill:
Marks:
Timing:
Task: report on financing options for acquisition of FRG

4 ANSWER

Introduction

This report evaluates the two proposed alternative ways of financing the acquisition of FRG – issue of bond vs
issue of shares.

Issue of bond

Issue of shares

Recommendation

Based on the arguments above, I would recommend the issue of debt as a means of financing the acquisition of
FRG. This would not increase the financial risk significantly, and would avoid the directors having to share the
decision making with an external venture capitalist.
5 PLAN

Role: A Partner
Audience: Dave Deen, Chairman and CEO MachineShop
Format: letter
Skill:
Marks:
Timing:
Task: adventages and disadventages of staying Dave Deen an chairman after a new CEO is
appointed

4 ANSWER

Dear Dave

I am writing to you to set out the advantages and disadvantages of you staying on as chairman after a new CEO
is appointed. I will then describe what I believe at the key qualities which a CEO of MachineShop needs to
possess.

a) Staying on as chairman

+ experience with MachineShop (former CEO)

‘- Independence
‘- new CEO may feel that he is under control of former CEO

b) Qualities of a CEO
- Work under pressure
- Ability to admit when he made errors
- Able to understand a broad range of different problems
- Previous industry experience
- Transformation skills – ability to inspire others and be able to communicate vision through own
enthusiasm (be able to influenced resistance of some staff)

Yours sincerely

A Partner