Skills of The Manager Consultant

This study material covers topics such as financial ratios, investment appraisal techniques, cash budgeting, and the differences between management accounting and financial accounting. It also discusses the limitations of ratios while evaluating business performance and provides a cash budget for a hypothetical scenario. The subject, course code, and college/university are not mentioned.

Skills of The Manager
Consultant

Contents
MAIN BODY..................................................................................................................................3
Question 1........................................................................................................................................3
A. Calculate the financial ratio for Omnipresent plc for the year 2021 and 2022.......................3
B. Interpret the information from the viewpoint of the shareholders..........................................4
C. Explain the limitations of ratios while evaluating the performance of the business...............4
D. Differentiate between management accounting and financial accounting by using relevant
examples......................................................................................................................................4
Question 3........................................................................................................................................5
A. By using investment appraisal technique appraise the following project...............................5
B. State the project which should be selected among the two proprietor....................................7
C. State the factor which will help in making final decision regarding the project....................7
D. Evaluate the use of Net Present Value of Investment appraisal.............................................7
Question 4........................................................................................................................................7
A. Prepare Cash Budget...............................................................................................................7
B...................................................................................................................................................8
REFERENCES................................................................................................................................9

MAIN BODY
Question 1
A. Calculate the financial ratio for Omnipresent plc for the year 2021 and 2022.
S. No Particular Formulas 2021 2022
1. Gross profit
margin
Gross Profit /
Sales * 100
= 24900 / 84700
*100 = 29.40%
= 37600 /
110800 * 100 =
33.94%
2. Operating profit
margin
Operating Profit /
Sales * 100
= 3200 / 84700 *
100 = 3.78%
= 6600 / 110800
* 100 = 5.96%
3. Return on
ordinary
shareholders’
funds
Net Income /
Shareholder’s
Equity
= 3300 / 54900 =
0.06 times
= 5500 / 60400 =
0.09 Times
4. Current ratio Current assets /
current liabilities
= 23600 / 8000 =
2.95 times
= 31700 / 11100
= 2.86 Times
5. Acid test ratio Liquid assets /
current liabilities
= (23600 –
11400) / 8000 =
1.525 times
= (31700 –
14200) / 11100 =
1.58 Times
6. Inventories
turnover period
(Average
inventory / Cost
of goods sold) *
365
= (11400 /
59800) * 365 =
69.58 Days
= (14200 /
73200) * 365 =
70.80 Days
7. Settlement
period for
receivables
Account
Receivables / Net
sales * 365
= 12200 / 84700
* 365
= 52.57 Days
= 17500 /
110800 * 365
= 57.65 Days
8. Gearing ratio Debt / equity = 3000 / 14000
= 0.21
= 3000 / 14000
= 0.21
9. Earnings per
share
Net Income of
the company /
total number of
= 3300 / 14000
= 0.24
= 5500 / 14000
= 0.39

shares
10. Price/Earnings
ratio
Share price /
Earnings per
share
4 / 0.24
= 16.67
6.70 / 0.39
= 17.18
B. Interpret the information from the viewpoint of the shareholders.
Ratios suggests the financial position and interpret the performance of the business
organisation. It shows that company has earned a significant amount of Gross Profit in 2021
which has further increased in the preceding year due to increase in the sales of the company.
Operating profit of the company has increased because of the increase in the sales of the business
concern. Price Earnings ratios suggests that the how much return is gained by the shareholders
by investing in the shares of the company. The company’s revenue has increased which has
caused increased in the profits of the company. Debt Equity Mix used by the company states that
the business is using more of equity as compared to debt which suggests that the company needs
to increase the use of debt in order to balance the Debt equity mix of the business concern.
C. Explain the limitations of ratios while evaluating the performance of the business.
It is necessary for a business to compare its performance from the previous performance of
the business and the business which are at the same level in the same industry. It is used to
compared the liquidity, profitability and efficiency of the business.
Limitation of Ratios:
 Ratio analysis is based on the historical data.
 It does not consider the external factors which affects the working of the business.
 It can only be used to compare the firms which are of same type and size.
D. Differentiate between management accounting and financial accounting by using relevant
examples.
Financial Accounting Management Accounting
Objective The foremost objective of the
financial accounting is to
Management accounting is
used provide information

disclose the end result of the
business.
which helps in making plans
and set goals
Audience The information produced is
used by the external users.
The information so derived is
used by the internal
management for preparation
of future goals of the
company.
Example Annual reports Management reports
Question 3
A. By using investment appraisal technique appraise the following project.
i) Payback period:
Country A
Year Annual
Cash flow
Cumulative
Cash
Inflows
0 4000000 0
1 1000000 1000000
2 1600000 2600000
3 1700000 4300000
4 1100000 5400000
5 500000 5900000
6 600000 6500000
Payback period = number of years completed + (Total amount invested – cash flow received
cumulatively)/ cash inflow in that year
Project A = 2 + (4300000 - 4000000) / 1700000
= 2 + 300000 / 1700000
= 2 + 0.18
= 2.18 years
Country B

