Financial Management for Global Decision Makers Report

DescriptionAppendix – Calculation
Years
Actual
2019
Actual
Actual
2021
Forecast
1’st 6
months
2022
Actual 1’st
6 months
2022
Forecast
2’nd 6
months
2022
Forecast
total
2022
2020
11.383
22.251
19.663
17.778
-6.170
35.227
27.566
5,242.000
3,330.000
4,061.000
3,352.000
Financial
ratios
Comparis
on
Gross
profit
margin
Cost
of
sales
Operating
profit
Current
ratio
Gearing
ratio
3,589.000
2,362.00
0
6,682.00
0
-0.543
9.645
11.172
9.889
-15.712
25.739
18.883
2.900
1.228
1.429
1.481
0.934
1.738
1.738
0.222
0.308
0.234
0.205
0.244
0.138
0.138
-0.511
-4.256
-17.200
-18.800
7.838
-58.913
-39.711
-2.621
13.432
31.193
15.722
-43.082
37.821
47.614
Gearing –
Interest
cover
ratio
Profitabili
ty – ROSF
(Return
on
sharehold
ers’
funds)
Profitabili
ty – ROCE
(Return
on capital
employed
)
Profitabili
tyoperating
or net
profit
margin
-0.048
0.659
0.581
0.450
-0.852
0.790
0.580
0.568
12.607
11.862
10.444
-13.935
26.184
19.371
25.171
48.677
34.467
57.216
46.513
63.701
31.955
32.444
48.659
42.793
68.944
72.141
70.461
39.527
22.882
52.154
25.067
49.324
52.579
39.200
19.665
3.592
2.077
3.396
1.844
2.073
1.588
2.831
Efficiency
AITP
(Average
inventori
es
turnover
period)
Efficiency
ASPR
(Average
settlemen
t period
for
receivable
)
Efficiency
ASTP
(Average
settlemen
t period
for trade
payables)
Efficiency
– SRCE
(sales
revenue
to capital
employed
ratio)
LiquidityAcid test
ratio
1.800
0.745
0.905
0.929
0.554
1.238
Equity
1.238
1,314.00
1,077.500
598.500
855.000
904.500
360.000
1,314.000
Table 1.1 Financial Ratios
The calculation equations

❖ Gross profit margin = ∗
=
Cost of sales = Revenue – gross profit
OR directly from the profit and loss account sheet
❖ Operating profit =
+

Current ratio =
( − )
Gearing ratio = + + ( − )
Gearing – Interest cover ratio

0
❖ Profitability – ROSF ( Return on shareholders’ funds)

. +

❖ Profitability – ROCE (Return on capital employed)

+ + ( − )

Profitability- operating or net profit margin

Efficiency AITP (Average inventories turnover period)

* 365
Note: Inventory is the stock of material (From Balance sheet)
❖ Efficiency ASPR (Average settlement period for receivable)

Note: Trade receivable is the debtors (From Balance sheet)
❖ Efficiency ASTP (Average settlement period for trade payables)

Note: Trade payables is the creditors (From Balance sheet)
❖ Efficiency – SRCE (sales revenue to capital employed ratio)

+ + −
Efficiency SRPE (sales revenue to capital employed ratio)

❖ Liquidity- Acid test ratio =
( )

