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INTRODUCTION

For managing a successful business, there is a strong need to adopt a business operation in an effective manner. now, this can simply be said that the manager of the Milner Chemical Plc is planning to expand their operations and for that, there is a strong need to have finance. The cited organisation is planning to list their shares in the London stock exchange and for that there is a need so that the business operations in an effective manner (Ahnquist, Wamala and Lindstrom, 2012). cost of capital are used by the organisation so that the business can make an efficient strategy about the financial planning. Now, this is observed that management of the cited organisation is required to adopt their business objectives in an effective manner. Various financial tools would help to make an efficient strategy. Various financial tools are used by the organisation in order to render an efficient strategy in an effective manner.

TASK 1

1. Advantages and disadvantages of attaining a listing in a stock exchange:

There are so many benefits and drawbacks which occurred at the time of listing in 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 the them are mentioned hereunder:

Advantages:

For listing shares of the Milner chemical plc in London stock exchange. There is a strong need to adopt listing norms for making the business organisation in an effective manner. By exercising listing of the securities, cited organisation is 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 few of the investment.
  • Provided access to the acquisition currency and transparency throughout value of the organisation. 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, target organisation is going to assess what they are getting if offer them share in the business.
  • Enhances employee commitment by offering them with something of the 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 value which have been rendered. While 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 render 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 have to go via due diligence process before they could list in the London Stock Exchange market. Checks and balances are formed out which could lead to enhanced confidence, emerging in the more supplier credit terms, better connection along with consumers and more valuations from investors (Boulware and et. al., 2016).

Cons:

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

2. Methods of obtaining listing in London Stock Exchange:

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

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

Reporting accounting: It will be independently analysing 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 make advice to any legal issues that can be 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 company for stock market: There are various aspects of a company before starting the listing procedures. Some of them are discussed underneath:
Asset and liabilities: It must be ensure that a company owns or control every assets required for the purpose of operating company and that can cover debt obligations.
Shareholder arrangements: It ensure that that all current shareholder must be agree on a time limit restriction on the basis of selling their share during flotation.
Share capital: It need to organise total splits a company’s new share capital or make organisation of current capital which are being kept by the company with them.
IPR: It ensure that any valuable IP of an organisation must be protected before flotation into the share market (Chartier, 2014).

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

Application for admission to trade: They can apply to both London stock exchanges and UKLA to consider 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 in 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 all essential approval and floatation get announced.
Henceforth, all tasks related with the company's shares will be provided to trade on stock market and trading can being started after all the permission taken from LSX (Chartier, 2014).

3. Methods of raising capital in the London Stock Exchange:

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

  • The Main Market is considered as the home to larger and more established companies. If companies want to operate in the London stock exchange then they will have to get approved from UK Listing Authority (UKLA), a division of Financial Conduct authority (FCA) and once they are approved then LSE cannot stop those companies who are trading in the main market. 
  • PSM is the kind of market where companies are raising capital via 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 being considered as world's leading market for the 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).

Some of the methods are:

Initial Public Offer:

One of the most common method that can be used by companies to raise capital at 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 starts the process of underwriting. An IPO draws the attention of private investors who are considered very important for developing the liquidity of company's shares. This is also considered as 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 the 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 selected base of the institutional investors. Here, the capital is being raised at the 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 ordinary share price was 2. Which is less than the price of the organisation in order to calculate the cost of preference shares.

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 of 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 the 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 guarantee an efficient financial and investment policies. Importance could be outlined as under:

  • Appropriate financial are required to ensured.
  • Financial planning assist in ensuring an accountable balance between inflow and outflow of financial henceforth stability can be achieved.
  • Financial planning confirms that suppliers of financial are helpful in investing tool of organisations that exercise financial planning (Hunter, 2016).
  • Financial planning assist 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 hurdle to emergence of organisation. This assist in guarantee stability and profitability in the concern.

2.3 Informational needs of directors, senior managers and junior managers

Directors, senior managers and various junior managers are totally relied upon the informational needs of the statement which would help out to gain the sustainability for the firm. now, this can be simply said that the financial information would assist to gain the sustainable development in an effective manner that would help out to gain an efficient development. Managers and directors of the cited organisation is required to make certain discount which would help out to gain the 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 assist for making the business objectives in an effective strategy. Finance statement is the major tool which ultimately assist for making strategy in an effective manner. With the help of financial statement, anyone can assess about the financial position of a company. Which ultimately help out to gain the sustainability for the organisation. Henceforth, there is an impact on the financial statements. Which would help out to gain the 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:

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 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 great as this can be rightly said that the net present value of the cited project is effective great which is 10688523.51 which does seem to be the 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 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, Management of the cited organisation must have to provide comprehensive statements according to the need of the cited organisation for making an efficient objective in an effective manner. Various stakeholders required information as per the need 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 the interest to its members.

Offer goods and services higher than cost price to gain profits.

No value placed  on common facilities rendered to members.

Amount attained and paid are recorded in cash book.

Money attained and paid which were recorded in receipts and payments account.

Trading account is to be calculated gross profits.

If club runs a hotel, bar, or trading account is formed to measured profit.

Key source of revenue is sales or fee attained.

Here, income source is the subscriptions amount received form members.

P&L account formed measured net profit according as gross profits+ other income expenses.

Income and Expenditure account formed to measure surplus or deficit as  income less expenditure.

Balance sheet equation as the assets= Owners equity+ Liabilities.

Balance sheet equation 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 current ratio of Wordsworth plc in 2015 was 1.425 which was enhanced to the 1.26 and in both of the year 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 which was even touch the industrial benchmark except gearing ratio. Which also shows that in 2015 this was reached to 38% and which was less to 18.68% that shows an efficiency. Overall, this can be rightly said that the financial position of the Words worth plc was not up to the industry benchmark. Which was not even shows the good financial positions (Financial Management Resources, 2017).

CONCLUSION

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

REFERENCES

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