MFA – The Practice Kit Lecture 56: Home Assignment

LECTURE 56
HOME ASSIGNMENT
QUESTIONS

Q.1 (a) Identify the force of competition which is relevant in the context of Michael Porter’s Five Forces Model of Competition
in each of the scenarios presented below. Substantiate your answer by highlighting the salient features of the Model of
Competition selected by you in each of these scenarios.

(i) Four companies of similar size and strength are engaged in the manufacture of detergent powder for washing
clothes. These companies are key market players and jointly share 95% of the aggregate market which is not
expected to witness any significant growth in the foreseeable future.

(ii) Soundhealth Pharmaceuticals and Goodcare Pharmaceuticals are manufacturers of two new medicines for
treatment of cancer. The medicines have been developed after a long period of research at a very substantial R&D
cost and are highly effective.
Both the existing manufacturers are earning exceptionally high profits in a market which is expected to witness
growth in the future.

(iii) Lucky Coal Mines Limited is the sole supplier of coal to a cement plant located in close proximity to the mines. The
cement plant requires substantial quantities of coal for firing of its kilns. Quality of this coal is most suitable for
the cement plant and also cost-effective due to low transportation costs. Lucky Coal Mines has several buyers who
are willing to purchase the coal because of its high calorific value. (09)

(b) Unique Textile Mills are leaders in the designing and manufacturing of cotton fabrics for ladies fashion clothing.
Identify four Strategic Objectives which in your opinion may be included in the strategic planning process of
Unique Textile Mills. (03)
(ICAP, CFAP 03 – Summer 2011, Q#2)

Q.2 According to the Boston Consulting Group Matrix, business organisations which have multi-divisions and compete in
different industries pursue separate strategies for their various business divisions. The BCG Matrix describes the
characteristics of the markets and the relative competitive position of the various business divisions as Stars, Cash Cows
and Dogs.

Explain the distinctive characteristics of each of these types of business divisions in terms of their relative market positions.
Also mention the types of business strategies which should be pursued by each of these types of business divisions. (09)
(ICAP, CFAP 03 – Summer 2012, Q#2)

Q.3 Established in the year 2006 in Karachi, Good Food Restaurants (GFR) has achieved remarkable growth and presently owns
and operates a chain of ten restaurants in Karachi, Lahore and Islamabad. GFR’s operations have been highly profitable
because it has a significant base of loyal customers who are not only a source of repeat business but they also promote its
image through word-of-mouth advertisement.

Identify the strengths, weaknesses, opportunities and threats for GFR. (Mention any four points in respect of each)
Note: Only list the parameters – explanations are not required. (08)
(ICAP, CFAP 03 – Summer 2016, Q#2)

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 MFA – The Practice Kit Lecture 56: Home Assignment

Q.4 City Express (CE) operates inter-city passenger bus service over 20 districts of Sindh. It was incorporated in 2015 when
Government of Sindh (GoS) awarded the company exclusive road permits to operate in distant areas of Sindh. CE was an
instant success because of wide area coverage, low ticket pricing and large fleet of state-of-the-art buses. In view of the
encouraging response from general public, GoS is also considering to introduce a new inter-city train service.
GoS has been providing subsidies, granting various tax exemptions and promoting services of CE by extensive coverage in
the electronic and social media to encourage CE to operate in areas with low profit margins. Still, certain routes are not
profitable. In these routes, buses often depart late and schedules are cancelled frequently. The management of CE is
considering to negotiate with GoS to relax restrictions on fixation of fare rates to counter increasing fuel costs.

Required:
(a) Perform SWOT analysis for CE. (06)
(b) Suggest any eight non-financial performance indicators for CE. (04)
(ICAP, CFAP 03 – Winter 2018, Q#5)

Q.5 New Vision Trading Company Limited is planning to arrange for a six monthly overdraft facility with a bank. However,
before finalization of any arrangement it wants to know the estimated requirements of cash. For this purpose it has hired
you as consultant to make an estimate of the foreseeable cash requirements.

The following is the basic data regarding various business cycles of the Company
I. Sales forecast for the six months are as under:
Months Rupees
January 800,000
February 950,000
March 600,000
April 900,000
May 1,100,000
June 600,000

II. Purchases are made as and when required

III. No closing stock is maintained as the supplier has capability to supply any quantities at any time.
IV. Gross profit ratio is maintained @ 20% of the sales price

V. Various expenses for the six months are as under:

Rupees
Salaries and wages 390,000
Repairs and maintenance 120,000
Insurance 6,000
Stores and spares 270,000
Duties 360,000
Legal charges 24,000

VI. The recoveries from the debtors are made as follows

50% in the month of sale
30% in the month following the month of sale
20% in the second month after sale

VII. Trade creditors are paid as under

40% in the month of purchase
40% in the month following the month of purchase
20% in the second month after purchase

VIII. All other business expenses are paid in the month of expense. Expenses are evenly spread throughout the year.
IX The Company commenced its business on January 1, 2000 with a cash balance of Rs 50,000.

