Facilities:
The company does have toilets, clean water, free coffee and tea and a dinette. In the dinette it is possible to buy hot meals and bread. There is fitness equipment on which are may trained and a physiotherapist. The last two things are very popular these days.
The technological resources are more than only materials.
Computer hardware, such as a modem and a monitor, is a physical means and it treated as such. The technological resources in this agency are things such as software, music or text.
The technological resources can order considered on four important groups:
- Intellectual have
- Accumulated experience and skill
- Software licences
- Patents and copyrights.
By P&A Sports
Intellectual property:
In your own work you can discuss everything. If you think the idea is important and possible to be big or a good idea you can discuss it intern. By P&A Sports you have also many contact with the general directors of the business.
Task 2.1
Describe where sources of finance can be obtained for starting up a selected business.
Sources of Finance
The biggest task of your management is the finance of your business. If you have the financing right, you will have a healthy business and a profitable company. Financing can happen any time, any place. To start your own business you need money, and later, if you expand, you also need money. You can get finance out of many different sources.
Banks Loans and Overdrafts
The first things people try to get some finance is their own bank. The banks seeks out if they can lend you money. There are two types of lends:
- To give you an overdraft, or extend your limit.
- To give you a formal loan.
In small and starting businesses the banks motley choose to give you an debit or extend your limit. Lends are vary flexible form of finance. If you own more money, you can pay off more of your lend in one time. If you have a opportunity to invest, during your overdraft, you could try to extend your overdraft to finance those projects.
Many businesses value the fixed term loan. The business knows that there is a regular payment to be made. They can take that with them in their budget. But, if your company can succeed in paying the loan the bank can’t take the finance away from you.
Many smaller loans will not require any security but, if you want lo lend more money the bank wants a certain security. You can do that in many ways like:
- Much business owners do that with their own houses. If you offer your house as a security you need to be fully aware of the situation and from the impacts.
- A small firms loan. If a starting business is unable to provide a other form of security this can guarantee up to €250.000,-.
Saving and Friends
When a business starts, the initial money invest comes most of the times from the personal savings. People who starting a business ask relatives and friend to help them with the finance. They should make clear to them that they should only invest money in that business if they can afford it to loose. You need to show them a business plan and give them time to think about it. If they decide to invest money in you’re business you can always make a written agreement.
Issue of Shares
Another way to get some funds in to introduce more shares. This is a good way to additions and is vary useful for a strong balance sheet. A short and simple explanation: If a business needs money to invest they give out some shares. If some one wants to buy a share they go to the company and buy a share. A share is actually a loan for the company. They loan money from the shareholder. But the shareholders does have a risk. If the company looses money with their invest the shareholders will also loose money.
Venture Capital
Many businesses owners give the bank a security with their own houses. Those risks also mean new shares. The advantage is the capital they can introduce into their business.
For a smaller business the government has introduced a tax-efficient settlement for a trader to invest in a growing business. There are two types of those schemes:
- The Enterprise Investment Scheme (EIS) which means that someone can invest directly into your company. It also allows that someone who makes a profit can put off by investing in to a company deterring Venture Capital. This is available to be controlled bye a controlling shareholder of the company in which you invest.
- The venture Capita Trust which allows that someone invest in a fund which will invest in a portfolio of Venture Capital Trust. The investors can get 20-30% income tax which depends on the quantity of the money they invest.
Other finance
These are the other possibility’s for sources of finance.
Factorings
If you make something for you’re consumers they need to pay for that. Sometimes it takes over more that 3 months before they need to pay. You are then 3 months without that money so you make a loss. Factoring foresees you with finance against the fact that you’re costumers haven’t paid yet.
Hire Purchase (HP)
You need to buy materials if you want to make something. But if you haven’t made something you can’t make profit, so there is no money. Hire Purchase is used to finance those materials. The company of which you buy you’re materials agrees that you pay spread out over a period.