Year Annual
Cash flow
Cumulative
Cash
Inflows
0 5000000 0
1 1200000 1200000
2 1300000 2500000
3 1600000 4100000
4 1200000 5300000
5 400000 5700000
6 500000 6200000
Payback period = number of years completed + (Total amount invested – cash flow received
cumulatively)/ cash inflow in that year
Project A = 3 + (5300000 – 5000000) / 1200000
= 3 + (300000 / 1200000)
= 3 + 0.25
= 3.25 years
ii) Net Present Value
Country A
Years Net Cash
Inflows Discounting @ 5% PV of Cash Inflows
1 1000000 0.952 952000
2 1600000 0.907 907000
3 1700000 0.864 1382400
4 1100000 0.823 1399100
5 500000 0.784 862400
6 600000 0.746 447600
PV of Cash Inflow (A) 5950500
PV of Cash Outflow
(B) 4000000
Net Present Value (A-
B) 1950500
Country B
Years Net Cash
Inflows Discounting @ 5% PV of Cash Inflows
1 1200000 0.952 1142400
2 1300000 0.907 1088400

3 1600000 0.864 1123200
4 1200000 0.823 1316800
5 400000 0.784 940800
6 500000 0.746 373000
PV of Cash Inflow (A) 5984600
PV of Cash Outflow
(B) 5000000
Net Present Value (A-
B) 984600
B. State the project which should be selected among the two proprietor.
According to Net present value method and Payback period Project A should be selected.
C. State the factor which will help in making final decision regarding the project.
Net present value method helps in determining the value which the project will provide at the
end of the project. It helps in knowing the approximate amount which will be earned at the end
of the year.
D. Evaluate the use of Net Present Value of Investment appraisal.
Net present value evaluates the actual earning from the project. It helps in determining the
actual results profits or loss which will be provided the project at the end of the life cycle of the
company.
Question 4
A. Prepare Cash Budget
Cash Budget for 1 August- 31 October 2022
Particular August September October
Opening Balance
30000
0 390000 450000
(A) Receipts
Sales to large retailer 87500 175000 250000
Factory shop sales 80000 90000 190000
Receipts for credit sale
26250
0 525000 750000
Total
73000
0 1180000 1640000
(B)Payments

Raw material purchases
18000
0 380000 580000
Labour cost
10000
0 210000 260000
Overhead costs 0 110000 130000
Rent and Rates 30000 0 0
Equipment Instalments 30000 30000 30000
Total
34000
0 730000 1000000
Closing balance (A-B)
39000
0 450000 640000
Note: Depreciation is not part of the cash budget.
B.
In case of emergency when there is shortfall of case in an organisation there are several
ways to deal with such situation. Such as arranging debts, arranging for borrowed capital is good
way of arranging fund and avoiding control risk. Negotiating with supplier the other way of
dealing with such situation is negotiation. Here one can make arrangements with suppliers and
creditors so that the responsibilities fulfilling time can be increased. Selling assets which are not
useful for the firm currently. Increasing payment or increasing selling price in order to increases
profit so that such situation can be dealt with without any hustle. Outsourcing debts to asset
management company so that they can recover the organisation from such situation strategically.
Also cost reduction can be an ideal option in such case where unnecessary cost are to be
restricted and profit blocking elements are eliminated.

REFERENCES
Books and Journals
Abdelhady, S., 2021. Performance and cost evaluation of solar dish power plant: sensitivity
analysis of levelized cost of electricity (LCOE) and net present value (NPV). Renewable
Energy. 168, pp.332-342.
Basher, S.A. and Raboy, D.G., 2018. The misuse of net present value in energy efficiency
standards. Renewable and Sustainable Energy Reviews. 96, pp.218-225.
Brotons-Martínez, J.M. And et.al., 2022. The Use of Fuzzy Decoupled Net Present Value in
pepper production. In XX SIGEF Congress-Harnessing Complexity through Fuzzy
Logic (pp. 36-46). Springer, Cham.
Deng, C. And et.al., 2020. Determining the ecological compensation standard based on forest
multifunction evaluation and financial net present value analysis: A case study in
southwestern Guangxi, China. Journal of Sustainable Forestry. 39(7), pp.730-749.
Dusseault, B. and Pasquier, P., 2021. Usage of the net present value-at-risk to design ground-
coupled heat pump systems under uncertain scenarios. Renewable Energy, 173, pp.953-
971.
Fortaleza, E.L.F., Neto, E.P.B. and Miranda, M.E.R., 2020. Production optimization using a
modified net present value. Computational Geosciences. 24(3), pp.1087-1100.
Junior, J.R.B. And et.al., 2022. A comparison of machine learning surrogate models for net
present value prediction from well placement binary data. Journal of Petroleum Science
and Engineering. 208, p.109208.
Rezaei, F. And et.al., 2021. Simulation-based priority rules for the stochastic resource-
constrained net present value and risk problem. Computers & Industrial
Engineering. 160, p.107607.
Sirinanda, K.G. And et.al., 2018. Strategic underground mine access design to maximise the Net
Present Value. In Advances in Applied Strategic Mine Planning (pp. 607-624). Springer,
Cham.
Thiruvady, D., Blum, C. and Ernst, A.T., 2019, January. Maximising the net present value of
project schedules using CMSA and parallel ACO. In International Workshop on Hybrid
Metaheuristics (pp. 16-30). Springer, Cham.