Strategic Managerial Finance: Forecasting, Analysis, and Brexit Impact

This report provides a comprehensive analysis of strategic managerial finance, focusing on a new venture involved in the distribution and packaging of hair enhancement products. It includes forecasted income statements, balance sheets, and cash flow statements for the year 2019, along with a deta...Read More

Running head: STRATEGIC MANAGERIAL FINANCE
Strategic managerial finance
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Table of Contents
Answer 1....................................................................................................................................2
Introduction................................................................................................................................2
(a) Forecasted income statement for the period ended 31st December 2019........................2
(a) Forecasted statement of financial position as on 31st December 2019............................3
(b) Forecasted cash flow statement for each of 4 quarters...................................................4
(c) Detailed analysis of forecasted results............................................................................4
Conclusion and recommendation...............................................................................................5
Question 2..................................................................................................................................7
Introduction................................................................................................................................7
Answer (a)..................................................................................................................................7
Answer (b)..................................................................................................................................8
Answer (c)................................................................................................................................10
Conclusion................................................................................................................................11
Reference..................................................................................................................................12

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Answer 1
Introduction
Aim of the report is to prepare and analyse the business plan for new venture. The
new venture will be for distribution and packaging of the hair enhancement product. The
business is intended to commence on 1st January 2019 and the report will prepare the
projected income statement, balance sheet and cash flow statement taking into consideration
the given fact related to the business. Based on the statement the report will analyse whether
the business will be successful for the 1st year of business and accordingly suggestions will be
provided for improving the cash flow position and profitability position of the business
(Brigham et al. 2016).
(a) Forecasted income statement for the period ended 31st December
2019

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(a) Forecasted statement of financial position as on 31st December 2019

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(b)Forecasted cash flow statement for each of 4 quarters
(c) Detailed analysis of forecasted results
From the above forecasted income statement it can be identified that the sales for the
1st quarter will be 900 units and the selling price per unit will be €240 per unit. In the 2nd
quarter though the selling price will not be changed the sales units will be increased by 40%.
For the next quarter it is forecasted that the number of units will be increased by 10% and
will remain as same for 4th quarter. However, the selling price in 3rd quarter will be increased
by 25% and will decrease by 15% in the 4th quarter. Out of the total sales in the year, 30%
will be cash sales and remaining 70% will be credit sales. The company will trade at 150%
that is the sales price will be 150% of total expenses including the cost of materials (Williams
and Dobelman 2017). The company buys sufficient materials for selling in the quarter on 1st
day of the quarter. However, for the 1st quarter in addition to regular requirement the
company also buys the material for January sales as safety stock.
Interest payment on long term loan will be paid at 7.5% on quarterly basis and will be
paid on 1st day of following quarter. Cost of the feasibility study that is €28,500 will be

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charged as expenses in the 1st year of trading. Start-up grant amounting to €63,300 will be
amortised on 3 years time and depreciation on non-current assets including equipment and
motor vehicle will be charged under expenses on quarterly basis. Among other expenses,
wages will be paid to Mr. Druff as the managing director amounting to €7,700 per month and
€2,950 each to 4 employees totalling to net wages amounting to €58,500 per quarter.
Statutory deduction on wages will be 35% on gross wages. Apart from the rent, 2 month’s
rent will be deposited in the month of January. Other fixed costs excluding depreciation on
non-current assets will amount to € 25,410 per quarter (Robinson et al. 2015). Dividend will
be paid at 5% on equity for the 1st year. After deducting all the expenses from revenues it is
identified that the net profit for the 1st quarter will be €24,000, for 2nd quarter it will be
€100,800, for 3rd quarter it will be €138,600 and for 4th quarter it will reduced to €120,342.
From the forecasted statement of financial position it can be identified that the current
assets of the company amounted to €463,542 whereas current liabilities amounted to €26,091
only. It indicates that the liquidity position of the company is strong. Total assets of the
company amounted to €636,942 that is financed by debt amounting to €228,651 and equities
amounted to €434,382. Hence, it can be stated that the leverage position of the company is
expected to be strong as the assets is majorly financed by equity (Guay, Samuels and Taylor
2016).
From the cash flow statement it can be stated that the receipts include the grant receipt
for feasibility study, start up grant and receipt from sales. 30% of the total sales are received
in cash and remaining 70% is received in credit terms. Generally the company allows 2
months credit for credit sales, however, 75% of the credit sales are received as per the
allowed credit terms and remaining 25% of the debtors take another one month to make
payment. Payments for bank loan are paid on 1st day of next quarter and are paid on quarterly
basis. Statutory deduction on wages at 35% is paid in one month in arrears (DeFusco et al.
2015). Closing cash balance for the 1st quarter is in negative, however, from the 2nd quarter
the cash position improved and the closing cash balance for the year amounted to
€320,982.25.
Conclusion and recommendation
From the above discussion it can be concluded that the business is seems to be viable
one as the business is able to generate profit for all the quarters started from the 1st quarter

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itself and total profit expected for 1st year is €383,742. Further, the business is expected to
generate cash amounting to €320,982.25. However, to improve the cash position the company
is recommended to shorten the credit period allowed to the debtors and shall negotiate for
longer credit period allowed by the suppliers.

