Business Finance
M004 LON Coventry Williams Limited Cash Budgeting Model Revenue Analysis Report & Sheet

M004 LON

Coventry University

M004

Question Description

I don’t know how to handle this Business question and need guidance.

It is case study, the word account need 2500 words.

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companies is outdated.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

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 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 1st April 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. 


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.
      • 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.

Student has agreed that all tutoring, explanations, and answers provided by the tutor will be used to help in the learning process and in accordance with Studypool's honor code & terms of service.

Final Answer

Attached.

Running head: MANAGEMENT FINANCE REPORT

Management Finance Report
Name:
Course Number and Section:
Instructor:
Date:

1

MANAGEMENT FINANCE REPORT

2

Executive Summary
Project investment analysis using various models such as net present value, break even
analysis and cash budgeting are critical to any organization. Such methods play an essential role
in making salient and sound investment decisions and company performance. This management
report seeks to evaluate the viability of advanced suite. Also, the report sought to assess critical
sources of financing which the company would use to finance the project. It was wise to do a break
even analysis and budgeting for the new shop to be set up in London in April 2020. It was found
out that Williams will break even with a combined total of 998 units of both ALP and ELP
products. Williams Limited will break even with 299 units of production for ALP package and 699
units of ELP package with total revenue of $329,300. Also, Advanced Suite Software package was
found to viable since it had a positive NPV. Amongst the recommendations suggested,
management will have to consider internal financing since it is less risky. The management was
urged to implement both the Advanced Suite project and open a new shop in London in order to
address its cash liquidity problems.

MANAGEMENT FINANCE REPORT

3

Table of Content
Table of Contents
Executive Summary ........................................................................................................................ 2
Introduction ..................................................................................................................................... 4
Review of Literature ....................................................................................................................... 4
Cash budgeting .............................................................................................................................. 4
Net Present Value (NPV) model .................................................................................................. 5
Break-even analysis ...................................................................................................................... 5
Sources of financing ....................................................................................................................... 6
Investment Appraisal ...................................................................................................................... 7
Cash Budgeting ............................................................................................................................... 8
Break Even analysis ........................................................................................................................ 9
Evaluation of Williams Limited performance .............................................................................. 10
Any other issues ............................................................................................................................ 10
Conclusions and Recommendations ............................................................................................. 10
References ..................................................................................................................................... 12
Appendices .................................................................................................................................... 14
Appendix #1: NPV Calculations Advanced Suite Software Package ..................................... 14
Appendix #2 Williams Limited Cash Budget ........................................................................... 17
Appendix #3 Break Even Analysis ............................................................................................ 18

MANAGEMENT FINANCE REPORT

4
Introduction

Financing is mostly needed to boost the company’s success and increases its performance.
Sound financing decisions are critical in enhancing the growth and survival of any given
organization. Financing is essential in assisting companies in mitigating their primary challenges
relating to liquidity and problems resulting from cash flows. Application of net present value as
an investment analysis technique is crucial in helping firms address their cash flow problems.
According to Worthington (2019), NPV uses cash flows from projects used for several corporate
purposes such as dividends and share repurchases other investments and working capital, debt
repayments. Cash budgeting apart from NPV is essential in evaluating the capabilities of a
company to meet its future cash requirements. Tuovila (2019) opines that cash budgets help an
organization to assess whether the business has enough cash to operate or not. The purpose of this
report is to provide a literature review of the various sources of financing and the investment
analysis techniques that can be adopted by Williams Limited to address their cash problems.
Therefore, the report seeks to identify multiple sources of financing, uses NPV to assess the
viability of the project, cash budgeting, and finally, conduct a break-even analysis on the
operations of the new shop to be opened in London.
Review of Literature
Cash budgeting
Nordmeyer (2019) exposes that the application of the cash budgeting model is vital to the
future success and growth of the company since it allows managers to ensure that they have enough
cash at hand to cover periods of increased expenses and unforeseen circumstances in the market.
Cash budgets enable companies to establish the amount of credit that it can extend to customers
without having problems with liquidity. A cash budget helps avoid a shortage of cash during
periods in which a company encounters a high number of expenses. Eton, Mwosi, Patrick & Ogwel
(2018) adopted a correlation, descriptive and analytical desig...

JesseCraig (17993)
New York University

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