Finance (Total Marks: 100)
The paper should be based on a public company named Hermès International which is in the business of producing and marketing fast moving consumer goods.
All financial statements and ratios can be done in MS Excel and then exported to MS Word.
To execute the tasks below consult the company’s annual report over the 3-year period 2017- 2019. In addition to the requirements for each question, ensure to provide formulas, assumptions and models as appropriate. Analysis or conclusions which are not based on the applicable theory will consequently limit your marks. In calculations, solve questions step by step. Only answers will not be accepted.
It is required to submit a working website link of the company’s financial statements used in answering the respective questions. The link is part of what has to be included in the introduction paragraph when answering questions. ONLY the excerpts of the case study financial statements must be shown in the appendix. Note that failure to submit the said financial statements will cause your paper NOT to be assessed
Task 1. Ratio analysis (30 marks)
Analyze the company’s consolidated financial statements using:
1. 4 Profitability ratios
2. 5 Efficiency ratios
3. 2 Liquidity ratios
4. 2 Financial gearing ratios
Reflect on the development of the ratio outcomes over the 3 year period (2017- 2019) and provide your conclusions and recommendations to the Board.
Task 2. Sensitivity analysis (35 marks)
Treat the figures in the 2017-2019 Income Statement and Balance Sheet of the company of your choice as if it were a prognosis. You are asked to execute a separate sensitivity analysis on the original figures as presented in the company’s annual report with each of the following 4 items, using the percent of sales method:
1. Sales in each of the 3 years are 10% higher than currently “forecasted”
2. Sales in each of the 3 years are 10% lower than currently “forecasted”
3. Operating costs in each of the 3 years are 7% higher than currently “forecasted”
4. Operating costs in each of the 3 years are 7% lower than currently “forecasted”
Show the effects that each of the situations A, B , C , and D have on the total 3-year Income Statements and Balance Sheets, including the effect on the required financing.
Discuss the implications of each of these effects with the Board and draw conclusions with respect to the main risks in the business over this “prognosis” period.
Task 3. Working capital analysis (20 marks)
In this task you are also to assume that the figures in the 2017-2019 Income Statement and Balance Sheet of the company of your choice are a 3 year prognosis. Discuss the effects of each of the following 6 deviations from the original figures on the operating cash cycle in all 3 years:
1. Trade receivables of each of the 3 years are 20% higher than currently “forecasted”
2. Trade receivables of each of the 3 years are 20% lower than currently “forecasted”
3. Trade payables of each of the 3 years are 30% higher than currently “forecasted”
4. Trade payables of each of the 3 years are 15% lower than currently “forecasted”
5. Inventories of each of the 3 years are 40% higher than currently “forecasted”
6. Inventories of each of the 3 years are 20% lower than currently “forecasted”
Based on your analysis provide recommendations to the Board on what the focus of their working capital management should be for each of the six (6) scenarios above.
Task 4. Capital structure analysis (15 Marks)
Discuss the capital structure of the company over the years 2017-2019, relating the term of the different sources of funds to the term of the different uses of funds. Ensure to provide the rationale for your conclusions for each of the ‘’term of sources and application (uses)’’ of funds based on the appropriate concepts.
• Depth of knowledge and understanding of relevant key concepts.
• Demonstrate a good level of application, reflection and reasoning in relation to the relevant concepts.
• Innovative and creative approaches of describing and explaining the material
• Demonstration of an ability to engage in full professional and academic communication in written work.
Assessment submission requirements
A paper assignment should meet the following requirements:
• The uploaded assignment must be in word.
• The narrative must be written with conventional grammar e.g. appropriate use of paragraphs, punctuation, sentence structure etc.
• The assignment should be in written in English-UK.
• The work should show coherence i.e. clear presentation and development of ideas to communicate meaning.
• Work should be appropriately and accurately referenced using the Harvard system (https://library.aru.ac.uk/referencing/harvard.htm)
• Specified word counts should be respected. Excessively short submissions are unlikely to cover the required material adequately.