Leasing
Sometimes you need materials just to build something. You don’t put it in something which you want to sell. So if the products are made that material is still in you’re building. In this way you can agree with the company which sold you that material that you are going to lease the materials. That means that the materials are lend and need to be brought back. You do need to pay for those materials, but the payment can be over more years.
What if you start your own business
If you start your own business there are much ways to get to money to really set something up. If you have a great idea which can become vary big, you can try it. There are a lot ways to get that what you want.
Task 3.1
Give the reasons why costs and budgets need to be controlled.
Company “What’s up” producing product P and Q. the company has several machines: machine A and machine B. in the whole production process the production flow will be first in machine type A and then in machine type B.
For the first three months of 2007 this is the product budget:
In the cost price, the budget price for raw material is € 7, 50 per Kg.
The machine hours type A and type B will be calculated in the cost price in hours.
So it is easy for the managers to see what the budget is. The next figures are available from the budget in the first three months of 2007:
The normal production for the company is 1.000 pieces of product P, and 450 pieces of Product Q. normally the budget for machine hours type A is 2.500 hours and for machine type B 1.200 hours.
The budget costs for the machines are:
Analyse and explain:
- What is the budget for one machine hour type A?
- What is the budget for one machine hour type B?
- Describe the standard cost price the company could use for the calculations?
- What is the standard cost price for Product P?
- What is the standard cost price for Product Q?
- What are the reasons for the management to look at the budget and to monitor the figures after the production?
- Give reasons why budget and costs need to be controlled?
- What are reasons to analyse those costs and budgets?
- analyse the differences between the budget and the real costs:
- What is a Break Even analysis?
- What is the break-even point for this company?
- What is the safety margin for this company?
- Explain in detail the problems that can arise if this company is not monitoring the budgets and real costs.
- What is the budget for one machine hour type A?
Fixed costs + variety costs .
Normally budget working hours
€ 41.250, = + € 7.200, =
2.500 hours 2.400 hours =
€ 16, 50 + € 3, 00 + € 19, 50 for one machine hour type A
Because I don’t know the working hours yet, I use the normally production hours.
1.000 pieces of product P and 450 pieces of product Q.
Product P is 1, 5 hours in machine type A and product Q 2 hours.
1.000 X 1, 5
450 X 2 +
2.400 hours
2. What is the budget for one machine hour type B?
Fixed costs + variety costs .
Normally budget working hours
€ 23.160, = + € 5.170, =
1.200 hours 1.175 hours =
€ 19, 30 + € 4, 40 + € 23, 70 for one machine hour type B
Because I don’t know the working hours yet, I use the normally production hours.
1.000 pieces of product P and 450 pieces of product Q.
Product P is 0, 5 hours in machine type A and product Q 1, 5 hours.
1.000 X 0, 5
450 X 1, 5 +
1.175 hours
3. Describe the standard cost price the company could use for the calculations?
Production or operating cost that is carefully predetermined. A standard cost is a target cost that should be attained. The standard cost is compared with the actual cost in order to measure the performance of a given costing department or operation. Permitted costing calculated by entity product at mass production [euro/piece].
4. What is the standard cost price for Product P?
Raw materials: 4,2K.* € 7, 50 = € 31, 50
Machine type A: 1, 5 H * € 19, 50 = € 29, 25
Machine type B: 0, 5 H * € 23, 70 = € 11, 85 +
€ 72, 60
5. What is the standard cost price for Product Q?
Raw materials: 1, 6K.* € 7, 50 = € 12, =
Machine type A: 2 H * € 19, 50 = € 39, =
Machine type B: 1, 5 H * € 23, 70 = € 35, 55 +
€ 86, 55
After the first three months in 2007 the next management information is available:
From product P 950 pieces have been produced. From product Q 500 pieces have been produced. The total amount of raw materials was 4.730 Kg. and the price in those months was € 7, 80 per Kg.
In total were used 2.455 working hours of machine type A and 1.215 working hours of machine type B.
- What are the reasons for the management to look at the budget and to monitor the figures after the production?
They can see if they have made a mistake in the budget and analyse what has gone wrong and why that went wrong. If they know that went wrong, they can introduce improvements.