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Question 2
Introduction
Brexit stands for the term British exit and it refers to possibility from the side of
Britain that it will withdraw from European nation (EU). A no-deal Brexit is expected to have
severe trade as well as macroeconomic impacts that will include significant and difficult
choices for government, as per different documents published by the government that clearly
indicated the threats to Ireland in future months. It says that crashing out by British out of EU
from March without any kind of agreement will have highly significant and adverse social as
well as economic impact in UK and in this context Ireland will also suffer significantly. No
deal Brexit states the exceptional economic situation where it will meet with the exceptional
measures for supporting continued operation of Irish economy and trading lines (Barrett et al.
2015).
Answer (a)
Main problems expected to be faced by Irish SME traders with the customers in UK in case
of no-deal Brexit
As per the documents published by the Enterprise Ireland, in case of no-deal Brexit
the Irish SMEs Traders will face various issues with their customers in UK as follows –
 Exchange rate volatility – most immediate effect due to Brexit will be on value of
British pound. Sterling value dropped immediately after the poll result of Brexit and
the value may continue to be volatile even after Brexit. This fact is already impacting
the Irish businesses. Though the imports became cheaper that is the good news for
purchasing products from UK, however, exports become comparatively expensive
and therefore, businesses exporting to the UK customers becomes the biggest
challenge. Further, it is expected that due to Brexit, carrying out business with the
nearest neighbour countries will become more complex if the new laws for customs
are implemented. Some of the sectors will be impacted significantly as compared to
other sectors (Bell 2016). For example, FMCG, retail, gas, energy, aviation, tourism
and fishers. Further, the most impacted sector will be small and medium enterprises
those are exporting goods to UK.

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 Currency risk – for the Irish SMEs that is doing business internationally, currency
fluctuation will be of major concern. Sharp depreciation of sterling will have big
impact on the business. Though the bigger firms are able to easily protect themselves
though hedging or forward contract, it is much more complicated for the SMEs. When
they are conducting their business abroad, the margins can be tight that means sharp
change in the conversion rate will have major impact (McGrath 2016).
 Financial management – no-deal Brexit will throw challenges to the the general public
in their day to day consumption. Hard Brexit will lead to higher cost of the goods
while they are bought from online like Amazon, Asos or any other UK based sites.
Any of the goods that is valued at more than € 22 and that comes from outside of EU
is chargeable for VAT and any of the items valued more than € 150 will be chargeable
under customs, particularly clothing. Hence, general public purchasing goods on line
have to manage their daily expenses and incomes (Gormley-Heenan and Aughey
2017)
 Tourism hit – even after months of Brexit vote, pound fell more than 15% against
Euro, resulted from the holidays in euro zone became more expensive for the tourists
in UK. It is bad news for the tourism market in Republic as visitors from Britain was
dropped by more than 7% in the year 2017. Though the arrivals from the Britain
recovered little bit in 2018, Tourism Ireland stated that it is too early to say whether it
represents the turnaround in trend with the impact of the remaining Brexit considered
as a concern. It is not the only issue that holidays became more expensive for the
visitors of Britain, it is the fact that holidaying in Britain became cheaper for the
visitors from Euro zone who may otherwise was tempted to come here previously
(McGrath 2016).
 Aviation problem – it is expected that owing to Brexit, value sterling will quickly
jump against both euro as well as dollar. If UK leaves EU with no-deal, EU and UK
licensed airlines will automatically lose their right to operate the air services between
EU and UK without obtaining the permission in advance. While British government
will grant permission to the European airlines unilaterally for landing at the British
airports and will hope EU will do the same as a part of Bare-Bones aviation
agreement. However, no guarantees are there (Doherty et al. 2017).

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Answer (b)
General business advises to Irish exporters to UK
Immediate effect to the Irish businesses over last year has weakened the sterling
undoubtedly and though it has been recovered to some extent against Euro on January 17th it
still remained 24% below as compared to the level of November 2015 (Arriola et al. 2018).
Hence, general advises those can be provided to the exporters with receivables in sterling are
as follows –
 Regulation that is governing free movement of services, goods, people and capital
among Ireland and UK at present will change fundamentally once UK parliament
house ratify Brexit deal sometimes after 2 years after invocation of Article 50 by
Theresa May this March. Hence, it is advised that the exporters shall prepare
themselves for the worst case scenario.
 It is fundamental for the exporters that they carry out the impact assessment not only
for their own entity but also for the customers and suppliers chain exposures
associated to customs, exchange rates, VAT, tariffs, requirement of visa and
legislation and regulations related to EU (Gravey et al. 2018).
 Slowdown in UK economy may mean lower demand for the Irish services and goods.
If the business is over-dependent on UK market then it is a good time to look for
diversification of the export markets. Diversification in terms of consumer needs and
habits all over the globe will offer greater opportunity for selling the products. The
Irish Exporters Association may help them to gather information regarding access of
potential market and opportunities for goods in those markets.
 Keeping the competitive price for the products for different market is an important
aspect. Average cost will be lowered as result of the expanded operation that will lead
to wider economies of scale for efficiencies and productivity. Hence, selling of the
existing products to wider markets and the increasing reach will enable the exporters
to remain competitive (Bergin et al. 2016).
 Exporters at present trading in UK require upgrading their skills in context of supply
chain management. Various challenges involved with trading in the nations those are
outside EU will be applied to the future trade with UK. Hence, building the
diversified strategies for export shall be considered through looking for the alternative
routes such as direct shipping to different continental ports.

