BUS020C418S Managing Financial Resources Assignment Level 5

TASK 1

1. Advantages and Disadvantages of Attaining a Listing in a Stock Exchange:

There are so many benefits and drawbacks which occur at the time of listing on the stock exchange. Now, it can be rightly said that the management of the cited organisation must have to adopt regulatory norms while exercising listings of the securities. Some of them are mentioned hereunder:

Advantages:

For listing shares of Milner Chemical plc in the London stock exchange. There is a strong need to adopt listing norms for making the business organisation in an effective manner. By exercising the listing of the securities, the cited organisation needed to adopt their business objectives in an effective manner. here are some of the advantages mentioned hereunder:

• Form a market valuation for the organisation and assist opportunities to enhance capital for expansion and possibilities of realising a few of the investments.
• Provided access to the acquisition currency and transparency throughout the value of the organisation. The listed organisation mostly implements their shares, as opposed to cash, to form acquisitions. This could be mostly implemented at the time of using a buy and build strategy at the time of cash which could be highly used in the other areas. If there is an objective valuation for shares, the target organisation is going to assess what they are getting if offer them a share in the business.
• Enhances employee commitment by offering them something of clear value. When share prices do go up and down and few vendors would not consider payment in the shares, however, they might often make part of the buying consideration (Almalki, FitzGerald and Clark, 2011).
• This could be differences for employees along with options to assess the value which have been rendered. On the other way, employees of the listed organisations which provided shares or options could be overviewed accurately.
• Form a public profile and enhanced ability to fascinate more calibre board members. In order to come to that level of calibre, organisation is required to adopt this in an effective manner. In order to get more people of that calibre into the organisation, being listed genuinely helps, as they are required to form listed status which renders a mostly liquid incentive plan.
• Enhance supplier, Investor and consumer confidence and enhance standing in the marketplace. This could assist the organisation to make the business globally. Listed organisations must go via a due diligence process before they can be listed in the London Stock Exchange market. Checks and balances are formed which could lead to enhanced confidence, emerging in more supplier credit terms, better connection with consumers and more valuations from investors (Boulware and et. al., 2016).

Cons:

• Reliability and Scrutiny: Public organisation are just like public property. Because they are forecasted to comply with the rules of the markets they populate. Organisations on the London Stock Exchange are required to implement advisors who would comply all the compliance officer in an effective manner.
• Cost: The amount of the cited management time and important costs are linked with the floatation and continued listing must be under-estimated. From the process of floatation itself, which could form diverse months, to the time-consuming administration of regular and regular statements. There are so many activities to handle.

2. Methods of Obtaining Listing in the London Stock Exchange:

In case any new venture which is established for the very first time in the market needs to be listed on specific stock exchanges. There are various processes a company needs to take into consideration during the time of listing a business on the London Stock Exchange in the main primary market. There are so many steps which are required to be adopted while listing the securities on the London Stock Exchange. These are mentioned as under:

Appointing advisors: For accessing the London Stock Exchange, there must be appoint specific advisor in place. They must have an appropriate time of market experience or can need to seek specific suggestions to hire new ones. Every adviser is planning a crucial role in the application and entry process for the main market. Some of them are:
A sponsor: It is essential for the company to select the best sponsors that are used to guide companies through the application and procedures of making the step into the main market. They would be held responsible for guiding the company through their valuable ability and experiences in the admission process and making recommendations on UK listing boards as legal needs.
Broker: It is said to be an important person who will assist with the pricing of shares and aid in generating valuable interest in their business through marketing companies trading and thereafter to attain future aims (Cascio, 2018).

Reporting accounting: It will be independently analysing the company's financial position by producing a wide number of reports to fulfil particular legal needs and to assist directors in order to meet their requirements.

