# Managing Financial Principles Of Cello Ball Point Pen Finance Essay

In TASK 1 Author chosen Cello Ball Point Pen Co Ltd is runing its concern from 25 old ages. The company is in fabricating industry and has 20 different types of ball pens. For this undertaking Author choose Cello Pin Point Ball Pen which is the highest selling ball pen of the company. From their latest one-year study Author is calculating Cost and Revenue.

## Cost Prognosis

Year

Unit of measurement

Fixed Cost ( ? )

Variable Cost ( ? )

Entire Cost ( ? )

2004

15700

50100

2005

23000

68900

2006

29500

82700

2007

34750

90200

2008

25200

56400

2009

50000

## ?

Writer is utilizing High and Low method for calculating cost.

Benefits of utilizing High and Low Method:

Consequence is easy to accomplish

Focus on the highest and lowest point

Reasonably Standard

Covering extreme

First happen out cost per unit.

90200 = FIXED COSTS + 34750 * COST PER UNIT

## –

50100 = FIXED COSTS + 15700 * COST PER UNIT

## _________________________________________

40100 = 19050 * COST PER UNIT

COST PER UNIT = 40100 ? 19050

## = ?2.11

From cost per unit now Author finds out fixed cost

Entire COST = FIXED COST + VARIABLE COST ( UNITS * COST PER UNIT )

50100 = FIXED COST + 15700 * 2.11

50100 = FIXED COST + 33127

FIXED COST = 50100 – 33127

## FIXED COST = ? 16973

Year

Unit of measurement

Fixed Cost ( ? )

Variable Cost ( ? )

Entire Cost ( ? )

2004

15700

16973

33127

50100

2005

23000

16973

51927

68900

2006

29500

16973

65727

82700

2007

34750

16973

73227

90200

2008

25200

16973

39427

56400

2009

50000

16973

## ?

In 2009 company programs to bring forth 50,000 units, for that Author foremost find out entire cost

Entire COST = FIXED COST + VARIABLE COST ( UNITS * COST PER UNIT )

Entire COST = FIXED COST + 50000 * COST PER UNIT

= 16973 + 50000 * 2.11

= 16973 + 105500

## Entire COST = ? 122473

For 2009, Entire Cost is ? 122,473 and now finds out Variable Cost

Entire COST = FIXED COST + VARIABLE Cost

122473 = 16973 + VARIABLE Cost

VARIABLE COST = 122473 – 16973

## VARIABLE COST = ? 105500

Year

Unit of measurement

Fixed Cost ( ? )

Variable Cost ( ? )

Entire Cost ( ? )

2004

15700

16973

33127

50100

2005

23000

16973

51927

68900

2006

29500

16973

65727

82700

2007

34750

16973

73227

90200

2009

25200

16973

39427

56400

2009

50000

16973

105500

122473

## Gross FORECAST

Year

Unit of measurement

Entire Cost ( ? )

Gross ( ? )

RPI

2004

15700

50100

57615

103 %

2005

23000

68900

80613

102.8 %

2006

29500

82700

97586

103.2 %

2007

34750

90200

108240

104.3 %

2008

25200

56400

64860

104 %

2009

50000

122473

## Calculate Present Value

= TOTAL COST * 100

RPI

FOR 2004

= 57615 * 100

103

= 55936.89 i?ˆ ? 55937

FOR 2005

= 80613 * 100

102.8

= 78417.32 i?ˆ ? 78417

FOR 2006

= 97586 * 100

103.2

= 94560.10 i?ˆ ? 94560

FOR 2007

= 108240 * 100

104.3

= 103777.56 i?ˆ ? 103778

FOR 2008

= 64860 * 100

104

= 62365.38 i?ˆ ? 62365

Year

Unit of measurement

Entire Cost ( ? )

Gross ( ? )

RPI

Present Value ( ? )

2004

15700

50100

57615

103 %

55973

2005

23000

68900

80613

102.8 %

78417

2006

29500

82700

97586

103.2 %

94560

2007

34750

90200

108240

104.3 %

103778

2008

25200

56400

64860

104 %

62365

2009

50000

122473

## ?

Assume the net income border for 2009 is 20 %

Entire REVENUE = 122473 + 20 % = 146967.6

i?ˆ ? 146968

Assume for 2009, RPI is 104.5 %

Present Value For 2009

= 146968 * 100

104.5

= 140639.24 i?ˆ ? 140639

Year

Unit of measurement

Entire Cost ( ? )