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 If the slower routes have adverse impact on the product quality then research shall be
carried out to make adjustment to the products that may enhance the product’s
lifespan, specifically for medicines, food and drink items (Bergin et al. 2017).
 Understanding the fact that the risks involved is overriding, that is the association for
Irish exporters have the experts available with them for talking to the members
regarding any worries they have. Apart from that, they run information seminars all
over the country for briefing the exporters regarding possible implications. Major
focus regarding the vision is towards signposting as well as delivering information to
the members those may have any issues that may impact them.
 UK decided to leave and they told in this context that what they want in exchange
however, they have not received it yet. Irish exporters have traded with UK for more
than 1000 years and will continue doing so. However, it will become different and
will be more like trading with the nations outside EU where EU has Free Trade
Agreement. Hence the key to success now will be preparation (de Mars et al. 2016)
Answer (c)
Strategies those can be adopted by the Irish SMEs for addressing issues related to
exchange rate volatility
Before recession and Brexit the businesses generally were less concerned regarding
the impact of exchange rate volatility as currencies were moving at a slower pace like 5% in a
month. Some of the organizations even adopted the pricing strategies like currency buffers to
protect themselves against volatility. However, the ongoing uncertainty for global economy
provoked the currency volatility that made the buffers ineffective as the protective method.
Focus for these businesses are employing management strategies for currency risk to reduce
volatility of cash flows and for protecting the margins of underlying business (Ito et al. 2016).
One strategy to protect itself from exchange rate volatility is hedging strategy. While
implementing the hedging strategy the business is required to review the cost that is
dominated in the foreign currency and the revenues. Irish SMEs making the payments in
foreign currency will aim to minimise euro cost for the payables in foreign currency and
protect itself against the appreciation of the payable currency (Mensi, Hammoudeh and Yoon
2015). On the other hand, Irish SMEs receiving the payments in foreign currency will aim to
maximise the payments receivable in euro and protect itself against the depreciation of the
receivable currency. Basic cost effective strategy for hedging is asking the international

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suppliers to provide dual invoice that is 2 prices will be quoted for the goods bought from
abroad – one in euro denomination and another in domestic currency of the supplier. Further
the organisations can compare cost based on the difference in exchange rate and may choose
cheaper method of payment on due date (Della Corte, Ramadorai and Sarno 2016).
Alternatively the firms can manage the exchange rate volatility through any of the following
approaches –
 Forward contract – the forward contract is one of the methods that is used widely for
the financial hedging instruments. It is the contract with bank that locks-in one
exchange rate for sale or purchase of the particular amount of the foreign currency on
future date. It eliminates the exposures to the adverse movement of the foreign
exchange from the date on which the contract is made. However, the major
disadvantage of forward contract is the companies lose the opportunity of get befitted
from favourable movements of exchange rate in particular period of time under
concern (Hendrawan 2017).
 Currency swaps – it is the agreement where 2 parties exchange principal amount of
loan and interest in other currency. Firms enter into the currency swap for hedging the
commitment for long term borrowing dominated in the foreign currency (Borio et al.
2016).
 Currency options – the vanilla option is like an insurance policy. In exchange of
paying the up-front premium, option holder has right but not obligation to sell or buy
one currency against another for the agreed price called as strike price. The option
contracts limit the downside risk through locking the strike price. However, it also
allows the entities to be benefitted from the unlimited upside potentials (Borio et al.
2016).
 Operational hedging – as per different research it is identified that the effective
programme for risk management combines operational as well as financial hedging. It
involves altering the firm’s original physical operations for reducing the overall
exposures related to foreign exchange. It is the critical element in management of the
long-term exposures (Moosa 2016).
However, as most of the derivative contracts are for short term period, the companies
are also required to use the long-term techniques for hedging.

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Conclusion
From the above discussion it can be concluded that the SMEs and exporters from
Ireland will face different challenges after Brexit. Major challenges include exchange rate
volatility, currency risk, financial management, tourism hit and aviation problem. Hence to
overcome the issues the SMEs and exporters from Ireland shall find for diversification that is
exporting their products to other countries. Further, the strategies those can be adopted by
Irish exporters against exchange rate volatility are hedging strategy, forward contract,
currency swaps, currency options and operational hedging.

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Reference
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