Financial Analysis Report: Millennium Services Group Ltd Budget Review

This report presents a financial analysis of Millennium Services Group Ltd, focusing on its profit and loss budget. It begins with an executive summary and table of contents, followed by an introduction that outlines the report's objectives, which include preparing a budget and identifying management strategies to improve business performance. The report researches budgeting principles such as annuality, rule of lapse, fiscal discipline, inclusiveness, accuracy, and transparency, along with costing concepts including cost accounting, opportunity cost, and various cost classifications. It then provides background information on the company, discussing its services and market focus. The analysis section includes arguments regarding financial performance, the business development process, and the preparation of a flexible budget for the profit and loss statement. The report uses information from the company's annual report to forecast revenue, expenses, and profit, considering factors such as service revenue growth, employee incentives, overhead expenditures, depreciation, and impairment of goodwill. The report also provides a business improvement plan and concludes with recommendations based on the analysis. The report aims to help the company improve its financial planning and overall business performance.

Running Head: FINANCIAL ANALYSIS REPORT
Financial Analysis Report
Name of the Student
Name of the University
Author Note

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Executive Summary
The main purpose of this report is to prepare a budget of the organisation and identify the
management planning process to improve the business performance. The study is supported
by analysing the 2019 annual report of the Millennium Service Group Ltd. It was found that,
the business will be expecting to increase its servicing revenue at 10% rate and the total loss
will become $ 42,453.

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Table of Contents
Introduction................................................................................................................................3
Research.....................................................................................................................................3
Arguments..................................................................................................................................5
Analysis......................................................................................................................................5
Recommendations to achieve business Profitability................................................................12
Conclusion................................................................................................................................12
References................................................................................................................................14

3Financial Analysis Report
Introduction
The chosen budget for the Millennium Services Group Ltd is the profit & loss budget.
A profit & loss budget will help the organisation to estimate the future revenue or expenses of
an organisation. This means that, it will help to forecast the profit & loss of a company. This
type of budget will help the company in doing financial planning of the business operations.
It helps to set a target for the company operations and estimates the expenses in future. This
will provide a guide lines to the managers to make decisions and helps to attain the outcome.
The paper will do a research on the budgeting principles and costing concepts. This will help
to prepare budget of the company and helps in evaluating the budget according the required
principles. The paper has focused on evaluating the profit and loss budget of the company
form its income statement. It will discuss on the organisational planning in the coming
financial year in order to reduce the expenditures and improve the business profitability. The
paper will do an analysis of the flexible budget of organisational profit and loss form the
operations. The main object of this report to prepare a budget of the organisation and identify
the management planning to improve the business performance.
Research
Principles of Budgeting
There are certain principles that must be followed while preparing a budget. They are:
 Principle of Annuality- This principles says that the budget must be prepared in every
annual basis. It is the responsibility of the company’s executive to effectively
implement the budgets in the business operations (Eseoghene et al. 2018).

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 Rule of lapse- This principles says that, the amount of money that has been left
unspent in a year must be lapse & government should not utilise this amount, unless it
has been sanctioned in the budget of the next year.
 Fiscal Discipline- The budget amount should be balance in a way that it can be
displayed in the income & expenditure.
 Inclusiveness- Budget should cover all the revenue & expenses and should be done
according to the organisational policies.
 Accuracy- The budget estimation must be precise & accurate. It must depend on the
input data & information must be clear (Kasdan and Markman 2017).
 Transparency and Accountability- All data regarding the budget must be clear. The
revenue and capital must be kept separate.
Costing concepts
 Cost Accounting- This includes the recording of all the cost that is associated with the
business operations. It includes recording of all the income & expenditure.
 Cost Accountancy- This is the application of costing that involves the presentation of
all information that has been derived from cost control that is used for managerial
decision-making (Czarnezki 2018).
 Opportunity cost- This is the profit that has been lost when one alternative has been
selected over the other one.
 Outlay cost- This is the total expenditure made to support an activity.
 Direct cost- This type of cost is easily identifiable during the production of a
particular product. Example are manufacturing cost.
 Indirect cost- This type of cost are not easily identifiable with related to business
operations and are indirectly involved in the production process.

