Importance of Managerial Finance for RBG Plc and GSK Plc

Learning Outcome

• Identify and explain finance and accounting statutory frameworks.
• Critically analyse key accounting and finance methods approaches and technique.
• Interpret and analyse financial statements.
• With the help of process and evaluation, examine and recommend mode of finance to an organisation.
• Provide financial numeracy.
• Produce problem solving skills.

Assessment 2 Details

Task

It comprises of two portfolios – Portfolio 1 consists of 70 marks and Portfolio 2 consists of 30 marks.

Portfolio 1

You are appointed as a finance manager in RBG Plc and GSK Plc. The chief financial officer of the company has planned to invest in shares in either of these two companies and he need you help in deciding:

GlaxoSmithKline plc is a well-established British multinational pharmaceutical company located in Brentford, London founded in 2000 by a merger of Glaxo Wellcome and SmithKline Beecham, GSK was the world's sixth largest pharmaceutical company till 2015. GSK manufactures products for preventing disease areas such as cancer, infections, diabetes and mental health, asthma. Its biggest-selling products in 2013 were Advair, Avodart, Flovent, Augmentin, Lovaza, and Lamictal. Other top-selling products include its asthma/COPD inhalers Advair, Ventolin, and Flovent; its diphtheria/tetanus/pertussis vaccine Infanrix and its hepatitis B vaccine; the epilepsy drug Lamictal, and the antibacterial Augmentin.

• Reckitt Benckiser Group plc is a British multinational trading company located in Slough, England. It manufactures products related to of health, hygiene and home products. It founded in the year 1999 by the merger of the UK-based Reckitt & Colman plc and the Netherlands-based Benckiser NV. RB's brands include the antiseptic brand Dettol, the sore throat medicine Strepsils, the immune support supplement Airborne, the indigestion remedy Gaviscon and the baby food brand Mead Johnson.

Required:

Produce a report for potential investors which identifies the financial information for both companies and suggest which company would be a more feasible option to invest in. The report must include:

 a) Calculation of 10 financial ratios as given below for two years (2017 - 2018):

• Current ratios
• Quick ratios
• Net Profit Margin
• Gross Profit margin
• Gearing ratios
• P/E ratio
• Earnings per share
• Return on capital employed
• Average inventories turnover period
• Dividend pay-out rate

      b) Examine the performance, financial position and investment potential of both companies. Prepare charts to compare the performance of two companies. Provide audited financial statements and conduct further research to analyse the performance of each company for two years.

1. Develop recommendations of how the financial performance of the poorly performing business can be upgrade.

d) Discuss the limitations of relying on financial ratios to analyse company’s growth.

Portfolio 2

Capital Investment Appraisal

The following information relates to Harris private limited. The company has an opportunity to invest in one of two potential & mutually exclusive (but not both) projects. Each project will involve the purchase of a new machine. The following data relates to the two projects:

Additional Information: 

• Theinitialcash investment for both machines will be £11,0000. The purchase would take place on January 1, 2019. It is assumed that all other cash flows would be received on 31 December each 

• Both Machines would have a life of six years. Machine 1 has no residual value andMachine 2has a residual value of £8,000.

• Thecompanyuses a straight-line method of 

• Thecostof capital is 16%.

Required: 

1. Use investment appraisaltechniques,suggest senior management on whether they should opt for project A or project 
2. Explain thelimitationsof using investment appraisal methods  to help in long term decision