ASSIGNMENT 1 SEMESTER : FINANCIAL MANAGEMENT 2 (FM202
Page 1 of 6
ASSIGNMENT 1ST SEMESTER : FINANCIAL MANAGEMENT 2 (FM202) CHAPTERS COVERED
: CHAPTERS 1 - 3
DUE DATE
: 3:00 p.m. 20 MARCH 2012
TOTAL MARKS
: 100
INSTRUCTIONS TO CANDIDATES FOR COMPLETING AND SUBMITTING ASSIGNMENTS The complete ‘Instructions to Students for Completing and Submitting Assignments’ must be collected from any IMM GSM office, the relevant Student Support Centre or can be downloaded from the IMM GSM website. It is essential that the complete instructions be studied prior to commencing your assignment. The following points highlight only a few important notes. 1. You are required to submit ONE assignment per subject. 2. The assignment will contribute 20% towards the final examination mark, and the other 80% will be contributed by the examination, however the examination papers will count out of 100%. 3. Although your assignment will contribute towards your final examination mark, you do not have to earn credits for admission to the examinations; you are automatically accepted on registering for the exam. 4. Number all the pages of your assignment (e.g. page 1 of 4) and write your name and surname, student number and subject at the top of each page. 5. The IMM GSM requires assignments to be presented on plain A4 paper. You must show all working calculations, including and where appropriate multiple choice working calculations. 6. A separate assignment cover, which is provided by the IMM GSM, must be attached to the front cover of each assignment. 7. Retain a copy of each assignment before submitting, in case the original does not reach the IMM GSM. 8. The assignment due date refers to the day up to which assignments will be accepted for marking purposes. The deadline is 3:00 p.m. on 20 March 2012. Late assignments will be accepted, but 25 marks will be deducted from the maximum mark, if received after 3:00 p.m. on 20 March 2012 and up to 5:00 p.m. the following day, after which no assignments will be accepted. 9. If you fail to follow these instructions carefully, the IMM Graduate School of Marketing cannot accept responsibility for the return of the assignment. It may even result in your assignment not being marked. Results will be available on the IMM GSM website, www.immgsm.ac.za, on Friday, 4 May 2012.
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing FM202
Page 2 of 6
SPECIFIC INSTRUCTIONS Answer ALL the questions. The use of calculators is permitted. Show ALL calculations. Read all questions carefully to determine exactly what is required before attempting to answer. Number your answers clearly and set them out under appropriate headings and sub-headings.
ANSWER ALL QUESTIONS
QUESTION 1
[30]
1.1
You are required to explain to your young new marketing assistant that a good marketer should understand that accounting statements rest on four important principles which are so important that a note to the accounts must warn users if this is not the case. Prepare a brief report that will clearly explain these principles. (15)
1.2
You are also required to explain to your young new marketing assistant the importance of the three fundamental principles of financial management. (12)
1.3
You are also required to mention to your young new marketing assistant what the short-term financial goals of a firm are. (3)
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing FM202
Page 3 of 6
QUESTION 2
[8]
Refer to the extract taken from the annual financial report of a retailer below and explain the operating environment of business with specific reference to the money market and the capital market. Use the extract to illustrate your answer.
QUESTION 3
[5]
In May 2011 a headline in the news read “Fuel prices dent profit at Cargo Carriers” and the article contained a statement reading: “Econometrix economist Tony Twine said for every dollar the price of a barrel of crude oil went up, diesel prices were expected to increase by 7c a litre and for every 10c that the dollar rose against the rand they would increase by 2.2c. He added that a stronger rand had offset higher oil prices in the past six to nine months.” Give a brief explanation of your understanding of the concept ‘a stronger rand’ and discuss the potential impact of a continued strengthening South African rand (ZAR), against the dollar ($) for an importer of goods into South Africa.
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing FM202
Page 4 of 6
QUESTION 4
[7]
Financial information is classified in a system of five types of accounts. Name these accounts and give the purpose of the respective accounts. QUESTION 5
[30]
You are required to conduct a financial performance analysis for Nova Ltd. given the attached income statement and balance sheet. 5.1
Calculate the following ratios for 2011 (showing all workings): a. b. c. d.
