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BACHELOR OF BUSINESS ADMINISTRATION
Title: FINANCIAL MANAGEMENT I
ASSIGNMENT
Student Name: [Insert your name]
Student Number: [Insert your student number]
Professor Name: [Insert professor’s name]
Due Date: [Insert due date]
Table of Contents
1.0 Introduction ……………………………………………………………………………………….. [Page No. 3]
2.0 Question 1 …………………………………………………………………………………………. [Page No.4 ]
2.1 Dr Mo started his own medical practice at the end of 2020. At the end of his second year in business he thinks it prudent to compare his 2021 and 2022 financial results to reassess if it’s better for him to work in the private sector or return to public service. You are his financial manager, and he provides you with the following financial information:
3.0 Question 2 …………………………………………………………………………………………. [Page No.7 ]
3.1 Identify and explain the four core functions of financial management that are crucial for effective decision-making and the long-term success of a business.
4.0 Question 3 ……………………………………………………………………………………….. [Page No.8 ]
4.1 Phambili Ltd is in the pharmaceutical industry sector and has been expanding in the recent past due to a change in its strategic direction from regulated medicines to supplements and homeopathic remedies. The company has recently identified a project it wants you to evaluate and give recommendations on whether to reject or accept, among other things. You are provided with the following tabulated financial and additional information:
5.0 Conclusion ……………………………………………………………………………………….. [Page No.11 ]
6.0 References ……………………………………………………………………………………….. [Page No.12 ]
Introduction
Financial management is a critical pillar of organizational success, encompassing the strategic allocation, utilization, and optimization of financial resources to achieve the overarching goals and objectives of a business. In a dynamic and competitive business landscape, effective financial management serves as a compass, guiding decision-makers in navigating complex financial waters and ensuring the sustainability and growth of the enterprise. It entails a comprehensive set of principles, practices, and techniques that empower businesses to make well-informed financial decisions, manage risks, and create value for stakeholders. From planning and budgeting to investment analysis and risk mitigation, financial management is the cornerstone that enables businesses to balance profitability, liquidity, and long-term viability in a world of ever-evolving economic realities. This introductory understanding of financial management sets the stage for delving deeper into its core functions, methodologies, and the pivotal role it plays in shaping the trajectory of businesses and organizations across various sectors.
ASSIGNMENT QUESTIONS
QUESTION 1 (34 MARKS)
Dr Mo started his own medical practice at the end of 2020. At the end of his second year in business he thinks it prudent to compare his 2021 and 2022 financial results to reassess if it’s better for him to work in the private sector or return to public service. You are his financial manager, and he provides you with the following financial information:
Ratios at the end of December 2021
Gross profit margin 35%
Net profit margin 11%
Return on capital employed (ROCE) 13%
Current ratio 1.4:1
As at 31 December 2022 R
Revenue 5,000,000
Cost of sales 2,880,000
Total running costs 1,536,000
Current assets 660,000
Current liabilities 600,000
Total capital employed 2,560,000
Required:
a. Showing the formulae, calculate the following ratios for the year 2022: (16)
a) Gross profit margin;
Answer: Gross Profit Margin: Gross Profit Margin =
b) Net profit margin;
Answer: Net Profit Margin: Net Profit Margin
c) Return on capital employed (ROCE); and
Answer: Return on Capital Employed (ROCE):
d) Current ratio.
Answer: Current Ratio: Current
b. Tabulate the 2021 ratios and your calculated 2022 ratios. Comment on the changes in the ratios from one year to the next. In your assessment, provide two plausible reasons that could explain the financial trends observed. (8)
Answer: Ratios Comparison and Assessment:
Ratio 2021 2022 Change Plausible Reasons for Change
Gross Profit Margin 35.00% Calculated – Change in cost structure, pricing strategy
c. Explain to Dr Mo, an exceptional medical doctor but sadly lacking in financial acumen, give him five advantages and five disadvantages of using ratios to analyse and interpret performance. (10)
Answer: Advantages and Disadvantages of Using Ratios:
Advantages:
1. Comparability: Ratios enable easy comparison of performance across different time periods and
QUESTION 2 [16 MARKS]
QUESTION. Identify and explain the four core functions of financial management that are crucial for effective decision-making and the long-term success of a business.
Answer: Financial management is a vital aspect of running a successful business, as it involves making informed decisions to optimize financial resources and achieve the organization’s objectives. The four core functions of financial management are essential for effective decision-making and the long-term success of a business:
1. Financial Planning: Financial planning is the process of setting financial goals, estimating the resources required to
QUESTION 3 (50 MARKS)
3. Phambili Ltd is in the pharmaceutical industry sector and has been expanding in the recent past due to a change in its strategic direction from regulated medicines to supplements and homeopathic remedies. The company has recently identified a project it wants you to evaluate and give recommendations on whether to reject or accept, among other things. You are provided with the following tabulated financial and additional information:
Additional information:
• The tax rate is 28% and is payable in the year profits are made;
• The company is financed by 75% equity and 25% debt, with market values of R75-million and R25-million respectively. The company has an equity beta of 1.2. The rate on South African Treasury bills is 5% and considered to have no risk. The market risk premium is 7.5%. The company’s after-tax cost of debt is 6%;
• Profits are similar to cash flows for the purposes of this project evaluation; and
• All receipts and payments arise at the end of the year to which they relate except for the project’s initial outlay of R30-million, which is paid at the beginning of the project (ie, immediately).
Required: Given the information above, calculate the following:
Round off rand amounts to the nearest rand. The discount factor should be rounded to three decimal places
i. Profits for the periods (20 marks)
Answer: Profits for the Periods:
Year Sales Materials Labour Other Variable Overheads Fixed Overheads Other Operating Costs Total Costs Profit
1 36,750 5,885 11,770 525 5,250 3,120 27,550 9,200
2 54,023 9,075 18,150 662 5,513 3,353 36,753 17,270
ii. Weighted average cost of capital (4 marks)
Answer: Weighted Average Cost of Capital (WACC):
Using the Capital Asset Pricing Model (CAPM):
Equity Beta (β): 1.
iii. Net present value of the proposed project (13 marks)
Answer: Net Present Value (NPV) of the Proposed Project:
Initial Outlay: -R30,000,000 Cash Flows: 9,200, 17,270, 15,509, 13,403, 15,614
NPV = (Cash Flow / (1 + WACC)^
iv. Recommendation on the acceptance or rejection of the project with justifications (3 marks)
Answer: Since the NPV is
v. Discuss the advantages of the net present value technique over the payback period and internal rate of return techniques when capital budgeting (10 marks)
Answer: Advantages of NPV over Payback Period and IRR Techniques:
1. Time Value of Money: NPV considers the time value of money by discounting future cash flows to present value, whereas the payback period and IRR techniques ignore this aspect.
2. Cash Flow Timing: NPV
Conclusion
Financial management is a pivotal discipline that revolves around the strategic handling of an organization’s financial resources to achieve its goals and ensure sustainable growth. It encompasses a range of practices, tools, and techniques designed to optimize the allocation and utilization of funds while managing risks and maximizing shareholder value.
At its core, financial management involves key functions such as financial planning, investment decision-making, financing strategies, and risk
References;
1. “Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, and Franklin Allen.
2. “Fundamentals of
Dear students, get fully solved assignments by professionals
Do send your query at :
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or call us at : 08263069601
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