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Management Report

Management Report

CASE STUDY: Williams Limited

WILLIAMS is a limited company, whose head office in based in South Africa. The company
has been operation in the UK for the past 10 years. WILLIAMS provides financial services to
a number of organisations which include SME’s, property developers and investment property
funds in the UK and Africa. For the past 10 years, WILLIAMS has been a profit making firm
as it has retained its previous clients, in addition to capturing an increasing share of the market.
However, the finance director of WILLIAMS has recently got in touch with your professional
consulting firm, and has engaged your firm with the mandate to provide them with an
explanation of the cash flow problem that WILLIAMS Limited had been facing. The company
is also dependent on the parent based in South Africa for and when required.
In the past month there has been a number of meetings in London and South Africa where it
has been agreed that WILLIAMS Limited should do their best to expand the business and
raise the required capital in England, or perhaps in Europe, so as not to depend so much on
cash coming from the parent company all the time. Consequently, the management of
WILLIAMS is considering the followings:
New Software
The current product that Williams Limited has to offer mostly to specialist developers and
investment funds companies is outdated. The company is looking to invest in a new product,
and the details of this proposal is outlined below.
Advanced Suite
Advanced Suite
Draft figures £’000
Year 0 1 2 3 4 5
New Software cost (9,000)
Cumulative
Working Capital (850) (610) (790) (310) (730)
Sales Revenue 3400 6300 7500 8900 9500
Less:
Module A (420.00) (600.00) (800.00) (900.00) (1,110.00)
Module B (1,010.00) (1,400.00) (1,600.00) (2,100.00) (1,900.00)
Overheads (230.00) (240.00) (330.00) (300.00) (300.00)
All of the above estimates have been prepared in terms of present day cost and prices.
Assume that cash flows arise at the end of each period. In addition
• Revenues are expected to rise by 4% in price terms per year from year 1 (start of
year 2) the budget estimated selling price at start was £120.
• Overheads and working capital are expected to rise by 4% per year from year 1(start
of year 1)
• The cost of Module A and Module B are expected to rise in line with inflation of 4%
per year from the beginning of year 1.
• The working capital is cumulative and will be recouped at the end of year 5.
• The cost of Technicians, who have come from the South Africa have not been taken
into consideration in the forecast and are as follows:
Technician (T1): Will be paid £120 per hour and expected number of hours for T1 are 1,300hrs.
The rate paid is expected to rise in line with inflation at 4% per year from year 2 and the
number of hours is expected to reduce by 3% per year, every year from year 2 onwards.
Technician 2 (T2): Will be paid £110 per hour and expected number of hours for T2 are
1,400hrs. The rate paid is expected to go up in line with inflation at 4% per year from year 2
and the number of hours is expected to reduce by 3% per year, every year from year 2
onwards.
If WILLIAMS Limited invests in Advanced Suite, then the discount rate that would be required
to assess the NPV would be 6%. The table above shows the estimated outgoings and inflows
for the project.
New Drop-in Centre
The manager in charge of sales has just informed your company that they plan to open a
Drop-in Centre in London and it is hoped that this Centre will be opened for business on 1April
2020. You have also been informed that to start with, the company will only sell 2 types of
service as packages: Entry Level package (ELP) and Advanced Level package (ALP). This
will be done to test the market and see if the business will break-even in the same period.
These two are the most popular asked for packages and will be offered at £300 for ELP and
£400 for ALP.
The company has provided you with the following information regarding the costs and
estimated sales for the period mentioned above.
WILLIAMS plan to put in £6,000 as start-up capital and plan to sell a total of 1320 (combined)
of ELP and ALP for the same period. They are not sure which of the two services will produce
the most profits for WILLIAMS.
Total budgeted sales for each month are as follows: April 440, May 440 and June 440, of
which 30% of each month will be for ALP. You will be required to assess the best product
combination of sales for the Aril and May 2020.
To help with the setup of the Centre, the company has just concluded a deal with one of the
high street banks to get a loan of £21,000 on the 1st of April 2020. The interest on this loan
will be 3.5% to be paid every month. The company will be required to make 12 equal payments
to repay the loan starting end of May 2020.
Financial information
As mentioned above the company plans to sell a total of 1320 product packages between
1stApril and June 2020. The fixed costs for the period are as below:
Rent £ 15,500
Telephone £ 1,900
Loan Interest £ 2,205
Insurance £ 6,200
Electricity and Gas £ 3,000
Business Rates £ 4,500
Fixed cost specific to
products ELP ALP
Marketing £21,000 £ 25,000
Administration £ 7,500 £ 11,500
Staff Salary £ 19,500 £ 23,000
From their costs estimates, the variable cost of the services are £180 for the ELP and £210
for the ALP. The fixed costs are for the whole period, so they are not affected by the level of
service. However, the variable costs will increase with services output (ie sales output
multiplied with variable cost per product).
Revenue from the sale of ELP and ALP will be on the basis of 30% cash in the same month,
and the remaining 70% credit to be paid the following month.
Requirement:
You will be required to write a management report to the management of Williams limited
directors in which the following points should be discussed.
• Provide an explanation on the different sources of funding the company can have and
their advantages and disadvantages. You should make recommendations as to how
the company can manage the same to help in the planned expansion program.
• Analyse the Investment proposals by using NPV and provide recommendations. You
should also briefly comment on other investment proposal techniques that Williams
Limited may use, and the limitations of using those techniques
• The use of management tools such as Breakeven analysis and Budgets.
• A computation of your breakeven analysis and the cash budget for the first 3 months.
• An evaluation of the estimated company performance or position during the same
period
• A detailed Literature Review of the tools you have used such as breakeven analysis
and budgets and their importance to business.
• Other issues for management to consider that you think are vital for them to survive
and make a profit.
Assignment Guidelines
.
Structure
You have been asked to produce a report. It should contain the following:
• Appropriate coversheet (as attached in this document)
• Title Page, including the given title in full.
• Executive Summary
• Contents Page

• Introduction
• Literature review to support your accounting models used.
• Sources of Funding
• Investment appraisal
• Cash budgeting
• Breakeven analysis
• Evaluation
• Any other issues to be considered.
• Conclusions and Recommendations
• Appendices which should be numbered.
o Make sure you refer your reader to them as required.
Layout
Your work should be word processed in accordance with the
following:
• Font style, Arial, font size 12
• 1.5 line spacing.
• The page orientation should be ‘portrait’
• Margins on both sides of the page should be no less than 2.5 cm
• Pages should be numbered
• Your name should not appear on the script.