5.2
Gross margin Current ratio Debtors collection period (use average debtors) Stock turnover (use average stock)
(8)
Explain what each of the above ratios measures/indicates. Refer to the 2010 ratios for the company as well as the industry averages provided for each ratio and comment accordingly. Also identify whether there is an improvement or decline in the ratios compared to the industry averages and provide possible reasons for the identified increase/decline. (22) Extracts from the Balance Sheet for Nova Ltd. as at 31 December Property, Plant and Equipment Current Assets - Stock - Debtors - Cash Total assets Equity Capital Reserves
2011 R'000 3900 4880 2040 2650 190
1280 2460 160 7600
4550 1600 2950
4090 1600 2490
1400
1600
2830 530 2100 70 130
1910 220 1500 60 130
8780
Assignment: 1st Semester 2012
3700 3900
8780
Long-term loan Current liabilities - Bank overdraft - Creditors - Taxation - Dividends
2010 R'000
7600
© IMM Graduate School of Marketing FM202
Page 5 of 6
Ratios
2010 Nova Ltd. 24.46% 2.04 37.6 7.5
Gross margin Current ratio Debtors collection period Stock turnover
Industry average 35.23% 1,90 : 1 52 days 18,30 times
QUESTION 6
[20]
Qwerty Ltd manufactures and sells computer keyboards. They have sold 17,500 units during the year under review. An extract from the firm’s income statement for 2011 and the budget for 2012 is given below. Income Statement for Qwerty Ltd. for the year ending 31 December 2011 2012 R'000 R'000 Sales 2100 2940 Less: Cost of Sales 1225 1715 Gross income 875 1225 Less: Operating expenses 600 600 Rent 310 310 Insurance 40 40 Indirect labour costs 90 90 Property taxes 10 10 Advertising expenses 150 150 Earnings before interest and tax 275 625
Management wants to improve the profit performance of the firm and has tasked you to determine the following: 6.1
Calculate the firm’s break-even point in units and in rands for 2011.
6.2
After the budget was prepared, new marketing information became available and it now appears that the expected sales volume should be adjusted to 24,500 units. Determine the margin of safety ratio. (3)
6.3
Given the increase in sales and the budgeted earnings before interest and tax (EBIT), determine the degree of operating leverage for the firm. (9)
Assignment: 1st Semester 2012
(6)
© IMM Graduate School of Marketing FM202
Page 6 of 6
6.4
Explain to management the meaning of the term ‘Operating leverage’ using the results from your answer in the previous question to illustrate the concept. (2) ASSIGNMENT TOTAL: 100
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing FM202
ASSIGNMENT 1ST SEMESTER : FINANCIAL MANAGEMENT 2 (FM202) CHAPTERS COVERED
: CHAPTERS 1 - 3
DUE DATE
: 3:00 p.m. 20 MARCH 2012
TOTAL MARKS
: 100
INSTRUCTIONS TO CANDIDATES FOR COMPLETING AND SUBMITTING ASSIGNMENTS The complete ‘Instructions to Students for Completing and Submitting Assignments’ must be collected from any IMM GSM office, the relevant Student Support Centre or can be downloaded from the IMM GSM website. It is essential that the complete instructions be studied prior to commencing your assignment. The following points highlight only a few important notes. 1. You are required to submit ONE assignment per subject. 2. The assignment will contribute 20% towards the final examination mark, and the other 80% will be contributed by the examination, however the examination papers will count out of 100%. 3. Although your assignment will contribute towards your final examination mark, you do not have to earn credits for admission to the examinations; you are automatically accepted on registering for the exam. 4. Number all the pages of your assignment (e.g. page 1 of 4) and write your name and surname, student number and subject at the top of each page. 5. The IMM GSM requires assignments to be presented on plain A4 paper. You must show all working calculations, including and where appropriate multiple choice working calculations. 6. A separate assignment cover, which is provided by the IMM GSM, must be attached to the front cover of each assignment. 7. Retain a copy of each assignment before submitting, in case the original does not reach the IMM GSM. 8. The assignment due date refers to the day up to which assignments will be accepted for marking purposes. The deadline is 3:00 p.m. on 20 March 2012. Late assignments will be accepted, but 25 marks will be deducted from the maximum mark, if received after 3:00 p.m. on 20 March 2012 and up to 5:00 p.m. the following day, after which no assignments will be accepted. 9. If you fail to follow these instructions carefully, the IMM Graduate School of Marketing cannot accept responsibility for the return of the assignment. It may even result in your assignment not being marked. Results will be available on the IMM GSM website, www.immgsm.ac.za, on Friday, 4 May 2012.
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing FM202
Page 2 of 6
SPECIFIC INSTRUCTIONS Answer ALL the questions. The use of calculators is permitted. Show ALL calculations. Read all questions carefully to determine exactly what is required before attempting to answer. Number your answers clearly and set them out under appropriate headings and sub-headings.
