AD 6803 MSC in Human Resource Management
Finance – Case Study
Having obtained her History degree from UCC, Gillian had decided to take a year out to travel the world and was in Sydney 3 months ago when she got the very sad news that her father Tony, a business owner, had passed away suddenly. Gillian, an only child, was the sole beneficiary in the will and inherited a 100% shareholding in Cardigan Ltd., an established clothing Wholesale distribution company which based in Cork but operates nationwide. Tony had not been actively involved in the running of the business for past few years but was still seen as the face of Cardigan Ltd. by those outside of the business.
Gillian has been briefed by Joe, the Managing Director of Cardigan Ltd. on the current state of the business. Joe explained that Sales are currently going very well (up 7% in the first 3 months of 2019 from the 2018 run rate while maintaining existing margins), continuing on the back of a successful strategic decision made in 2018 to alter the company’s range of products. Previously, the company had concentrated on lower margin products within its industry, but the business decided to move more into the upper end of the market through the supply of high quality products (having spoken with the rest of the Management Team, Gillian has learnt that Joe was the main driving force behind the change in the company’s range of products).
The change in products also involved changing major suppliers but there has been no delay in supply of product as larger up front Purchase orders have placed with the new suppliers. There has been no significant change to the Customer portfolio and the feedback from customers on the new product range has been very positive. Joe has made several other changes to the company and persuaded the Board of Directors that the company should invest in new premises, which Joe arranged finance for through a long term loan payable over 15 years. The company also has an approved overdraft facility of €1,500,000.
As a potential part of the development of the business, the company can start an in-house embroidery process, which would involve the embroidery of customer logos on the products. This would result in an increase in annual sales of €350,000 at a 5% higher Gross Margin than is currently being achieved It would require an investment of €150,000 to purchase this specialised production machine. Some additional information is noted on Appendix B. There is sufficient space for the machine in the recently acquired premises and Joe is anxious to purchase the machine as he feels it will distinguish Cardigan Ltd. from it’s competitors.
In relation to competitors, Cardigan Ltd. has only one main competitor, Slugworth Ltd. This competitor has created noise in the market by insisting that Cardigan Ltd. is in trouble and will be out of business shortly. Joe feels that Slugworth Ltd. is using Tony’s untimely passing to undermine Cardigan Ltd. There are a number of other smaller competitors in the market but these tend to confine themselves to specific parts of the country.
As recently appointed Financial Accountant to the business, you have provided Gillian with the completed Financial Statements for 2017 and 2018 (Appendix A). No Management Accounts are yet available for January to March 2019. Gillian has asked you to ascertain the overall financial health of the business and provide your recommendations as to what future courses of action the business should take.
AD 6803 MSC in Human Resource Management
Finance – Case Study
For this Case Study submission, you are required to prepare a Presentation which will include the following sections:
Section A: INTRODUCTION
In this section, you are required to outline:
(i) A brief introduction to the Case Study
(ii) A Summary of the key issues to be considered
Section B: ANALYSIS
In this section, you are required to outline:
(i) Critical analysis of the issues identified
Section C: CONCLUSIONS AND RECOMMENDATIONS
(i) Explain your key conclusions – where appropriate
(ii) Explain your key recommendations – where appropriate
AD 6803 MSC in Human Resource Management
Finance – Case Study
APPENDIX A
2018 2017
€ €
Sales 14,064,700 17,133,459
Cost Of Sales (10,511,820) (13,811,980)
Gross Profit 3,552,880 3,321,479
Less Expenses:
Wages & Salaries (1,671,685) (1,638,907)
Rates (40,175) (40,175)
Rent (102,923) (240,879)
Motor Costs (357,440) (340,419)
Insurance (70,514) (67,156)
Heat & Light (33,743) (32,136)
Telephone (48,090) (45,800)
Advertising (31,893) (30,374)
Repairs & Maintenance (89,026) (84,787)
Other Professional Fees (224,211) (213,534)
Travel Overseas (52,229) (49,742)
Legal Fees (14,495) (13,805)
Stationery (38,934) (37,080)
Postage (2,993) (2,850)
Subscriptions (22,403) (21,336)
Bad Debt Provision (7,991) (7,610)
Depreciation (108,809) (45,056)
Miscellaneous (5,481) (5,220)
Total Expenses (2,923,034) (2,916,866)
Operating Profit 629,846 404,613
Bank Interest (255,240) (87,250)
Profit on Ordinary activities
before Taxation 374,606 317,363
Taxation (46,826) (39,670)
Profit for the Financial Year 327,780 277,692
Dividend (20,000) (35,000)
Retained Profit 307,780 242,692
Notes:
(1) All Sales are assumed to be Credit Sales
(2) All Purchases are assumed to be Credit Purchases
(3) Average No. Employees in 2018 was 70 (2017 was 75)
Cardigan Ltd.
Profit & Loss Account for the Financial Year
ended 31 December 2018
AD 6803 MSC in Human Resource Management
Finance – Case Study
2018 2017
€ €
Fixed Assets:
Tangible Assets 2,899,638 1,653,144
2,899,638 1,653,144
Current Assets:
Stock 2,897,045 1,830,504
Debtors 2,861,914 2,956,137
5,758,959 4,786,641
Creditors – Amounts falling due within 1 Year:
Bank Overdraft (1,290,000) (159,256)
Trade Creditors (1,146,388) (2,012,877)
Other (696,453) (129,676)
(3,132,841) (2,301,809)
Net Current Assets 2,626,118 2,484,832
Creditors – Amounts falling due after 1 Year:
Bank Loan (1,340,000) (260,000)
NET ASSETS 4,185,756 3,877,976
Capital and Reserves:
Share Capital 350,000 350,000
Profit & Loss Account 3,835,756 3,527,976
SHAREHOLDERS FUNDS 4,185,756 3,877,976
Notes:
(1) Issued Share Capital consists of 350,000 €1 ordinary shares.
(2) Closing stock as at 31 December 2016 was €1,806,574
(3) There were no Creditors > 1 Year as at 31 December 2016
Cardigan Ltd.
Balance Sheet as at 31 December 2018
AD 6803 MSC in Human Resource Management
Finance – Case Study
APPENDIX B
Budget
2018
€
Sales 13,750,000
Cost Of Sales (10,381,250)
Gross Profit 3,368,750
Less Expenses:
Wages & Salaries (1,450,000)
Rates (40,175)
Rent (100,000)
Motor Costs (350,000)
Insurance (70,000)
Heat & Light (35,000)
Telephone (45,000)
Advertising (35,000)
Repairs & Maintenance (85,000)
Other Professional Fees (215,000)
Travel Overseas (50,000)
Legal Fees (17,500)
Stationery (38,000)
Postage (3,000)
Subscriptions (25,000)
Bad Debt Provision (8,000)
Depreciation (108,809)
Miscellaneous (2,477)
Total Expenses (2,677,960)
Operating Profit 690,790
Bank Interest (175,000)
Profit before Taxation 515,790
Taxation (64,474)
Profit after Taxation 451,316
Dividend (60,000)
Retained Profit 391,316
Budget Profit & Loss Account for Cardigan Ltd. for
the year ended 31 December 2018
AD 6803 MSC in Human Resource Management
Finance – Case Study
APPENDIX C
Embroidery Machine Information:
Machine Cost: €150,000
Annual Sales €350,000
Additional Margin 5% (in addition to Gross Margin
Additional Costs:
1 additional employee costing €30,000 annually.
Overhead Costs €10,000 per annum.
The machine will be depreciated over 7 years.
Other assumptions:
No Inflation
No other costs