Lawyer: It will be able to give advice to any legal issues that can arise in the process of making entries into the market. It consists of essential disclosure needs and regular obligations that are presented during the period of time.
Preparing a company for the stock market: There are various aspects of a company before starting the listing procedures. Some of them are discussed below:
Asset and liabilities: It must be ensured that a company owns or controls every asset required for the purpose of operating the company and that can cover debt obligations.
Shareholder arrangements: It ensures that all current shareholder must agree on a time limit restriction on the basis of selling their share during flotation.
Share capital: It needs to organise total splits of a company's new share capital or organisation of current capital which is being kept by the company.
IPR: It ensures that any valuable IP of an organisation must be protected before flotation into the share market (Chartier, 2014).

Insurances: It will be considered one of the main aspects which make the company follow certain policies that are up to date and provide valuable cover in case any damage arises to the company.
Joining the London stock exchange market: It is mainly related to the total length of time it will take to join the main market which will depend on a wide number of impacts which consists of a selected route to the market. Some of them are needed to agree on a realistic timescale for joining the stock market. Some of them are mentioned below:
Creating companies prospectus: It must be produced as a prospectus which would be proven through the UKLA. These would be considered primary marketing documents and can contain sufficient data for investors.

Application for admission to trade: They can apply to both the London Stock Exchanges and UKLA to consider the company's securities to the primary market.
Marketing company's flotation: It would be promoting companies between potential investors to ensure their growth and success on registration day. In this process broker can make proper help in to stage.
Completion of underwriting agreement: This would be entering into the process of underwriting contracts among relevant parties such as owners, directors and shareholder.
Keep an impact day: This must be happening in case the prospectus is taken and all essential approval and floatation get announced.
Henceforth, all tasks related to the company's shares will be provided to trade on the stock market and trading can be started after all the permission is taken from LSX (Chartier, 2014).

3. Methods of Raising Capital in the London Stock Exchange:

It is well known that the London Stock Exchange is considered the home to about 2500 companies and is given the choice of opening four markets which are; the main market, the professional securities market, the specialist fund market and AIM. It can also be depicted that raising capital is one of the major factors because of which the company chooses to list on the Main Market. It is a beneficial situation for both companies as they will face sudden gains in their profits if they shift to public equity capital.

• The Main Market is considered the home to larger and more established companies. If companies want to operate on the London Stock Exchange then they will have to get approval from the UK Listing Authority (UKLA), a division of the Financial Conduct Authority (FCA) and once they are approved then LSE cannot stop those companies are trading in the main market. 
• PSM is the kind of market where companies are raising capital via the issue of specialist securities, such as debt, convertibles, depository receipts and professional and institutional investors as well.
• In the Specialist Fund Market, they are targeting institutional, professional and highly knowledgeable investors only.
• AIM is considered as world's leading market for small as well as growing companies. So, companies who are entering through this segment then they are required to become a public company and their structure should not be of a sole trader or a partnership (Fotaki, 2011).

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Some of the methods are:

Initial Public Offer:

One of the most common methods that can be used by companies to raise capital at the London Stock Exchange is through Initial Public Offers (IPO). In this, the financial advisor of the company will offer the shares of the respective company to the private and institutional investors and then start the process of underwriting. An IPO draws the attention of private investors who are considered very important for developing the liquidity of a company's shares. This is also considered the most expensive method to reach the market and that is why it is usually used by large-sized companies or those organisations who are looking to raise considerable amounts of capital (Genet and et. al., 2011). 

Placing:

This is also an effective method in which the shares of the company are being offered to only a selected base of institutional investors. Here, the capital is being raised at a lower cost and with greater freedom. Along with this, the company also gets the option to choose their investors as well.

TASK 2

2.1

a). Cost of Preference Shares:

This is calculated by using the following formula:

Dividend/ price

Here,

Preference shares interest would be 12% which is less than the ordinary share price was 2. Which is less than the price of the organisation in order to calculate the cost of preference shares.

The cost of preference shares is 12/1.2= 10%.

b). Cost of Equity Shares:

Ke= (D1/Po) +Growth

Here,

P0=Current Price

D1= Expected dividend

G= Growth

(0.108/2)+8%= 13.4%

c). Cost of Debenture

= .010(1-.20)= 8%

d). Weighted Average Cost of Capital:

WACC= We*ke+Wp*Kp+Wd*Kd

= (.3636*13.4)+(.1818*10)+(.1818*8)=4.86+1.82+1.45=8.13%

Here,

We= Equity weight

Ke= Cost of equity

Wp= Weighted preference

Kp= Cost of preference

Wd= Weighted debt

Kd= Cost of debt

2.2 Importance of Financial Planning:

Financial planning is a kind of process in which forecasting the capital needed and identifying its fulfilment. This is the procedure of making policies for procurement, investment and administration of the funds of a company (Ginter, 2018).