Equity = Total assets – Total liabilities
➢ Total assets = Fixed assets + Total current assets
Total liabilities = Current liabilities + Long term loan
So, Equity = Total assets – Total liabilities
Financial Management for Global Decision Makers Coursework 2
The report should be 2,000 words
in length (-/+ 200 words, excluding tables and references).
Ibrahim Construction Ltd
Ibrahim Construction Limited was formed in January 2019 by a brother and sister,
Mohammed and Fatema Ibrahim. Mohammed had been in the construction industry
for many years and had grown frustrated by the inflexibility of the industry to meet
customers’ requirements speedily and with appropriate quality and inventiveness.
Fatema had worked herself up in management circles after having gained an excellent
first class honours degree in business studies. However, she felt she had more to offer
especially in the area of entrepreneurial flair and marketing.
Both siblings therefore started the business by investing OMR 400,000 each receiving
for these OMR 400,000 OMR 2 per share. Mohammed looked after the operational
side of the business whilst Fatema looked after the marketing, human resources and
administration functions.
During the first year, the firm had to invest heavily in marketing and building up the
infrastructure of the business in order to build up a customer base. By the second year,
profits were being generated.
As the business grew both siblings realised that there were inherent weaknesses in
their business planning and financial management and hired Ahmed Al Amri to assist
in the financial side of the business. After a year of Ahmed being with the company
the siblings decided to ask Ahmed if he would be willing to become a shareholder and
financial director due to the skills he brought to the management of the business.
Ahmed was delighted with this prospect as he saw the firm’s potential as well as the
possibilities for him to influence further the direction and profitability of the company.
He therefore bought 120,000 of each of the siblings’ shareholdings in November 2021
for a price of OMR 4 per share.
The company however has had a setback in 2022. The profits planned for the first six
months did not come to fruition with instead a heavy loss having been made (the first
loss since the company’s first year of trading). Given the upward trend of the sales and
profit figures in the recent past this has caused great and heated debate at the
directors’ board meeting. Unfortunately, the discussion became somewhat heated
with Ahmed Al Amri accusing the siblings of having cheated him into investing into the
company at an inflated price and then having sat back and expected the business to
run itself while they have taken holidays and “taken their foot off the pedal”. In private
he has stated to his friends that he would not be surprised if one or both of the siblings
was “milking” the company, siphoning off the business’ (and his) assets. At the Board
meeting Fatema Ibrahim accused Ahmed of not running the financial side of the
business appropriately and even hinted at the fact that since he was in charge of the
Page 1 of 11
finances he could be “helping himself to some of the cash for all we know”. At her
book club Fatema has also commented to her friends that she is a bit concerned about
the business and also Mohammed’s role in the business. She has stated that she thinks
Mohammed seems to have “very close relationships” with customers and suppliers
and might be more interested in their (and possibly his) well-being and profits rather
than the company’s. She also noted that these days Mohammed seems to be spending
a lot of money on himself including OMR 140,000 on a new Tesla. This concerns her
as although the business has been making profits this sort of expenditure was
flamboyant.
Fatema, herself, has started building her own house on the back of the past profits
made but this was backed up by a personal loan from the bank.
The profiles of the 3 directors are as follows:
Mohammed Ibrahim
Age:
Position:
Salary:
Responsibilities:
Duties:
38
Operations director
30000 OMR per annum
Construction planning, site management and materials
procurement.
Finalising drawings
Planning materials
Hire of equipment for contracts
Site management and supervision of site staff
Recruitment and cash payments of casual employees (labourers
hired by the day)
Signing off on completed contracts
Liaison with external contractors, architects and surveyors
Fatema Ibrahim
Age:
Position:
Salary:
Responsibilities:
Duties:
`
Page 2 of 11
36
Managing director
30,000 OMR per annum
Marketing, Company Secretary, Human Resources
Hiring and firing of staff
Other staff related issues
Security and maintenance of company property and assets
Insurance of company property, equipment and staff
Customer liaison
Marketing of company
Ahmed Al Amri
Age:
Position:
Salary:
Responsibilities:
Duties:
28
Financial director
22,500 OMR per annum
All financial responsibilities, including billing sales, receipt of
cash, payment for payroll and expenses, banking
Invoicing customers
Paying suppliers
Paying staff (except casual employees who are Mohammed’s
responsibility)
Maintenance of company bank account
Preparation of monthly accounts
Preparation of business plans
Appendix A shows the company accounts for the last 3 years in addition to forecast
figures for the next financial year.
Coursework Requirements
You have recently been engaged as a Management Consultant for Ibrahim
Construction Ltd. After a recent meeting, where certain accusations were made
between the three Ibrahim Construction Ltd directors, you have been asked to review
the company’s situation.
Your report must include the following:
Part One
The directors are extremely concerned about the fall in working capital. Provide a
comprehensive analysis of the accounts of Ibrahim Construction Ltd using an
appropriate range of financial ratios in order to investigate. For the ratios you
calculated, comment on any areas of concern identified and suggest reasons as to why
these changes in performance may have occurred. Your workings (e.g. ratio
calculations) should be attached as an Appendix in your final report and the ratios you
have calculated should be placed in a table at the appropriate point of the report.
Part Two
Extend your report to discuss findings regarding possible areas of misappropriation of
company assets, outline what internal controls are and highlight the components of
internal control that you feel the directors of Ibrahim Construction Ltd should focus
on for the forthcoming year. This should be based on your review of the case study
and should be informed by further reading on the subject area of Internal Controls.
Page 3 of 11
Part Three
The directors have independently assessed that they need funding of 125,000 OMR to
invest in projects and to secure the future competitiveness of the business. The
directors are unsure as to whether to approach a bank for a loan or other potential
investors in order to secure the money required. Advise the directors on both forms
of financing. Your discussion should cover the advantages and disadvantages of these
forms of finance, it should be based on your review of the case study and should be
developed through further reading on the subject area. You should conclude by
providing a justified recommendation for the directors.
Marking Criteria
A marking scheme is available in appendix B
This is an entirely fictitious scenario, and the financial impact of the pandemic had
no effect on the company’s finances in this scenario*
Page 4 of 11
Appendix A
Ibrahim Construction Financial Statements

