Traffic Solution Ltd. Case Study - Accounting and Finance Assignment Help

Assignment Task

Case Study

Traffic Solutions Ltd is an Australian provider of vehicle IoT (Internet of Things) and software solutions. Traffic Solutions provide vehicle tracking and driver fatigue systems to logistics companies.

Their leading product is their driver fatigue system, which uses facial recognition and machine learning to determine if a driver is fatigued or worse falling asleep. This technology uses the Internet of Things model to send real-time data to a company’s central software hub for reporting of moments of fatigue which can then be managed by executives. This technology reduces accidents and overwork of drivers.

Traffic Solutions has been operating for 5 years and has recently been listed on the stock exchange with shares trading at USD0.048 each.

The company provides both the hardware that is installed in vehicles as well as the software that is used to manage and report on the fatigue events.

2021 saw a tough year for Traffic Solutions which you will see on the profit-and- loss report.

You have been hired as a Management Consultant to analyse the current financial position of Traffic Solutions and help them develop a budget and recommendations in order to move back to profitability in the 2022 financial year.

As such, you will be reporting directly to the board and will be asked to provide a report that meets their requirements.

The Board would like you to analyse the following:

1. Analysis of Financial Position

• Assess the viability for 2021
• Assess the liquidity for 2021
• Assess the solvency for 2021

2. Financial planning

• Create an Operating Budget for the contract for the FY2022
• Create the Cash Budget for the first three months of FY2022
• Recommend the Board on their ability to take on additional debt and expand the business

3. Final Report

• An executive summary
• The financial analysis which should include the exact calculations for each ratio
• The analysis report
• The Operating Budget for FY2022
• The Cash Budget for the first 3 months of FY2022
• Recommendations on whether the company can financially meet the contract of approximately 1 – 2 pages

Please note, when writing your report to the Board of Directors you should back up your analyses, recommendations and solutions from the numbers you calculated. It is not enough to make a recommendation, it should be supported by the actual numbers themselves.

Brief from the Board

The Board of Directors is made up of four members. The Chairman, the CEO and two other Non-Executive Directors. In your first meeting with the Board, they have asked you to complete the following tasks for them.

Scope of Engagement

Analysis of Financial Position

The first stage is to analyse the current financial position of the company. You will be provided with the Balance Sheet, Profit and Loss Report and other financial information for the 2021 financial year.

The Board would like you to analyse the following:

1. Viability for 2021

• Determine the cash flow break-even point for the company in 2021
• Create a Cost-Volume-Profit Graph to represent their viability for 2021

2. Liquidity for 2021

• Calculate the current ratio for 2021
• Calculate the quick ratio for 2021
• Calculate the operating cash cycle for 2021
• Determine the working capital for 2021

3. Solvency for 2021

• Calculate the debt-to-equity ratio for 2021
• Calculate the debt-to-total assets ratio for 2021
• Calculate the interest coverage ratio for 2021

4. Write a report of approximately 1–2 pages that provides the Board with a summary of the viability, liquidity and solvency position of the company at the end of 2021.

Financial planning

With the analysis complete, the board would like you to help them plan their finances for the upcoming financial year.

They would like you to complete the following:

1. Create an operating budget for the financial year 2022 financial year divided into quarters

• Create the sales forecast
• Create the production forecast
• Create the operating expenses forecast

2. Create the cash budget for the first 3 months of the financial year 2022 divided into months

• Create the collections cash flow
• Create the expenses cash flow

3. Based on the operating budget and cash budget, write recommendations to the Board on their ability to take on additional debt and expand the business. The recommendations should be approximately 2 pages long.

Final Report

The final report that will be presented to the Board of Directors should include the following:

1. An executive summary

2. The financial analysis should include the exact calculations for each ratio, not only the final results. The Board wants to assess how you calculate each of the ratios

3. An analysis report of approximately 1–2 pages; this is quite important, and the Board is not just interested in the numbers but are more interested in what they mean and how they relate to each other

4. The operating budget for 2022 broken down into quarters

5. The cash budget for the first 3 months of 2022 broken down into months

6. The recommendations on whether the company can increase its debt and expand its offerings - approximately 2 pages; this is the most important part of the report and should include information from the previous sections to justify your answers. The Board of Directors will be most interested in this section and be keen to see the creative solutions that will assist their business and that are backed up by the calculations in the earlier sections.

Please note, when writing your report to the Board of Directors you should back up your analyses, recommendations and solutions from the numbers you calculated. It is not enough to make a recommendation, it should be supported by the actual numbers themselves.

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