Learning Outcomes:
1: Explore how financial information is provided and in what form for management decision making.
2: Select, explain and apply accounting techniques to provide quantitative information for decision making
3: Critically assess information within the internal and external context of the required decision
4: Critically evaluate the role of financial information in the context of the whole organisation
Assessment brief - Case study
After several rounds of interview, you are successfully appointed as the CFO of the Company. The Company has enjoyed considerable success in recent years and the board of directors has decided to adopt a growth strategy by making further investment in their current production line and acquiring an existing company in their industry. As the newly appointed CFO of the Company, you are tasked to evaluate the performance of the Company and prepare a report to the board of directors with evaluation of the potential investment opportunities.
The first investment under consideration is to make further investment in their current product, which needs initial investment between £40,000,000 and £50,000,000 and has a life of 10 years. The finance department appraised some other similar investments before using different investment appraisal techniques.
At the same time, the Company plans to acquire another company in the same industry in the near future. However, the board of directors requires more information for the potential target. You are tasked with the responsibility of identifying a potential target company and preparing a report to the board of directors justifying the choice of a target company and potential implications from mergers and acquisitions.
Required:
Suppose you are successfully appointed as the CFO for ONE of the listed companies below.
- The Berkeley Group Holdings plc
- InterContinental Hotels Group
- Marks & Spencer Group plc
- GlaxoSmithKline
- Burberry Group PLC
- Aviva
As the newly appointed CFO of your chosen company, you are required to write a report to the senior management team - fully referenced, and address the following
1. Evaluate financial performance: Choose FOUR categories from the list of five categories of financial ratios below and use ONE financial ratio from each category to assess the financial health of your chosen company using past 5-year financial information:
I. Profitability
2. Efficiency
3. Liquidity
4. Financial gearing
5. Investment
Note: Analyze your chosen financial ratios using information from financial statements. Considering word limit, please choose ONE financial ratio from FOUR different categories listed above; therefore, you should focus on four ratios in total in this part of analysis. Critical analysis of the four ratios under four categories is required for a good work. Please critically evaluate past five-year firm performance, i.e., 2015-2019, using your chosen ratios and discuss the problems and limitations of financial ratios as a tool of financial analysis before make recommendation to the board of directors. Create your own small tables, diagrams and charts in your analysis and present professionally. Financial ratios can be collected using Osiris and Fame through ARU library annual reports or other professional resources. Compare with competitors and industry will be helpful. Suggested word: 750-850 words.
2. Investment appraisal: You plan to use NPV and IRR techniques to evaluate the project. Critically discuss NPV and IRR techniques and the implications of the investment on the Company. Risk and uncertainty in investment appraisal should be considered before you make recommendation. The discount rate is 12% for the Company (Ignore inflation and taxation).
3. Potential acquisition: After you identify a potential target company, you will address the following in your report to the senior management team:
1. Rationale for choosing the target company
2. The synergistic gain of the acquisition for the Company
3. Proposed deal value and finance of the acquisition
4. The potential implications of such acquisition on firm performance
5. Challenges and risk assessment of the acquisition
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