SAMPLE OF THE STUDENT WHO GOT PASSED Financial Resource Management & Performance British Sky Broadcasting Group plc (BskyB) The purpose of this report is to know how a company receives, manage, and apply financial & other resources to meet objectives and requirements. Whole report is divided into three components. Component 1 comprises different stakeholders of BskyB with different interest and priorities. Component 2 comprises business and financial performance of BskyB with the help of financial ratios and horizontal analysis. In component 3, different investment appraisal techniques are discussed with an example of 123 LTD that wants to set up a manufacturing unit in one of three countries- USA, France and Switzerland. Component 1 Stakeholders: BskyB A Stakeholder is one who is directly or indirectly attached with company’s resources, attention and output and both affects each other in one way or other (Bryson, 2011). Each stakeholder has different interest with company’s business and company’s output affects them in different level. Customers, Political parties, financial institutions, employees, governments, unions, board- members, citizens, volunteers,
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SAMPLE OF THE STUDENT WHO GOT PASSED
Financial Resource Management & Performance
British Sky Broadcasting Group plc (BskyB)
The purpose of this report is to know how a company receives, manage, and apply
financial & other resources to meet objectives and requirements. Whole report is
divided into three components. Component 1 comprises different stakeholders of
BskyB with different interest and priorities. Component 2 comprises business and
financial performance of BskyB with the help of financial ratios and horizontal
analysis. In component 3, different investment appraisal techniques are discussed
with an example of 123 LTD that wants to set up a manufacturing unit in one of
three countries- USA, France and Switzerland.
Component 1
Stakeholders: BskyB
A Stakeholder is one who is directly or indirectly attached with company’s
resources, attention and output and both affects each other in one way or other
(Bryson, 2011). Each stakeholder has different interest with company’s business
and company’s output affects them in different level. Customers, Political parties,
Non-current borrowing has been increased by 73 million and around 100 million of
equity was purchased as a buyback policy and due to it the debt-equity ratio has
been increased from 2.25 to 2.54. During 2010 it was 4.38 which were restructured
after issuing new IPO in public and during 2012 the reverse decision has been taken
by the management. Greater debt proportion carries interest with itself and
increase in debt-equity ratio had increased the interest amount of the company that
has to be paid to the lenders (Banks).
Creditor’s collection Period
Suppliers of a company sell their products or services to the company in credit and
company pays that credit amount in certain period of time and that time-period is
called creditors collection period (Periasamy, p-448, 2009). Greater the creditor
collection period better for the company to use creditor’s money as a cheap mean
of financing its working requirement.
Year ended 30th June
2012 2011 2010 Industry
£m £m £m £m
Trade Payables 1855 1675 1526
Revenue 6,791 6,597 5,709Trade Creditors Collection Period (In Days) 100 93 98 NA
The supplier of BskyB had given 100 days during 2012 to pay the bill which wa 93
days in 2011 and 98 days in 2010. It means suppliers become more liberal towards
the company in the recent year and it happens when supplier feels that it would get
the payment for sure from the company.
Debtor’s collection Period
BskyB supply their services to the customer and between them there is called
channel partner. Now company provide the services in credit which it has to receive
after a certain period of time and that time period is called Debtor’s collection
period (Dooley, p-34, 2006). Shorter the debtor collection period is, better for the
company to recycle the money collected from customer into production.
Year ended 30th June
2012 2011 2010 Industry
£m £m £m £m
Trade Receivables 621 592 538
Revenue 6,791 6,597 5,709Trade Debtors Collection Period (In Days) 33 33 34 149
The customer of BskyB paid the bill in 33 days in last two years which was 34 days
during 2010. Industry average is around 149 days which is too long and thus
company has beaten its own performance from 2010 and from the industry as well
in collecting the payment from the customer which was given to the customer as a
credit.
Stock Turnover Period
It is the time period a company spends to keep the inventory or stock. It is
calculated against cost of sales or operating expenses because keeping inventory
means keeping cost of company as a product or services in inventory (Stickney et al
p-252, 2009).
Year ended 30th June
2012 2011 2010 Industry
£m £m £m £m
Operating Expenses 5,548 5,524 4,865
Inventory 456 375 343
Stock Turnover 30 25 26 25BskyB kept the inventory for 30 days during 2012 higher than 2011 where it was
only 25 days. Industry average is also 25 days, lesser than BskBy. It means keeping
the product in 30 days in inventory incur cost for the company and an improvement
is required.
Return on Equity (ROE)
Profit in respect to total equity of the company is called return on equity
(ROI(Morrel, p-59, 2007) . Good ROE add value to the shareholder’s money and it is
very important factor in the capital market.