Gross ( ? )

RPI

Present Value ( ? )

2004

15700

50100

57615

103 %

55973

2005

23000

68900

80613

102.8 %

78417

2006

29500

82700

97586

103.2 %

94560

2007

34750

90200

108240

104.3 %

103778

2008

25200

56400

64860

104 %

62365

2009

50000

122473

146968

104.5 %

140639

## Beginnings OF Fundss

Previous Year Net income = Revenue – Entire Cost

= 64860 – 56400

## = ? 8460

Previous Balances ( maintained net income ) = ? 60,614

Required Fundss = 122473 – 60614

## = ? 61859

In 2009, the company will put ? 122,473 but the company has ? 60,614. The company is required ? 61,859 to run into the hereafter entire cost.

For obtain the above mentioned financess, Author consider assorted internal and external beginnings of financess.

## Share Holders

Publishing right portions is a 1 option to see and Issuing new penchant portions or exchangeable unsecured bond is another option.

Company has non performed good last twelvemonth and portion holders are non happy with the company ‘s public presentation. They are leery about forecasted net income of the undermentioned twelvemonth and that ‘s why they are non interested in puting. Looking to the company ‘s present place, publishing portions is non the right option for the company.

## Banking & A ; Financial Institutions i? Loans or Overdraft

AB Bank gives Overdraft at 12 % per annum and Project Loan at 9 % per annum. From the rate of involvement Author recommend that taking undertaking loan is good option. Variable Interest rate manner is preferred as to acquire benefit from fluctuating market involvement rate. Short Term Payback period is preferred by looking into the industry of the concern where finished goods are rapidly turning into hard currency.

The company has decided to take undertaking loan of ?61,859 at 9 % for two old ages. It means company has to pay ?5567 involvement per twelvemonth. The forecasted net income in 2009 is ?24,495 which produces ability to see company ‘s loan harmonizing to the AB Bank criterions.

Undertaking Loan Application

From

Chairman

Cello Ball Point Pen Ltd

London

EC2A 1QT

To

The Manager

AB Bank

London

EC3A 7PT

Date: 3rd August, 2009

Subject: An application for undertaking loan

Dear Sirs,

Please I would wish to bespeak you sing our undertaking loan of ?61,859.

I would besides submitted company ‘s P & A ; L Account and forecasted gross with balance sheet to see our application.

Please make non waver to reach me for any farther information.

Thanking you.

Yours unfeignedly,

Chairman

Cello Ball Point Pen Ltd.

Encl: P & A ; L Account & A ; Forecasted Gross with Balance Sheet

Undertaking 2

## Introduction about the Undertaking

In this Task 2, Author continues with undertaking 1 company Cello Ball Pen Ltd. It is private company.

Company is be aftering to purchase a machine which produces the organic structure of the pen. Company invited citation from two companies which manufactures machines to bring forth organic structure of the pen. Two companies viz. Company A has named its machine as Machine 1 and Company B has named its machine as Machine 2.

To assist company make up one’s mind right machine, comparing between these two machines are as below:

Cash Flow

Company A

Machine 1 ( ? )

Company B

Machine 2 ( ? )

Cost

50000

50000

Estimated Scrap Value

8000

6000

Estimated Life

7 Old ages

7 Old ages

Estimated Future Cash Flows

Year 1

15000

16000

Year 2

14000

14000

Year 3

12000

11000

Year 4

10000

9000

Year 5

8000

7000

Year 6

7000

6000

Year 7

6000

5000

The lone difference between one-year hard currency flows and one-year net income is depreciation.

Writer is utilizing Accounting Rate of Return to urge one of the machines.

Advantages of utilizing ARR:

Widely used and understood

Readily available from accounting informations

Formula of ARR:

ARR = Estimated Average Profits * 100

Estimated Average Investing

Cash Flow

Company A

Machine 1 ( ? )

Company B

Machine 2 ( ? )

Entire Cash Flows

72000

68000

Entire Depreciation

42000

44000

Entire Net income after depreciation

30000

24000

Average Net income ( 7 old ages )

4285.71

3428.57

Value of investing ab initio

50000

50000

Eventual remainder

8000

6000

Average of investing ( w1 )

29000

28000

ARR ( w2 )

14.78 %

12.25 %

## Working 1:

Company A:

Entire = 50000 + 8000 = 58000

Average of Investment = 58000 = ?29000

2

Company B:

Entire = 50000 + 6000 = 56000

Average of Investment = 56000 = ? 28000

2

## Working 2:

Company A:

ARR = Estimated Average Profits * 100 %

Estimated Average Investing

= 4285.71 * 100 %

29000

= 14.78 %

Company B:

ARR = 3428.57 * 100

28000

= 12.25 %

Advantages of utilizing Net Present Value:

Stockholders benefit if the undertaking has a positive NPV.

