Strategic Financial Management

Assignment Task 

Task

1. Instructions: As a junior analyst, your first task is to review the market and select two companies listed on the London stock market and to access their financial statements. You should analyse their financial position, using the information from their financial statements and apply appropriate financial ratios. You should make recommendations to Penco to invest. Calculations and financial ratios supporting the recommendation should be appended to the memo for the board’s attention.

2. Scenario: The board of Penco approved your recommendations and decided to purchase stock in the two organisations you recommended. In fact, based on your recommendations, they decided to invest more than anticipated. The previous budget was £2,000,000 but the board wants to invest £1,000,000 in each of the two organisations you recommended which means that an extra £1,000,000 is required. Instructions: Write a short report containing:

• An introduction discussing the need for short term working capital and long-term funds

• A main body comparing the sources of funding, including their pros and cons

• A justified recommendation of your choices of funding for the £1,000,000 using a range of criteria related to cost and risk.

3. Scenario: Penco is excited by the results of your previous work and has asked you to review operations at Exciteco where it is an institutional investor. Exciteco manufactures electronic components for export worldwide, from factories in Finland, for use in smartphones and hand-held gaming devices. These two markets are supplied with similar components by two divisions, Phones Division (P) and Gaming Division (G).

Each division has its own selling, purchasing, IT and research and development functions, but separate IT systems. Some manufacturing facilities, however, are shared between the two divisions. Exciteco's corporate objective is to maximise shareholder wealth through innovation and continuous technological improvement in its products. The manufacturers of smartphones and gaming devices, who use Exciteco's components, update their products frequently and constantly compete with each other to launch models which are technically superior. Exciteco has a well-established incremental budgeting process. Divisional managers forecast sales volumes and costs months in advance of the budget year. These divisional budgets are then scrutinised by the main board and revised significantly by them in line with targets they have set for the business.

The finalised budgets are often approved after the start of the accounting year. Under pressure to deliver consistent returns to institutional shareholders such as Penco, the board does not tolerate failure by either division to achieve the planned net profit for the year once the budget is approved. Last year's results were poor compared to the annual budget. Divisional managers, who are appraised on the financial performance of their own division, have complained about the length of time that the budgeting process takes and that the performance of their divisions could have been better but was constrained by the budgets which were set for them.

Prepare a report that deals with the following:

• Critically discuss key concepts, features and importance of cost accounting,

• Evaluate the weaknesses in Exciteco's current budgeting system and whether it is suitable for the environment in which Exciteco operates.

• Evaluate the extent to which Exciteco's poor performance for the last year can be attributed to external factors.

• Discuss the potential benefits to Exciteco of analysing variances into planning and operational elements

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