They also can see because of this, if production must be changed, e.g. if a product brings a lots of profit, they can consider if they will produce more.
- Give reasons why budget and costs need to be controlled?
By controlling budgets and costs they can find out if the purchase costs and production costs together higher are than the sale price of the product.
8. What are reasons to analyse those costs and budgets?
by analysing budgets and costs they can find out if they can work more efficiently and if they can save somewhere in the production process.
9. Analyse the differences between the budget and the real costs:
Budgets are forecasts which are put for the production process.
costs are the real costs, the real costs which are made during the process
10. What is a Break Even analysis?
Break-even point
Break-even the point for a product is the point where the total received turnovers and the total costs (who are linked to sale of the product) are equal. Break-even a point is typically calculated so that the ventures if it advantageous would be presented sell a product, in contrast to trying an existing modify product in place of it to stipulate so that it can be made profitable. Break-even the analysis can be also used to analyse the potential profitability of expenditure on sales-based business.
Safety margin
In investing parlance, margin of safety is
the difference between the expected (or actual)
sales level and the sales level.
It can be expressed in the equation form as follows:
Margin of Safety = Expected/ Actual Sales Level - Breakeven Sales Level
11. What is the break-even point for this company?
You can calculate the break even point (B.E.P.) by this formula:
Product P:
34.400 _ = 34.400 _ = 302, 5 = 303
145, -20/ 31, 50 113, 70
Product Q:
30.010 _ = 30.010 _ = 186
137/12 11, 425
- What is the safety margin for this company?
Product P:
Produced: 950 pieces
B.E.P.: 303 -
Safety margin: 647
Product Q:
Produced: 500 pieces
B.E.P.: 186 -
Safety margin: 314
Safety margin is the difference between what the company need to sell to get the debts out and what they really produced.
So the safety margin for What’s Up is good.
Task 4.1
Interpret the contents of a given profit and loss account and balance sheet. See examination 1.
Mr. Snowdown is the CEO of a wholesale company “Let is Snow Plc” in Zwolle.
The wholesale company has a lot of activities. The balance sheet of the company was in December 2005:
Balance sheet 31 December 2005 (X € 1.000, =)
€68.000, = €68.000, =
The exploitation sheet for 2005 was: ( X 1.000, =)
€138.000, = €138.000, =
Further information:
There is a proposal that the profit will be divided into:
Dividend Normal Shareholders € 1.700.000, =
Dividend Preferred Shareholders € 180.000, =
Bonus € 120.000, =
Reservations € 2.000.000, = +
€ 4.000.000, =
The interest to be paid is € 1.000.000, =. This is from the Debentures, Mortgage and Bank. This interest will be paid afterwards. The Debentures get notice of the fact that € 1.00.000, = will be paid off every year at the 1st of July. On January 1st the amount of € 1.000.000, = will be paid off on the mortgage.
Mr. Snowdown wants to know what the financial situation is. In this case the complete staffs wan to see a clear presentation of the financial facts.
1. Present a clear liquid assets balance sheet.
Balance sheet 31 December 2005 (X € 1.000.000, =)
- The liquid balance sheet only gives a limited view about the liquidity of this company. Give four reasons for this limited view.
- Window dressing; they make the balance more beautiful than that it is reality.
- A balance is a moment prerecording; it can be that the day after the assessment is made other purchase price money as a result of which the balance is no longer correct.
- Provisions costs are sometimes pushed through and as a result not put on the balance.
- It is not taken into an account for unexpected costs.
- Give the definition of the liquidity of a company.
Liquidity is characterized by high turnover (or a high level of trading activity) in a company’s share. liquidity is the result of the combination of a small spread and a high order depth. The spread is the difference between the bid and ask price, and the order depth is the total volume behind the bid and ask prices.