It is based on hard currency flows which are less subjective than net incomes.

Calculating NPV by presuming involvement rate of 10 %

NPV of Machine 1

Year

Cash Flow ( ? )

P.V. Factor

Present Value

0

( 50000 )

1

( 50000 )

1 ( w1 )

15000

0.909

13635

2 ( w2 )

14000

0.826

11564

3 ( w3 )

12000

0.751

9012

4 ( w4 )

10000

0.683

6830

5 ( w5 )

8000

0.621

4968

6 ( w6 )

7000

0.564

3948

7 ( w7 )

6000

0.513

3078

?3055

The undertaking shows positive NPV, hence it is worthwhile. However ? 3055 is bigger sum and hence demand to guarantee that returns do stay at the expected values.

If at 10 % wants to acquire ?53035 after 7 old ages, needed to hold invested

= 53035

( 1 + 0.1 ) 7

= 53035

1.95

= 27197.44

NPV of Machine 2

Year

Cash Flow ( ? )

P.V. Factor

Present Value

0

( 50000 )

1

( 50000 )

1

16000

0.909

14544

2

14000

0.826

11564

3

11000

0.751

8261

4

9000

0.683

6147

5

7000

0.621

4347

6

6000

0.564

3384

7

5000

0.513

2565

?812

This undertaking has a positive NPV, hence it is worthwhile. However ? 812 is little and hence needed to guarantee that return do stay at the expected value.

If at 10 % wished to acquire ?50812 after 7 old ages, needed to hold invested

= 50812

( 1+0.1 ) 7

= 50812 = 26057.44

1.95

If this citation invited by Public Sector Company the undermentioned points should be taken into history:

Public sector is runing on non-financial footing, so NPV will be zero for comparing of both company ‘s machines. In the populace sector, the term is frequently entirely associated with substructure investing – works & A ; equipment.

There is standard solution for several sorts of capital budgeting jobs. Make or purchase determination, investing in working capital ( particularly stock lists ) determinations, care – degree determinations, undertaking choice, the pick of reciprocally sole investing and investing in works with fluctuating rates of production.

## Public Sector Capital Budgeting Decision:

In public sector, Decisions can non be made entirely on fiscal affairs. There are issues to see in public sector such as the societal costs and benefits. The cost of capital that is applied to project hard currency flow is non the commercial ( doing net income ) , but instead determined by developing on behalf of the authorities.

For capital determinations efforts are made to measure up the societal costs & A ; societal benefit. In public sector, Models that are employed rely on extended appraisal. Besides consideration demands to be given to

Political issues

Economic issues

Social issues

Technological issues

Environmental issues

Legal issues

In public sector, NPV should be positive or zero NPV. Overall the determinations are frequently more long term instead than short term – the clip, day of the month and stableness of authorities while quantification is by and large hard.

Other factors such as the environment besides play a important function. It is normal in economic systems of developed states for the subdivision in Ministry of Finance that is familiar with a disbursement unit ‘s activities to cover with both capital and current disbursement. For each disbursement plan, the budgeting of capital and current outgo is developed together. The one-year authorities budget for all public disbursement in most developed states is broken down into several hundred points for blessing by parliament. Indeed the parliaments frequently needed capital outgo to be specifically identified in the budget certification.

Private – sector capital budgeting is selective. It is normally concerned with merely new enterprise and so merely with alterations in operation that are expected to give benefits for longer than a twelvemonth. Despite powerful dispositions to instrumentalism, governmental budgeting attempts to be comprehensive.

All planned plus acquisitions, including current plus every bit good as long term assets, are typically included under the appropriations / mandate procedure.

On the other manus the private company, working on the fiscal – net income devising footing. In the private sector the hazard of investing is higher so the returns are higher. That ‘s the ground that private sector can execute better than public sector.

## Assessment / assessment of undertakings:

In general the below mentioned stairss need to be taken into history when assessment of undertaking.