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 Fixed cost- These are constant costs and are not a function of output. Example are rent
cost & property costs (Van Erdeweghe, Van Bael and D’haeseleer 2019).
 Variable cost- This type of cost vary with the increase or decrease in the level of
production. This is directly related to the output. Examples are raw material cost &
cost of wages.
Background of the Company
Millennium Service group is a cleaning, security & integrated services specialist in
many of the retail sectors, commercial & government sectors. The company is focused on
building its reputation related to providing personalised services and caring their employees.
The company is also focused in providing hygiene services, building & landscape
maintenance services to their clients (Chapman, 2019).
Arguments
 The total earnings has been declined at a rate of $23.1million. This loss was due to
non-cash impairments.
 The company has faced issues in the earnings before income and tax due to 7%
increase in the overhead expenditure.
Business Development Process
 Time and Time frames- The service revenue of the business is focused to increase at a
period of one year.
 Key Stakeholders involved- Major of the stakeholders involved in the development
process are the employees and the customers of the service firm.
 Signoff- The performance metrics of the company’s financial performance will be
delivered to the board of the company for approving the budget.
 Tools and systems used- Spreadsheets like Microsoft Excel

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 Communications- The required budget and strategies will be first established by
finance manager, then communicated to the marketing manager. The change budget
will be approved by the company board.
 Cost and Revenues- The revenues are generated by providing services in retail
shopping centre, education, infrastructure and other client’s facilities. The service
revenue is fixed it may change according the volume of service. The costs include
both the fixed cost and variable cost. Fixed cost include cost on property, plant,
interest payments and lease payments. Variable costs includes cost of employees and
cost of operations.
 Service Cost structure is reflected in the budget- It includes all the variable costs like
employee expenses has been reflected in the budget.
 Source of Information- Information is gathered from the annual report and evaluating
the budget development process.
 The performance against the budget is measured by analysing the service margin of
the company. It is measured by analysing the money the company is generating from
the revenue.
 The financial data that has been reviewed by the budget can be influence the
operational planning decisions and help in restructuring the data. This will help in
develop the company operations.
Analysis
A flexible budget for profit and loss statement will be prepared for the company in
order to understand their budget process (Prabandani 2016).

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The following information has helped me to prepare the budget of the profit or loss of
the company in the next year:
 The service revenue in the current year 2019 was increased at 4.5% as compared to
previous year FY 2018. The revenue at the future year is expected to be increased at
10%. Therefore, the service revenue will be increased by 10% in the next year of 30th
June 2020. The revenue will be expected to be increased because, according to the
going concern basis, the directors have mentioned in the previous year that, the
budgets for the next 12 months and they have focused to improve the business
profitability. Therefore, it is expected to grow in the coming FY 2020.
 The business is focused on improving the services (Millenniumsg.com. 2020).
Therefore, the used of raw materials and other consumables is expected to be
increased at 14% in the future.
 A short term incentive scheme has been introduced for the employees in the FY 2018.
It was found that, the scheme was designed to deliver a range of 5%-50% of the cash
incentives as a superannuation to the employees. The total superannuation was
accrued to be $109,534. It is expected that, with the benefit of this scheme, the
salaries of the employees will be increased by 5% and the superannuation will provide
employee benefit of 5%. There was a 7% increase of overhead expenditures in FY
2019. Therefore, the total employee benefit expense will be increased at 10%.
 The estimation of useful lives of the assets is related to the depreciation &
amortisation that has been charged in the property, plant & equipments. This is
generally the intangible assets like innovations and some other event (Koduah,
Agyepong and van Dijk 2018). This amount is tend to be more to keep the useful life
value less. In FY 2019, the group has acquired motor vehicles, plant & equipment of
$692,000 as a financial lease (Haider et al., 2019). These are considered as non-cash