Page 5 of 11
Profit & Loss account 2019-2021
Sales
Construction Costs:
Labour costs
Materials *
Subcontractor
Production overheads
Gross Profit
Other costs:
Administration salaries
Administration overheads
Marketing expenses
Net Profit
Interest expence (Finance cost)
Taxation
Net Profit after Tax
Actual 2019
Actual 2020
Actual 2021
OMR ‘000 OMR ‘000 OMR ‘000 OMR ‘000 OMR ‘000 OMR ‘000
4050
3038
6525
-1328
-1508
-135
-619
-338
-56
-45
0
-45
0
* Materials are purchased on credit from a single supplier
Page 6 of 11
-3589
461
-439
23
-45
-23
-945
-900
-67.5
-450
-225
-22.5
-45
-90
-157.5
-2363
676
-293
383
-248
136
-2025
-2250
-180
-787.5
-405
-58.5
-45
-45
-270
-5243
1283
-509
774
-315
459
Profit & Loss account 2022
Sales
Construction Costs:
Labour costs
Materials *
Subcontractor
Production overheads
Gross Profit
Other costs:
Administration salaries
Administration overheads
Marketing expenses
Net Profit
Interest expence (Finance cost)
Taxation
Net Profit after Tax
2nd Half of 2022
1st Half of 2022
Actual
Forecast
Actual
Forecast
Forecast 2022
OMR ‘000 OMR ‘000 OMR ‘000 OMR ‘000 OMR ‘000 OMR ‘000 OMR ‘000 OMR ‘000 OMR ‘000 OMR ‘000
5175
3825
4050
9225
-2790
-2588
-495
-810
-630
-72
-54
-45
-405
-6683
2543
-756
1787
-450
1337
-1350
-1350
-225
-405
-225
-36
-27
-22.5
-135
* Materials are purchased on credit from a single supplier
Page 7 of 11
-3330
720
-288
432
-157.5
274.5
-1913
-1373
-383
-394
-225
-41
-32
-68
0
-4061
-236
-297
-533
-68
-601
-1440
-1238
-270
-405
-405
-36
-27
-23
-270
-3353
1823
-468
1355
-293
1062
Balance Sheet 2019-2021
Fixed assets
Current assets:
Inventory
Debtors
Bank balance
Total current assets
Actual 2019
OMR ‘000
900
0
0
247.5
360
45
652.5
Current liabilities:
Creditors
VAT
PAYE
Corporation tax
Bank overdraft
Total current liabilities
Working capital *
225
0
0
0
0
225
427.5
Long term loan
Net assets
250
877.5
Equity:
Share capital
Reserves
* Current assets – current liabilities
Page 8 of 11
900
-22.5
877.5
Actual 2020
OMR ‘000
1314
0
0
315
405
81
801
0
0
337.5
90
135
90
0
652.5
148.5
0
450
1012.5
0
0
900
112.5
1012.5
Actual 2021
OMR ‘000
1516.5
0
0
495
765
90
1350
0
0
360
135
180
270
0
945
405
0
450
1471.5
0
0
900
571.5
1471.5
Balance Sheet 2022
Fixed assets
Current assets:
Inventory
Debtors
Bank balance
Total current assets
Current liabilities:
Creditors
VAT
PAYE
Corporation tax
Bank overdraft
Total current liabilities
Working capital *
Long term loan
Net assets
Equity:
Share capital
Reserves
Forecast
OMR ‘000
2394
0
0
585
999
450
2034
0
0
360
180
225
405
0
1170
864
0
450
2808
0
0
900
1908
2808
* Current assets – current liabilities
Page 9 of 11
1st Half of 2022
Forecast
Actual
OMR ‘000
OMR ‘000
1741.5
1935
0
0
0
0
522
517.5
765
756
112.5
0
1399.5
1273.5
0
0
0
0
450
585
157.5
180
202.5
225
135
135
0
238.5
945
1363.5
454.5
-90
0
0
450
450
1746
1395
0
0
0
0
900
900
846
495
1746
1395
2nd Half of 2022
Forecast
Actual
OMR ‘000
OMR ‘000
2394
0
0
585
999
450
2034
0
0
360
180
225
405
0
1170
864
0
450
2808
0
0
900
1908
2808
Appendix B
COURSEWORK 2 MARKING SCHEDULE
MODULE &
ASSESSMENT
INSTRUMENT
Financial Management for Global
Decision Makers
Marks
available
Ibrahim Construction Limited
Part 1 (approx. 500
words)
Analysis
of
the
accounts: Ratio analysis
and critically discuss
(drawing
on
the
academic literature) any
areas of concern that
require
further
investigation
Part 2 (approx. 750
words)
Discussion
of
misappropriation
and
identification of weak
areas of internal control
and suggestions to
resolve.
30%
30%
You
should
define,
summarise,
critique,
apply relevant evidence
and display an ability to
logically develop your
argument. This should
be a discussion and not
a series of bullet points.
Part 3 (approx. 750
words)
Review of the sources of
finance identified by
Ibrahim
Construction
Ltd given the need to
raise OMR 125,000 for
investment
in
the
business.
Recommendation along
with
justification
required.
You
should
define,
summarise,
critique,
apply relevant evidence
and display an ability to
Page 10 of 11
30%
logically develop your
argument. This should
be a discussion and not
a series of bullet points.
Presentation of report,
references and
reference list
*It is good practice to include a brief introduction to your report
Page 11 of 11
10%

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