Degree of investing

Both as absolute & A ; per centum

Strategic / practical aims

Future benefit & A ; there elaborate rating

Decision doing & A ; capital rhythm

Possible rhythms include:

Initial probe of the proposal

Detailed rating

Inclusion of such issues as sensitiveness analysis

Mandate

Execution

Undertaking Monitoring

Post completion

## Post Completion Audits:

The purpose of the audit is to do usage of what can be learned from the experience in the planning of future undertakings.

Better Forecasting

Identify failing

Helps to better the subject & A ; quality of prediction

Better future investing determination

Identify errors – success

Better current investing determination

Management engagement

Contribution to public presentation rating

It can supply feedback to undertaking directors every bit good as the senior direction and so improves control & A ; public presentation direction & A ; appraisal.

Possible steps could include

Staff e.g. grade of independency

Performance rating

Compromises of existent – that of original aims

Designation of discrepancies

Changes

Recommendation

Effectiveness

Efficiency

Economy

Communication

Enhancement

Troubles

## There are besides non-financial factors

Legal issues – Changes to ordinances – Quality deduction

Ethical issues – Political issues – Degree of competition

Undertaking 3

From

Pranav Joshi

London

To

Directors

CC Retentions

London

Date: 24th August, 2009

Capable: Comparison of Financial Performance of AA and BB

Aa

Bb

20X5 ( \$ m )

20X4 ( \$ m )

20X5 ( \$ m )

20X4 ( \$ m )

ROCE ( w1 )

0.084

0.13

0.065

0.43

Net income Margin ( w2 )

45.16 %

56.67 %

10 %

37.14 %

Asset Utilization ( w3 )

18.56 %

22.39 %

64.52 %

116.67 %

Liquidity ( w4 )

1.67

1

3.25

3

Hazard ( pitching ) ( w5 )

0.39

0.54

0

0

Employee turnover ( w6.1 )

0.032

0.033

( 0.75 )

( 0.43 )

Net income ( w6.2 )

( 0.33 )

( 0.25 )

( 11 )

( 0.92 )

Capital Employed ( w6.3 )

0.20

0.25

0.032

0.033

## Aa

20X5:

PBIT = Net Net income + Interest

= 9 + 5 = 14

Entire Assets Less Current Liabilities = entire assets – current liabilities

= 170 – 3 = 167

ROCE = PBIT

TALCL

= 14

167

= \$ 0.084m

20X4:

PBIT = 12 + 5 = 17

TALCL = 140 – 6 = 134

ROCE = 17

134

= \$ 0.13m

## Bb

20X5:

PBIT = 1 + 1 = 2

TALCL = 35 – 4 = 31

ROCE = 2

31

= \$ 0.065m

20X4:

PBIT = 12 + 1 = 13

TALCL = 34 – 4 = 30

ROCE = 13

30

= \$ 0.43m

## Aa

20X5:

Net income Margin = PBIT * 100 % ( PBIT as per working 1 )

Employee turnover

= 14 * 100 %

31

= 45.16 %

20X4:

Net income Margin = 17 * 100 %

30

= 56.67 %

## Bb

20X5:

Net income Margin = 2 *100 % = 10 %

20

20X4:

Net income Margin = 13 * 100 %

35

= 37.14 %

## Aa

20X5:

Asset Utilization = Turnover * 100 %

TALCL ( TALCL as per working )

= 31 * 100 %

167

= 18.56 %

20X4:

Asset Utilization = 30 * 100 %

134

= 22.39 %

## Bb

20X5:

Asset Utilization = 20 * 100 %

31

= 64.52 %

20X4:

Asset Utilization = 35 * 100 %

30

= 116.67 %

## Aa

20X5:

Liquidity = Current Ratio = Current Assetss

Current Liabilitiess

= 5

3

= 1.67

20X4:

Liquidity = Current Ratio = 6 = 1

6

## Bb

20X5:

Liquidity = Current Ratio = 13 = 3.25

4

20X4:

Liquidity = Current Ratio = 12 = 3

4

## Aa

20X5:

Hazard = Gearing Ratio = Debt = Debenture

Equity Stockholders equity

= 47 = 0.39

120

20X4:

Hazard = Gearing Ratio = 47 = 0.54

87

## Bb

20X5:

Hazard = Gearing Ratio = 0 = 0

31

20X4:

Hazard = Gearing Ratio = 0 = 0

30

## Aa

20X5:

Employee turnover = Turnover Difference = 20X5 – 20X4

Employee turnover 20X5

= 31 – 30 = 1 = 0.032

31 31

20X4:

