Financial Management

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Financial Management

End-of-module Assessment

Rationale for the assessment

Students are required to prepare a report on a real-world application of financial management and its strategic implications, where they need to demonstrate a thorough understanding of the main financial management concepts and their applications on practical problems. The end-of-module assessment will test all course and module learning outcomes.

Assignment outline

Aims:

To examine the student’s ability to critically:

· Appraise corporate treasury management decisions using an appreciation of the relevant theories of financial management and strategy

· Evaluate long-term and short-term financing decisions, with an emphasis on expansion and market maintenance strategies

· Understand the importance of working capital management

· Assess how decisions are made regarding proper pricing of assets in merger and acquisition situations and the appropriateness of the various methods of valuing securities

Scenario:

Strategic financial management means not only managing companies’ finances but managing them with the intention to succeed i.e., to achieve their corporate goals and objectives as well as maximize shareholders’ wealth over time.  It involves understanding and appropriately obtaining, allocating and controlling companies’ assets and liabilities, including monitoring revenues, expenditures, accounts receivable and payable, inventories, cash flows, etc. In addition, strategic financial management consists of evaluating and managing companies’ capital structures to ensure their long-term solvency.

The 3 major elements of strategic financial management include financing decisions, investing decisions and operating decisions. Financing decisions relate to the raising of finance from various sources to ensure that companies have sufficient capital, and that the cost of capital is under control. Financing decisions also involve how much of the net profit should be distributed to shareholders in the form of dividend and how much of the net profit should be retained for expansion and growth. Meanwhile, investment decisions relate to the allotting of company’s capital between fixed assets (capital budgeting) and current assets (working capital). Finally, operating decisions related to how companies’ assets should be efficiently used to maximize their profits. To achieve their corporate goals and objectives as well as maximize shareholders’ wealth, companies need to ensure that all of these 3 kinds of decisions are made effectively.

Required:

Using the financial data of an FTSE-100 company (or an FTSE AIM 100 company) during the period from 2018 to 2022, and a variety of other resources (both written and electronic), critically answer the following questions in a 3,000-word report:

1. Describe the company’s capital structure strategy during the period. Critically assess whether there is any evidence that the debt/equity relationship is consistent with any particular theory of capital structure and whether or not there has been a discernible impact of the gearing ratio upon the weighted average cost of capital. To answer this question, you need to calculate the gearing ratios (debt/ debt + equity) during the period, and to find data from an external data source on the weighted average cost of capital during the period. (15 marks)

2. How has the dividend policy of the company evolved over time? Comment on any changes in the dividend policy. Discuss the company’s dividend payout policy with reference to the theories on dividend policy. (15 marks)

3. Using relevant models, make your own estimate of the company’s weighted average cost of capital. Make relevant assumptions where necessary. What are the problems facing a company in determining a suitable discount rate for evaluating its investment projects? (15 marks)

4. How well has the company managed its working capital? To answer this question, you need to calculate the relevant liquidity ratios, such as the current ratio and the acid-test ratio, to see how the company’s liquidity position has evolved. You should also consider calculating any efficiency ratios which you consider relevant, for instance the inventory turnover period, the settlement period for trade receivable or the period taken for payment of trade payables.(15 marks)

5. Has the company increased its fixed assets through mergers and acquisitions? Critically evaluate the reasons for these mergers and acquisitions. Support your answer with reference to the academic literature. (15 marks)

6. Briefly comment on how some of the company’s financing, investment and operating decisions may have contributed to its market value, as reflected in its share price.  (10 marks)

7. Presentation and referencing: Marks will be awarded for the presentation and referencing of the report as a whole, and for the presentation and clarity of any ratio calculations. (15 marks)

In order to support your ratio calculations, you should include a copy of the company’s income statement and balance sheet in the appendices to your report, for the appropriate year(s). This is a very important requirement. Detailed workings to support your ratio calculations should also be shown in the appendices.

Assessment criteria

The marks awarded for each part of this assignment will be based on:

· Accuracy of the calculations. Clear workings should be shown to support your  calculations.

· Quality of the discussions (understanding of the issues discussed and evidence of extensive and appropriate reading

The rules on late submission and plagiarism are applied and fully enforced by the school.

Assessment methods are linked directly to learning outcomes and to teaching/learning methods. They are designed to assess students' understanding of the subject and skills developed in the module.