Year ended 30th June 2012 2011 2010Industr
y
£m £m £m £m
Net Profit 906 810 878
Equity 944 1035 560
Return on Equity 96.0% 78.3% 156.8% 3.26%
BskyB’s return on equity increased from 78.3% to 96% but lower than 2010 average
of 156%. When it is compared with industry average ROE of 3.26% then it can be
said that company has done remarkably well in the recent year.
Conclusion
The company BskyB has done very good in 2012 in generating revenue,
maintaining operating profit, maintaining liquidity, handling activity in collecting
payment and return on equity. This is because of contribution of management team
and other employees who helped the organization to increase the subscription base
and to decrease the cost per subscription. Company new capital structure policies
also helped the company to get better viability in the market and competition
against other players in the market.
Component 3
Investment Appraisal Technique: 123 LTD
Component 3 combined all kind of investment appraisal techniques required by 123
LTD to set up its manufacturing unit in one of three countries in option – USA,
France and Switzerland. Running expenses, expected revenue, license fees,
approval fees, residual amount and spot rate required in each country for a plant is
given in Appendix-X. Cash outflow and inflow is also calculated in Appendix-X.
Before putting figures into different investment appraisal techniques, the theoretical
part is covered to understand the calculation, advantage and disadvantage. This
component covers two investment appraisal techniques namely – accounting rate of
return (ARR) and net present value (NPV).
Any investment needs some motives. Few investments is done for expansion of
business, few are done for expansion of staff, few are done to buy fixed assets and
many more reasons are there for investment. Investment appraisal technique is the
way to judge whether the investment going to make has some worth in future or
give some return in future or not and we do it with the help of financial data
available(Schuster, p-3, . Main financial data of any investment is how much
investment is required and how much income we are expecting from that
investment and the difference of the two is called profit or loss of the project. Few
investor uses time value of money to calculate above financials and it is done by
discounting with the interest rate we are losing against investment in some project
which is called opportunity cost of capital. Different investment appraisal uses
different method to calculate financials and return and that would be seen in the
later part with an example of 123 LTD.
Accounting Rate of Return (ARR)
Accounting rate of return is a non-discounting model which calculates the return in
respect to income (Hansen and Mowen, p-568, 2006). Average Income is calculated
by subtracting average cash flow minus average depreciation.
Average Income Average Cash flow - DepreciationAccounting rate of return = ---------------------------- = --------------------------------------------- Average investment Average investment
Average cash flow is calculated by adding each year’s cash flow till the life of the
project and dividing it by life of the project. Average Investment is the average of
initial investment (cashflow in zero year) and salvage value. Depreciation is
calculated using straight-line method and the method is:
Country : France Current Interest rate = 10%Expected Revenue
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash Inflow Expected Revenue€
450,000€
450,000€
450,000€
450,000€
450,000Spot rate against Euro 1.80 1.90 2.00 2.10 1.95Expected Revenue in £ 250,000 236,842 225,000 214,286 230,769
Cash Outflow Cost of Machine in £
(340,000)
Running Expense in £
(190,000)
(190,000)
(190,000)
(190,000)
(190,000)
Approval Fee in £ (25,000) (25,000) (25,000) (25,000) (25,000)Royalty fee in £ (25,000)
Residual Value 220,000
Net Cash Flow(390,00
0) 35,000 21,842 10,000 (714) 260,769
Option 3 : Switzerland Current Interest rate = 10%Expected Revenue
Option 3 : Switzerland Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Cash InflowExpected Revenue in Swiss Franc
3,800,000
3,800,000
3,800,000
3,800,000
3,800,000
Spot rate against Euro 10.00 12.00 14.00 12.00 13.00Expected Revenue in £ 380,000 316,667 271,429 316,667 292,308
Cash Outflow Cost of Machine in £
(340,000)
Running Expense in £
(200000)
(200000)
(200000)
(200000)
(200000)
Approval Fee in £ (30000) (30000) (30000) (30000) (30000)Royalty fee in £ (70000)
Residual Value 220,000
Net Cash Flow(370,00
0) 150,000 86,667 (28,571) 86,667 312,308
References
Reuters: UK, Financial with Industry average: British sky Broadcasting Group plc [online] accessed on 1st April 2013 from http://uk.reuters.com/business/quotes/financialHighlights?symbol=BSY.L
John M. Bryson (2011), Strategic Planning for Public and Nonprofit Organizations: A Guide to Strengthening and Sustaining Organizational Achievement, 4th Edition, p-48, John Wiley & Sons, USA
Bloomberg Businessweek, Snapshot of British Sky Broadcasting Group [online] accessed on 5th April 2013 from http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=BSY:LN
Annual report-2012, British Sky Broadcasting Group plc Group [online] accessed on 5th April 2013 from http://corporate.sky.com/documents/pdf/publications/2012/sky_annual_report_2012
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