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transactions & hence excluded from expenses on property, plant & equipments. Good
will was allocated as the cash generating units and is not amortised. The depreciation
and amortisation expense is expected to be increased at 50%.
 The company has identified a good impairment of goodwill and other intangible
assets like customer’s contracts and trademarks in the FY 2019 as compared to the
previous year. The carrying value of the financial statements was more than the fair
value. The impairment of good will & other intangibles like contracts & trademarks is
expected to have a finite life of seven years. The total expense of impairment of good
will & other intangibles will be increased by 5% in the next year. The recoverable
amount of a cash generating unit of goodwill allocation from cleaning and security
units is determined using discounted cash flow model for a period of five years for
each of the business segments (Krugman 2017). This model is used to prepare the
budgets in the FY 2019 that has been reviewed by the company’s management of
board.
 The company has eliminated the intercompany transactions. It has also eliminated the
unrealised gains on certain transactions between the entities, balances and other
transactions in the FY 2019. Therefore, unrealised losses and expenses are also
eliminated in the financial statement. There were no transaction expenses incurred in
the FY 2019. Therefore, there is no transaction expenses expected in the FY 2020.
 Other expenses is expected to be increased at a rate of 22 % in the FY 2020.
 Finance costs of the organisation includes the foreign exchange gains & loss that is
related to the borrowings. It also includes the lease payments & the lease liability. It
was estimated from the previous year forecast that, the finance cots has been by $0.8
million. Therefore, it the financial expenses is also expected to be increased nearly at

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0.8million in the next year 2020. It is expected to be increased at 17% in the next
year.
 The company has attained a statutory loss in the earnings before income tax, interest
& depreciation. Most of this loss is due to lower level of efficient management,
increased level of overheads and inefficient control on the labours (Goddard and
Mkasiwa 2016). Therefore, the earnings have been declined by $8.8m. Therefore, the
loss before income tax has been increased. The loss before income tax expense will be
focused to be controlled in the next year. Therefore, the future loss will be focused to
be controlled.
Figure 1: (Profit or loss budget for the company)

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Service Revenue
Expenses
Raw materials & consumables
Employee benefit expenses
Depreciation & amortisation expense
Impairment of goodwill & other intangibles
Transaction expense
Other expenses
Finance cost
Total loss
0
200,000
400,000
600,000
Future Profit or loss Budget
Actual ($'000) Budgeted($'000)
Figure 2: (Forecasting of the Profit and loss Budget)
Business Improvement Plan
It can be seen from the above budget report that, Millennium organisation is focused on
valuing their employees. The company has nearby 5300 employees in the organisation and
has a strong leadership team (Jarach 2017). The company has invested in the areas of Health
& safety of the employees. It is focused on maintaining the work place safety for the
employees and a positive organisational culture in the future (Froen, et al. 2016). It is
declared by the Chief Executive Officer of the Organisation that, the company will enhance
the capabilities of maintaining an accountability in the organisational work culture in the
financial year 2020. This will help the company to improve its business performance (Lam,
Lant and Kenway 2018). Therefore, the company has continued to encourage the short-term
incentive plan for their operational managers & the employees in order to improve the
servicing quality with their clients and simultaneously improve the business profitability. It
also focuses on organisational compliance.

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The company is focused on attracting & satisfying their clients. They have clients in
some of the top most companies of Australia & New Zealand. These clients depends on their
staff members to deliver a better clean and safe environment services. Therefore, the
company is focused on meeting the client’s obligations (Bezak et al. 2017). The company has
decided to introduce a new automated attendance system for the employees in order to
simplify their process. The company is also focused on strengthening its relationship with
their partners & new clients. This will done by enhancing excellent client services that
includes; broadening the offerings, expanding the existing client base, diversify the industry
segments and improving the sustainable margins (Taylor, Bern and Senior 2018). The
company is focusing on negotiating a various number of contracts to gain a competitive
position in the market.
Business Improvement Plan for Financials
From the previous year financial performance, the board members of Millennium
service group is focused on strengthening its financial position statement. In the coming year
2020, the company is planning to open a new bank debt facility on the September month of
2020. This has been established to refinance the business in order to maintain the debt
position. The company is focused to improve the financial result in the FY 2020. Therefore,
the budgeted estimation has focused on improving the company financial results. The
management has also planned to do certain initiatives in the business by the end of the year
2021.
Strategic Priorities in the FY 2020
 The first priority to achieve the budgeted profitability is to enhance their customer’s
contracts in the business. The business will be targeting on new clients form different
sectors (Charnley, Kelly and Fischer 2020). The different sectors include; offices,