ANSWER ALL QUESTIONS
QUESTION 1
[30]
1.1
You are required to explain to your young new marketing assistant that a good marketer should understand that accounting statements rest on four important principles which are so important that a note to the accounts must warn users if this is not the case. Prepare a brief report that will clearly explain these principles. (15)
1.2
You are also required to explain to your young new marketing assistant the importance of the three fundamental principles of financial management. (12)
1.3
You are also required to mention to your young new marketing assistant what the short-term financial goals of a firm are. (3)
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing FM202
Page 3 of 6
QUESTION 2
[8]
Refer to the extract taken from the annual financial report of a retailer below and explain the operating environment of business with specific reference to the money market and the capital market. Use the extract to illustrate your answer.
QUESTION 3
[5]
In May 2011 a headline in the news read “Fuel prices dent profit at Cargo Carriers” and the article contained a statement reading: “Econometrix economist Tony Twine said for every dollar the price of a barrel of crude oil went up, diesel prices were expected to increase by 7c a litre and for every 10c that the dollar rose against the rand they would increase by 2.2c. He added that a stronger rand had offset higher oil prices in the past six to nine months.” Give a brief explanation of your understanding of the concept ‘a stronger rand’ and discuss the potential impact of a continued strengthening South African rand (ZAR), against the dollar ($) for an importer of goods into South Africa.
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing FM202
Page 4 of 6
QUESTION 4
[7]
Financial information is classified in a system of five types of accounts. Name these accounts and give the purpose of the respective accounts. QUESTION 5
[30]
You are required to conduct a financial performance analysis for Nova Ltd. given the attached income statement and balance sheet. 5.1
Calculate the following ratios for 2011 (showing all workings): a. b. c. d.
5.2
Gross margin Current ratio Debtors collection period (use average debtors) Stock turnover (use average stock)
(8)
Explain what each of the above ratios measures/indicates. Refer to the 2010 ratios for the company as well as the industry averages provided for each ratio and comment accordingly. Also identify whether there is an improvement or decline in the ratios compared to the industry averages and provide possible reasons for the identified increase/decline. (22) Extracts from the Balance Sheet for Nova Ltd. as at 31 December Property, Plant and Equipment Current Assets - Stock - Debtors - Cash Total assets Equity Capital Reserves
2011 R'000 3900 4880 2040 2650 190
1280 2460 160 7600
4550 1600 2950
4090 1600 2490
1400
1600
2830 530 2100 70 130
1910 220 1500 60 130
8780
Assignment: 1st Semester 2012
3700 3900
8780
Long-term loan Current liabilities - Bank overdraft - Creditors - Taxation - Dividends
2010 R'000
7600
© IMM Graduate School of Marketing FM202
Page 5 of 6
Ratios
2010 Nova Ltd. 24.46% 2.04 37.6 7.5
Gross margin Current ratio Debtors collection period Stock turnover
Industry average 35.23% 1,90 : 1 52 days 18,30 times
QUESTION 6
[20]
Qwerty Ltd manufactures and sells computer keyboards. They have sold 17,500 units during the year under review. An extract from the firm’s income statement for 2011 and the budget for 2012 is given below. Income Statement for Qwerty Ltd. for the year ending 31 December 2011 2012 R'000 R'000 Sales 2100 2940 Less: Cost of Sales 1225 1715 Gross income 875 1225 Less: Operating expenses 600 600 Rent 310 310 Insurance 40 40 Indirect labour costs 90 90 Property taxes 10 10 Advertising expenses 150 150 Earnings before interest and tax 275 625
Management wants to improve the profit performance of the firm and has tasked you to determine the following: 6.1
Calculate the firm’s break-even point in units and in rands for 2011.
6.2
After the budget was prepared, new marketing information became available and it now appears that the expected sales volume should be adjusted to 24,500 units. Determine the margin of safety ratio. (3)
6.3
Given the increase in sales and the budgeted earnings before interest and tax (EBIT), determine the degree of operating leverage for the firm. (9)
Assignment: 1st Semester 2012
(6)
© IMM Graduate School of Marketing FM202
Page 6 of 6
6.4
Explain to management the meaning of the term ‘Operating leverage’ using the results from your answer in the previous question to illustrate the concept. (2) ASSIGNMENT TOTAL: 100
Assignment: 1st Semester 2012
© IMM Graduate School of Marketing FM202
