BEBS Online Case Study Mar 2020
1
CASE STUDY
FINANCIAL MANAGEMENT
Financial Analysis of LV Company
Professor: Ali Khan
Date: March 2020
2
1. PRESENTATION
LV Company is a company specialized in the design, manufacturing and
commercialization of original gadgets and office supplies. Since we are at the end of this
year 2019, we should do a general review of all the business and establish the new actions
and strategic decisions to be executed during 2020.
As a person responsible for financial management and control, you should prepare the
financial analysis and evaluation of year 2019, evaluate which investment option will be
etter and present your previsions for the 2020.
2. OBJECTIVES
● Demonstrate a basic understanding of accounting and finance concepts.
● Present a clear, exact and accurate analysis of the cu
ent situation of the
company in terms of finance.
● Apply the knowledge to decide which investment option is better for the company,
due to the cu
ent situation and the main strategic objectives of the company.
● Decide the best funding option among all the possibilities.
● Present a realistic, accurate and exact Financial Statements Previsions: projected
Balance Sheet, projected Income Statement and Cash Flow forecast.
3. ACTIVITY
3.1 Prepare a Balance sheet based on the list of accounts at the end of 2019
Long-term holdings in equity (1) 2,500
Shares in the entity held by the entity 1,000
Salary payable 20
Adjustments for changes in value of financial instruments available for sale 50
Accumulated depreciation of intangible assets 950
Accumulated depreciation of tangible fixed assets (2) 1,000
Customers advances 100
Cash 1,335
Capital stock 21,00
0
Accounts receivable 200
3
(1) These are shares that have been classified by the company as “available for sale”.
(2) The
eakdown of the accumulated depreciation is the following:
• Constructions: 500
• Furniture: 250
• Computers: 100
• Vehicles: 150
(3) A warehouse with a value of 2,000 (accumulated depreciation: 200) is not being
used in the operations but being rented to another company.
2. Comment on the Balance Sheet Position for the company
Constructions (3) 5,000
Constructions in progress 300
Short-term credit from the sale of tangible fixed assets 500
Impairment of inventories of goods for sale 100
Short-term debt with credit institutions 2,000
Long-term debt with credit institutions 2,000
Other owners’ contributions 200
Vehicles 4,000
Computers 2,000
Inventories of goods for sale 1,000
Short-term deposits and guarantees given 500
Expenses paid in advance 270
Payable to public authorities (withholdings) 220
Receivable from public authorities (income tax refund) 50
Interest payable to credit institutions 10
Interest receivable 50
Furniture 5,200
Result for the year 1,925
Intellectual property 4,000
Accounts payable for goods 50
Provisions for environmental actions 500
Prior years’ negative income 300
Legal reserve 1,600
Uncalled subscribed capital receivable 5,000
Capital grants 1,500
4
● Income: 12,331
● Production costs: 2,556
● Rent: 81
● Legal and professional services: 63
● Energy, water, other offices fix services: 9
● IT software, office programs: 45
● Quality, audits, services: 75
● Maintenance service offices, cleaning: 27
● Personnel costs: 2,072
● Commercial costs: 250
● Financial costs: 50
3. Do a Ratio Analysis, find out the liquidity, solvency and profitability ratios and
explain your main conclusions about the cu
ent situation of the company.
4. The management of LV Company, would like to purchase a specialized
production machine (called APEX) for €70,000. APEX is expected to have a life of
4 years, and a salvage (end of use) value of €10,000. Annual maintenance costs will
total €3,000. Annual labour and material savings are predicted to be €25,000. The
company’s discount rate is 15 percent.
a) Ignoring the time value of money, calculate the net cash inflow or outflow
esulting from this investment opportunity.
) Find the NPV of this investment using the discount factor of 15%
c) Should LV Company purchase the specialized production machine (APEX)?
Explain.
5. LV company has to finance the cost of APEX, it already has 60,000 and needs another
€10,000 and is looking at the various financing options:
A) five year bank loan with interest rate of 7% per year.
5
B) Venture Capital investment of €10,000 but with a 20% stake in the company
C) A crowdfunding campaign, however this is not guaranteed to raise the full amount on
time.
D) Sale and leaseback of Vehicles, Furniture and Computers giving a total realised
amount raised of €10,000
Evaluate the best source of finance from the options about. Give reasons for you
answer using all information for your analysis and evaluation
6. LV company is cu
ently in the process of establishing a master budget on a
quarterly basis for 2020 fiscal year, which ends December XXXXXXXXXXquarterly sales
were as follows:
First Quarter: 6,400 units
Second Quarter: 7,680
units Third Quarter:
9 ,600 un i ts Fou r th
Quarter: 8,320 units
For 2020 the unit sales are expected to increase 25 percent, and each unit is expected to sell
for €8. The management prefers to maintain ending finished goods inventory equal to 10
percent of next quarter’s sales. For example the fourth quarter XXXXXXXXXXsales were 8,320 so
they needed to have 832 units of stock at the end of quarter XXXXXXXXXX).
Assume finished goods inventory at the end of the fourth quarter budget period is estimated
to be 9,00 units.
Prepare a 2020 sales budget for LV company for each quarter.
CASE STUDY
PRESENTATION
OBJECTIVES
ACTIVITY
Comment on the Balance Sheet Position for the company
Do a Ratio Analysis, find out the liquidity, solvency and profitability ratios and explain your main conclusions about the cu
ent situation of the company.
LV company has to finance the cost of APEX, it already has 60,000 and needs anothe
Evaluate the best source of finance from the options about. Give reasons for you answer using all information for your analysis and evaluation