Required:
You are required to prepare a cash budget to facilitate the company’s management in assessing the working capital
requirement for the next six months. (15)
(ICAP, CAF 06 LEVEL – Autumn 2001, Q.#7)

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 MFA – The Practice Kit Lecture 56: Home Assignment

SOLUTIONS

Q.1

Examiners’ Comments:
(a) Porter’s Five Forces Model of Competition: in this question, students were given three different scenarios and they had to
identify and highlight the salient features of the model of competition that would be appropriate in each scenario. Most
candidates were able to identify the model that would be apt in each scenario. However, the reasons to support their choice
were brief, incomplete and weak. Some students mentioned 2 or 3 models under each scenario which were contradictory
and defeated the purpose of the question. Many students confused “Threat of New Entrant” with “Threat of Substitute
Product”.
(b) Four strategic objectives of a leading cotton fabric manufacturer were required. Most candidates were not aware of the
difference between strategies, tactics and goals. Majority of the students referred to generic objectives irrespective of
whether they were strategic, operational or tactical. Students didn’t realize that leading firms/companies capitalize on
their established reputation and premium quality of their products/services. Hence, objectives like cost cutting, price
reduction, discounts etc. were not of much relevance.

Q.2
Examiners’ Comments:
This question required the students to explain the characteristics of the markets and the relative competitive positions of Stars,
Cash Cows and Dogs. This should be a very familiar topic for anyone studying or related to management/business studies. Most
of the students mentioned market growth and market share but did not mention the appropriate business strategies to be
pursued in each case. Many students emphasized quality as a descriptive characteristic of these business units whereas there
was no mention of quality in the entire matrix analysis. Many students gave explanation of Problem Child which was not
required. One wonders whether it was lack of thorough reading of the question or flaunting of their knowledge. This exhibit of
their knowledge, however, did not gain them any extra marks! Students are advised to use the allotted time wisely, and avoid
giving irrelevant material.

Q.3
Marking Plan:

• 0.5 mark for identification of each element of strength, weakness, opportunity and
8.0
threat; subject to a maximum of 02 marks in each of the four classifications

Examiners’ Comments:
In this scenario-based question regarding SWOT analysis of a chain of Restaurants. The overall performance was satisfactory
as the students were generally able to identify a number of pertinent points. However, a number of students could not draw
distinctions between ‘weaknesses and threats’ and ‘strengths and opportunities’. These students repeated the same point for
weaknesses and threats and for strengths and opportunities. Many students framed their points in the form of suggestions
rather than threats and opportunities. Some students gave long explanations of each point which were not required. In a
number of cases, totally irrelevant points were mentioned such as dishonest employees, high tips received, etc.

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 MFA – The Practice Kit Lecture 56: Home Assignment

Q.4

Marking Plan:
(a)
• Up to 0.75 mark for mentioning each correct factor under appropriate classification
6.0
of SWOT
(b)
• 0.5 mark for suggesting each non-financial performance indicator 4.0

Passing Percentage:
51%

Examiners’ Comments:
This question contained a scenario based on an organisation named City Express (CE) which operates inter-city bus service.
The candidates were required to carry out a SWOT analysis and suggest any eight non-financial performance indicators.
(a) This was an easy question. In the SWOT analysis, the students correctly picked the Strengths and Weaknesses but were not
very clear about Opportunities and Threats. Somehow, majority of the students took introduction of new inter-city train
services by GOS as an opportunity incorrectly presuming that the contract would be given to CE. Many students were
confused between weaknesses and threats. Restriction on fixation of fares and reliance on Government of Sindh (GOS) for
subsidies were considered as threats whereas these were weaknesses. Similarly, non-preferential treatment of GOS in
future dealings was a threat rather than a weakness.
(b) Students failed to score good marks in this part. Non-Financial Performance Indicators (NFPIs) are the quantitative
measure of either an individual’s or an entity’s performance that is not expressed in monetary units. The performance was
mixed. Many candidates performed well but almost an equal number performed poorly as well. The most common error
was that the candidates picked items from the question but did not convert them into performance measure. For example,
‘new routes’ was mentioned instead of number of new routes started. Similarly, ‘customer complaints’ was mentioned
instead of number of customer complaints. Some candidates did not understand that performance measure should be
measurable and incorrectly included items such as dependability, customer service, etc.

Q.5

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