Understanding Financial Statements Report - Melmotte Ltd Case Study - Finance Assignment Help

Assignment Task:

CASE STUDY – Melmotte Ltd  
Background Hetta Carbury is the Managing Director of Melmotte Ltd (‘Melmotte’), a small private limited company, who is seeking someone to invest in her business. Melmotte has been trading for more than 10 years manufacturing and selling its own-branded perfumes, lotions and candles to the public in its 15 retail stores and to other larger retail companies. Revenue and profits have been steady over the last 10 years up to the end of 2018. 
 
In July 2015 the company appointed a new sales director, Hamilton Fisker, who with his experience and contacts in the wider retail sector has overseen the launch of an on-line shop for Melmotte’s products and secured a lucrative deal with a hotel chain. 
 
Hetta now believes that the business has further opportunities and does not wish to lose the momentum created by Hamilton. 
 
The bank that currently provides both the long-term loan and an overdraft facility has rejected Melmotte’s request for additional funds on the basis that there are insufficient assets to offer for security (the existing funding is secured on Melmotte's property, plant and equipment). Hetta has therefore approached a business contact, Tony Trollope, about potentially investing in Melmotte. 
 
Grosvenor Investments (known as ‘Grosvenor’) Tony Trollope owned a highly successful technology business which he sold five years ago for £20 million. With the proceeds, he then set up an investment company (Grosvenor) that invests primarily in smaller private businesses in need of short- to medium-term funding. Tony sits on the board as a non-executive director of a number of the companies in which his business has invested, and is often able to offer valuable business advice to these companies, especially in the area of research and development activities. 
 
Your role You are Ruby Ruggles.  As a member of Grosvenor’s investment management team, you have been asked to analyse the financial performance and position of Melmotte and produce a report for Tony which sets out your findings and makes a recommendation as to whether this request for investment should be approved or rejected.  This will be your coursework assignment for Understanding Financial Statements.

Questions:

Question 1 – Features of Melmotte’s financial statements  

“We were able to secure long-term debt funding from the bank”  
“We hired an administrator to oversee and co-ordinate the contract” 
 
a)  For Melmotte, consider the TWO descriptions above and for each of them:  
i. Choose whether the description relates to the Statement of Profit or Loss (SPL) or the Statement of Financial Position (SOFP)
ii. Explain where each of the transactions would be specifically allocated in the SPL/SOFP as identified in 1a)i. above

b) Briefly explain the different purposes of the THREE primary financial statements (Statement of Financial Position; Statement of Profit or Loss; and Statement of Cash Flows) and give an example for each of ONE user and what he/she would be looking for.

c) The company’s perfumes, lotions and candles are “considered as fashionable products which raises a question about what happens to products which ‘go out of fashion’”. 
i. According to IAS 2: Inventories, at what value should inventory be recognised in the financial statements?  
ii. How does this rule comply with the recognition criteria in the Regulatory Framework? 
iii If some of Melmotte’s inventories were found to have gone ‘out of fashion’ and had to be written down at the year-end, what effect would this have on the SPL and the SOFP?  (4 marks) 

Question 2 – Interpreting Melmotte’s Statement of Profit or Loss (SPL)  

a) Revenue 
i. Using the SPL in Exhibit 1, calculate the percentage change in total revenue to identify the movement between 2017 and 2018.
ii. Both the online store and the hotel contract are new this year.  Using the segmental analysis in Exhibit 2, calculate the percentage of total revenue contributed by the retail operations, the online store and the hotel contract.
iii. Using the SPL and the segmental analysis in Exhibit 2, calculate the percentage change in revenue between the total revenue for 2018, and the revenue generated by the retail operations alone in 2018.
iv. Explain why this additional information might be useful to Grosvenor when they are considering whether or not to invest in the company.
 
b) Gross profit 
i. Briefly explain what the gross profit figure tells us about the financial performance of the company.   
ii. Using the segment analysis provided in Exhibit 2, calculate the gross margin ratio for each segment of the business (retail operations, the online store and the hotel contract).
iii. Using the information calculated above, along with information from the case study, give ONE reason why the gross margin ratio for the hotel contract is much higher than that for the other two parts of the business.
 
c) Other SPL costs 
i. Describe the key difference between expenses allocated to “Cost of Sales” and “Overheads” in the statement of profit or loss.
ii. For distribution and transport costs set out in the supporting notes for the Profit or Loss account in Exhibit 2, use a trend analysis to ascertain the movement between 2017 and 2018.
iii. Distribution costs and royalty costs have both increased this year.  Use the case study to identify and explain at least ONE reason why each of these movements has happened.

d) Operating profit 
i. Briefly explain what the operating profit figure tells us about the financial performance of the company
ii. Using the segmental information in Exhibit 2, calculate the operating profit margin ratio for each segment of the business (retail operations, the online store and the hotel contract)  
iii. Using the information calculated above and in the case study, give ONE reason why the operating profit margin for the online store is higher than that for the other segments of the business.  

This Finance Assignment has been solved by our Finance Experts at My Uni Paper. Our Assignment Writing Experts are efficient to provide a fresh solution to this question. We are serving more than 10000+ Students in Australia, UK & US by helping them to score HD in their academics. Our experts are well trained to follow all marking rubrics & referencing style.

Be it a used or new solution, the quality of the work submitted by our assignment experts remains unhampered. You may continue to expect the same or even better quality with the used and new assignment solution files respectively. There’s one thing to be noticed that you could choose one between the two and acquire an HD either way. You could choose a new assignment solution file to get yourself an exclusive, plagiarism (with free Turnitin file), expert quality assignment or order an old solution file that was considered worthy of the highest distinction.