Objectives of financial planning: This has so many objectives to look forward to:

Identifying capital needs: This would have relied on aspects such as cost of current and fixed assets, promotional expenses and long-range planning. Capital requirements are required to be overviewed with both of the aspects: short term and long term needs.

Identifying capital structure: Capital structure simply means the consisting of capital. Which covers decisions of the debt-equity ratio for both short term and long term (Kringos, Boerma, van der Zee and Groenewegen, 2013).

Forming financial policies which are related to cash control, lending, borrowing etc.

Importance of financial planning: This is the process of forming objectives, policies, procedures, programmes and budgets related to the financial activities of the concern. This guarantees efficient financial and investment policies. The importance could be outlined as under:

• Appropriate finances are required to ensure this.
• Financial planning assists in ensuring an accountable balance between inflow and outflow of financial henceforth stability can be achieved.
• Financial planning confirms that suppliers of finances are helpful in investing tools of organisations that exercise financial planning (Hunter, 2016).
• Financial planning assists in forming growth and growth programmes that could assist in the extensive run survival of the organisation.
• Financial planning assists in limiting uncertainties that could be hurdles to the emergence of organisation. This assists in guaranteeing stability and profitability in the concern.

2.3 Informational Needs of Directors, Senior Managers and Junior Managers

Directors, senior managers and various junior managers totally relied upon the informational needs of the statement which would help to gain sustainability for the firm. now, this can be simply said that the financial information would assist in gaining sustainable development in an effective manner that would help to gain efficient development. Managers and directors of the cited organisation are required to make certain discounts which would help out to gain sustainability in an effective manner. Now, there is a strong need to make certain objectives in an effective manner. Now, this can be rightly said that the managers of the cited organisation are required to form an effective strategy (Kakuma and et. al., 2011).

2.4 Impact of Finance on the Financial Statements:

Finance is the major problem which assists in making the business objectives an effective strategy. A finance statement is a major tool which ultimately assists in making strategy in an effective manner. With the help of a financial statement, anyone can assess the financial position of a company. Which ultimately helps to gain sustainability for the organisation. Henceforth, there is an impact on the financial statements. This would help to gain sustainable development for the firm by way of taking an efficient financial problem.

TASK 3

3.1 Production Budget in Units and in Unitary Terms:

The production budget is calculated:

Budgeted production of Gold tap	Particulars	Per unit cost (£)	2000 units
	Direct material	20	40000
	Direct labour	50	100000
	Variable overhead	10	20000
	Fixed overhead		80000
	Total budgeted cost		240000
	add: profit margin of 25%		60000
	Expected selling price		300000
	Selling price per unit		150

 

Profit and loss statement
Sales	600000
Less: Expenses
Direct material	-40000
Direct labour	-100000
Variable overhead	-20000
Fixed overhead	-80000
Budgeted profit and loss	360000

 

Material rate	Cost of material per Kg as per 2000 units
	material in Kg
	500 Kg	2500
Labour our rate	10000	50

 

 

Budgeted production of silver tap	Particulars	Per unit cost (£)	4000 units
	Direct material	15	60000
	Direct labour	25	100000
	Variable overhead	10	40000
	Fixed overhead		80000
	Total budgeted expenses		280000
	add: profit margin of 25%		70000
	Expected selling price		350000
	Selling price per unit		87.5

 

Profit and loss statement
Sales	350000
Less: Expenses
Direct material	-60000
Direct labour	-100000
Variable overhead	-40000
Fixed overhead	-80000
Budgeted profit and loss	70000

 

 

Material rate	Cost of material per Kg as per 4000 units
	material in Kg
	1333.33 KG	12000
Labour our rate	100000	25