Turnover = 20X5 – 20X4

20X4

= 31 – 30

30

= 1 = 0.033

30

## Bb

20X5:

Turnover = 20X5 – 20X4

20X5

= 20 – 35 = ( 15 ) = ( 0.75 )

20 20

20X4:

Turnover = 20X5 – 20X4

20X4

= 20 – 35 = ( 15 ) = ( 0.43 )

35 35

## Aa

20X5:

Net income = Net income Difference = 20X5 – 20X4

Net income 20X5

= 9 – 12 = ( 3 ) = ( 0.33 )

9 9

20X4:

Net income = 20X5 – 20X4

20X4

= 9 – 12 = ( 3 ) = ( 0.25 )

12 12

## Bb

20X5:

Net income = 20X5 – 20X4

20X5

= 1 – 12 = ( 11 ) = ( 11 )

1

20X4:

Net income = 20X5 – 20X4

20X4

= 1 – 12 = ( 11 ) = ( 0.92 )

12 12

## Aa

20X5:

Capital Employed = TALCL Difference

TALCL

= 20X5 – 20X4

20X5

= 167 – 134 = 33 = 0.20

167 167

20X4:

Capital Employed = 20X5 – 20X4

20X4

= 167 – 134 = 33 = 0.25

134 134

## Bb

20X5:

Capital Employed = 20X5 – 20X4

20X5

= 31 – 30 = 1 = 0.032

31 31

20X4:

Capital Employed = 20X5 – 20X4

20X4

= 31 – 30 = 1 = 0.033

30 30

Restrictions of ratio analysis:

The ratios are norms ( terminal of twelvemonth ) – may non be representative.

These ratios are affected by a figure of issues ( e.g. Capital Employed )

Short – Term

Long – Term

Methods – frequently set as criterions by trade as association – nevertheless still non precisely the same everyplace.

Use of different expressions. e.g. for capital employed

Compare activities / diversified activities.

## Internal / External Analysis:

Internali?

Frequently fiscal histories – directly frontward in most instances

However, could be limited based on the information available.

Performance steps are varied.

Externali?

External factors such as Market Conditions, General Economic Conditions, Government Policies.

Gives rise to possibilities both chances and menaces.

Need to place cardinal public presentation indexs i?Yi? set marks i?Yi? steps

Take history of different attacks, buttocks and do appropriate determinations.

## Analysis:

There are sufficient informations for old twelvemonth.

Different method of depreciation is used

Lack of information about benchmarking

Government policies are non known because of deficiency of information.

Type of organisation is non know, Social / authorities organisation – private / public organisation

From the above ratios of Subsidiaries AA and BB, Author can state that BB is non executing good. Profit Margin of BB is decreased in comparison to 20X4. Liquidity ratio shows that BB has more assets and fewer liabilities, whereas AA has managed its assets and liabilities really expeditiously. Employee turnover is besides diminishing.

Based on plus use and ROCE ratios, Writer can state that BB is non executing good. By comparing it with AA, BB ‘s capital employed is less than AA. BB ‘s turnover is besides worsening comparing to old twelvemonth. That means directors do non hold accomplishments to do alteration in the present state of affairs. Net income is besides worsening aggressively. Comparing with 20X4 net incomes to 20X5, the net income is declined aggressively. Means the director of BB fail to do corrections and as a consequence on the undermentioned twelvemonth that is 20X5, company shows more autumn in net income. Manager are fail to drive company out of this state of affairs and that ‘s why company shows continues diminution in the public presentation.

From above comparing, Author can reason that BB ‘s directors are deficiency of competence accomplishments in doing fiscal determinations and from analysis of ratios ; BB is continuously shows diminution in the public presentation.

Mentions:

Michael K. Evans, 2003, Practical Business Forecasting, Blackwell Publishers – MPG Books, USA [ 24 July 2009 ] , pp.3-60, 225-261

James Morrell, 2001, How to calculate: A usher for concern, Gower Publishing Limited, U.K. [ 28 July 2009 ] , pp.23-59, 149-172

Capital Budgeting, Capital Budgeting [ online ] , Available from: hypertext transfer protocol: //www.willamette.edu/~fthompso/Lectures/CapitalBudgeting.doc [ 29 July 2009 ]

Ciaran Walsh, 2003, Key Management Ratios, Third Edition, Prentice Hall, U.K. [ 31 July 2009 ] , pp.113-122, 137-150