Business Finance
UON Williams Limited Financial Services Company of UK Case study

University of Newcastle

Question Description

I’m trying to study for my Business course and I need some help to understand this question.

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current product that Williams Limited has to offer mostly to specialist developers and investment funds companies is outdated.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.

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

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:

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.
    • 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.

LayoutYour work should be word processed in accordance with the following:

Unformatted Attachment Preview

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 £'000 Draft figures Year 0 New Software cost (9,000) Cumulative Working Capital (850) Sales Revenue 1 2 3 4 (610) (790) (310) (730) 3400 6300 7500 8900 Less: Module A (420.00) (600.00) (800.00) (900.00) Module B (1,010.00) (1,400.00) (1,600.00) (2,100.00) Overheads (230.00) (240.00) (330.00) (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. 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 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: 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 • o Introduction o Literature review to support your accounting models used. o Sources of Funding o Investment appraisal o Cash budgeting o Breakeven analysis o Evaluation o Any other issues to be considered. o Conclusions and Recommendations o Appendices which should be numbered. ▪ Make sure you refer your reader to them as required. LayoutYour work should be word processed in accordance with the following: o Font style, Arial, font size 12 o 1.5 line spacing. o The page orientation should be ‘portrait’ o Margins on both sides of the page should be no less than 2.5 cm o Pages should be numbered o Your name should not appear on the script. ...
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Final Answer

hi let me know if this is ok.

Executive Summary
For many years, Williams Limited has remained a profitable firm because of the
company’s ability to maintain good relationships with existing clients and capture an
increasing share of the market. However, the company has been experiencing problems
with its cash flow recently due to it being too dependent on its parent company, which is
based in South Africa, often depending on them for cash inflows. To address this
problem, this report will provide quantitative and qualitative analyses to determine which
source of funding should be used by the company.
First, the report will determine the validity of accounting models by using supporting
evidence from literature reviews. Then, it will discuss the various sources of funding
usually used by businesses. To evaluate which source of funding should be used by the
company, the report will use management tools like breakeven analysis and cash
budgeting. Each procedure will be analyzed thoroughly and will also include
computations of these procedures. Afterwards, the report will also evaluate and project
the company’s financial performance over a period of time and make recommendations
and suggestions to further improve the company.

1

TABLE OF CONTENTS
Introduction .......................................................................................................................... 3
Literature review supporting accounting models used ............................................................ 4
Sources of Funding ................................................................................................................ 5
Investment Appraisal............................................................................................................. 7
Cash Budgeting ..................................................................................................................... 9
Breakeven Analysis.............................................................................................................. 10
Evaluation ........................................................................................................................... 11
Consideration of other issues ............................................................................................... 12
Conclusion and recommendations ....................................................................................... 13

2

INTRODUCTION
Williams Limited is a financial services company with headquarters operating in South
Africa. It also has companies set up in the UK, operating for ten years now. Williams
Limited has expert teams which specialize in the field of financial services like
consulting, business development, investments, and many more. The target clients are
small-to-medium enterprises (SMEs), property development companies, and investment
property funds, to name a few.
For the past 10 years, the revenues and profits remain high, as a result of the
company’s sterling reputation with its professional clientele list and its ability to capture
an increasing share of the market. Recently, however, the company has been facing
some cash flow problems, because it is too dependent on its parent company based in
South Africa. To address this issue, the finance director and management has opted to
introduce new strategies, which are:
1. Offer a new software
Currently, the products offered by Williams to developers and investment funds
companies are outdated. Therefore, the company seeks to develop a new
product which would capture a larger target market. It is projected that revenues
will increase by 4% within a year.
2. New Drop-in Center
The manager plans to open a new drop-in center in the city of London effective 1
April 2020. It plans to test the market in London by offering the two most popular
services: Entry Level package (ELP) and Advanced Level package (ALP).
With these strategies, both the finance director and management department are
hopeful and believe that the cash flow problems would be resolved. Williams Limited
would be an independent and profit-maximizing company by setting up companies
worldwide.

3

LITERATURE REVIEW SUPPORTING ACCOUNTING MODELS USED
The accounting models I will include in this report are cash budgeting and breakeven
analysis. Each of these techniques are important to businesses in its own specific way.
First, the purpo...

UIUC

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