- Calculate the Current Ratio
Current assets + liquid assets
Current liabilities
31.000 + 1.000 = 1, 9
17.000
- Calculate the Acid Test Ratio
Current assets – stock
Current liabilities
31.000 – 10.000 = 1, 2
17.000
- Calculate the debtors credit time
Credit time in days:
Debtors
Turn over X 365 days
15.000
138.000 X 365 = 39, 6 days
Credit time in months:
Debtors
Turn over X 12 months
15.000
138.000 X 12 = 1, 3 months
- Calculate the creditors credit time
Credit time in days:
Partnerships
Purchase of materials X 365 days
8.000
50.000 X 365 = 58, 4 = 59 days
Credit time in months:
Partnerships
Purchase of materials X 12 months
8.000
50.000 X 365 = 1, 92 = 1, 9 months
So this company has a good financially position because their debtors pay their credit to “What’s up” rather than the creditors claim their credit.
Task 5.1
Illustrate the financial state of a given business by showing examples of accounting ratios. Examination 3: Compare the followings two business using both the current and acid test ratios.
They are both confectionery industry, and the figures are taken from their annual accounts as at the end of December 2006.
Floris Chocolat Ltd.
Bank € 200, =
Creditors € 400, =
Loans form bank € 2.000, =
Debtors € 750, =
Stock € 600, =
Cash € 300, =
Salon du Chocolat Ltd.
Bank € 500, =
Creditors € 200, =
Loans form bank € 750, =
Debtors € 300, =
Stock € 1.000, =
Cash € 250, =
Instructions
- Work out for each business the current assets and current liabilities.
- Calculate the current ratio and acid test ratio for each business.
- How do the ratios compare?
- What difference does a stock make to their ability to pay their liabilities?
- Give recommendations to each business about what it could do to improve its position in future.
- Research other examples of business in the confectionery industry, such as: (using company reports and accounts)
- Work out for each business the current assets and current liabilities.
Floris chocolat Ltd
Salon du Chocolat Ltd.
2. Calculate the current ratio and acid test ratio for each business.
Floris chocolat Ltd
Current Ratio
Current assets + liquid assets
Current liabilities
€ 1.850, = + € 300, =
€ 2.400, = = € 0, 89583
Acid Test Ratio
Current assets – stock
Current liabilities
€ 1.850, = - € 600, =
€ 2.400, = = € 0, 52
Salon du Chocolat Ltd
Current Ratio
Current assets + liquid assets
Current liabilities
€ 2.050, = + € 250, =
€ 950, = = € 2, 42
Acid Test Ratio
Current assets – stock
Current liabilities
€ 2.050, = - € 1.000, =
€ 950, = = € 1, 10
- How do the ratios compare?
With same purchase price, the Acid tests ratio a lot higher by the stock, so if the companies wants to eventual price you have carry out some changes in your stock management.
- What difference does a stock make to their ability to pay their liabilities?
The high costs in the stock management can ensure raised sale price, as a result of which a product in the market can become too expensive and the profit can come under pressure.
- Give recommendations to each business about what it could do to improve its position in future.
Floris chocolat Ltd
They can make more profit in the future, by using a part of the profit now for payment of the debts.
Salon du Chocolat Ltd.
At this company the stock in proportion is a high expense,
Therefore changes in stock management are carried out,
This will lead in the future to more profit.
6. Research other examples of business in the confectionery industry, such as nestle:
Nestlé is the world leader in the food services sector.
The first 9 months of 2007, consolidated sales of the Nestlé Group amounted to CHF 78.7 billion, an increase of +9% over the comparable period of 2006.
The organic growth was totally 7.2%; real internal growth was strong at 4.5% and pricing added another 2.7%. The strength of Nestlé's brands allowed the Group to raise prices to offset rising raw material costs. These price increases, together with the resulting slight dip in real internal growth, reflect the Group's commitment to profitable growth regardless of market circumstances.
Current Ratio for Nestlé:
Current assets + liquid assets
Current liabilities
37.354
35.067 = € 1,065
Acid Test Ratio for Nestlé:
Current assets – stock
Current liabilities
37.354 – 9.422
35.067 = € 0,796
Sources
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BTEC national business book 1 || 2nd edition