 

3.3 Cost of Capital of the Cited Organisation:

Year	Cash flow	Present factor @ 10%	PV
0	-10,000,000	1	-10000000
1	1,240,000	0.909090909	1127272.727
2	2,200,000	0.826446281	1818181.818
3	3,280,000	0.751314801	2464312.547
4	4,320,000	0.683013455	2950618.127
5	5,160,000	0.620921323	3203954.027
	200,000	0.620921323	124184.2646
		Total PV	11688523.51
		Payback period	4.16 Years
		Accounting Rate of Return	300%
		NPV	1688523.511

 

b). Evaluate the Viability of an Investment Appraisal Proposal:

Investment appraisal proposals are the best tool which are used by the organisation. The viability of the investment appraisal proposal is seen as great as this can be rightly said that the net present value of the cited project is effective which is 10688523.51 which does seem to be great and positive this also shows the viability of the project. The project will recover its total money in just 4.16 years (Kirch, Henderson and Dill,  2012).

TASK 4

4.1 Explain the Types of Information Rendered by Each Statement:

There are various kinds of information which helps for making the business objectives in an effective manner. now, the Management of the cited organisation must have to provide comprehensive statements according to the needs of the cited organisation to make an efficient objective in an effective manner. Various stakeholders require information as per the needs of various stakeholders in an effective manner (Singer and et. al., 2011).

4.2 Different Formats of Income Statements:

Organisations	Clubs and societies
Fixed to earn income by offering goods and services	Fixed to encourage activities of interest to its members.
Offer goods and services higher than cost price to gain profits.	No value is placed on common facilities rendered to members.
Amounts attained and paid are recorded in the cash book.	Money attained and paid were recorded in receipts and payment accounts.
Trading account is to calculate gross profits.	If a club runs a hotel, bar, or trading account is formed to measure profit.
A key source of revenue is sales or fees attained.	Here, the income source is the subscription amount received from members.
P&L account formed measured net profit according to gross profits+ other income expenses.	The income and Expenditure account is formed to measure surplus or deficit as income less expenditure.
Balance sheet equation as the assets= Owners equity+ Liabilities.	Balance sheet equations such as assets accumulated fund+ liabilities.

 

4.3 A & B calculate ratios and their explanations:

Particular	2015	2016	Industry
Current Ratio	12654/8878=1.425	8928/7060=1.26	1.85
Quick ratio	7568/8878=0.8524	5428/7060=0.77	1.21
Gross Profit Margin	4312/15712*100=27.44%	2163/6375*100=33.93	37.50
Profit margin	72/15712*100= 0.45	388/6375*100=6.09	7.80
Return on total assets	72/14026*100=0.513	388/13286*100=2.90	6.70
Inventory turnover	11400/5086=2.24	4212/3500= 1.20	4.1
Average Collection period	15712/7568=365/2.07= 176 Days	6375/3500= 365/1.82=200 days	75days
Interest earned	8 times	7 times	15 times
Gearing ratio	3,776/10000*100=38%	1,868/10000*100=18.68%	25%

 

From the above-mentioned report, this is rightly observed that the current ratio of Wordsworth plc in 2015 was 1.425 which was enhanced to 1.26 and in both of the years this could not touch the industry benchmark. The same thing also happens in the quick ratio. Gross profits margin in 2015 and 2016 was 27.44 and 33.93 respectively which were also down to the industry level (Kringos and et.al., 2013). There is nothing that even touches the industrial benchmark except the gearing ratio. This also shows that in 2015 this reached 38% which was less than 18.68% which shows efficiency. Overall, this can be rightly said that the financial position of the Words Worth plc was not up to the industry benchmark. Which did not even show good financial positions (Financial Management Resources, 2017).

CONCLUSION

From the above-mentioned report, this can be concluded that Milner Chemical plc is not in a good position to expand their operations in an effective manner. Now, there is a strong need to adopt various financial strategies for meeting the financial needs of the organisation in an effective manner. In this report, the production budget is prepared as per the needs of the various entries. Various ratios are prepared in this report and viability is checked of  Woodsworth plc.

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