Module learning outcomes assessed by this task:
1. Examine how organisations compile financial records and compute financial statements; and analyse the legislation, accounting concepts and principles that underpin financial statements.
2. Evaluate and interpret the contents of financial reports with the use of recognised tools to assess a company’s performance and financial position.
3. Examine and discuss the principles of costing, overheads, break-even analysis, and pricing theories; and analyse how organisations prepare and use budgets.
4. Critically apply and appraise the uses and management of finance and accounting concepts and techniques to an organisation.
Purpose
The coursework is intended to provide you with the opportunity to demonstrate understanding and integration of the various aspects of the programme and this module. The aim should be to obtain, analyse and interpret financial information; assess the financial viability of a project and integrate them into a balanced decision-making framework.
Project Brief:
MF4BE, a leading local housing developer of the Southwest is considering a new housing development to be built under a quasi-social housing agreement with a national house-building firm. Several sites were identified in the initial feasibility studies, however, many of these required substantial demolitions of existing dwelling houses and relocation during construction and have thus been rejected.
The proposed development will take place on a site in a new neighbourhood called East of Harry Stoke (EoHS) near Stoke Gifford situated on the urban edge of north Bristol near the University of the West of England and close to the M32 and M4 motorways. This site is mostly owned by Crest Nicholson and South Gloucestershire Council who intend to deliver about 2000 houses, while some parts are owned by other private landowners. This site is in high demand owing to its accessibility. MF4BE has purchased 3.75 hectares of the EoHS land from private landowners for £3.85 million per hectare to enable it to carry out this development. MF4BE plans to develop the site to provide a mix of housing (including family housing, flats and sheltered accommodation), together with commercial uses in future and provide some open spaces. In keeping with this, the average dwelling per hectare (density) for this development should NOT exceed 32.
To achieve this undertaking, MF4BE is considering engaging a reputable construction company or housebuilder from a list of firms that have expressed interest.
You are required to provide a report that will contain the following:
Part 1: 57 Marks
An assessment of the suitability of the chosen construction or housebuilder firm as a construction company or housebuilder for this project (1800 words).
To deliver this, you are required to obtain the most recently published “FULL ANNUAL REPORT” for an existing construction company or housebuilder of your choice. The annual report must be for a UK PLC that is listed/quoted on the UK Stock Exchange and must be in the English language.
You are required to assess the suitability of the chosen construction company or housebuilder, as a building contractor by preparing a report on the financial “health” of this company, including a short introduction and background on the chosen company. This should be done by making use of financial ratios as revealed or implied by the most recent FULL annual report and its financial statements. You must provide figures and calculations for all the financial ratios (excluding the investment ratios) presented in the first half of this module.Your report should be clear and succinct as if prepared for your boss (with no accounting knowledge) who is a very busy person with limited time to read it before an important meeting. All relevant information in the annual report should be used as necessary.
The detailed calculations of all ratios, (from the basic equation to the final figure calculated) must be shown in FULL and must be attached separately as part of the Appendices either in Microsoft Word or Microsoft Excel.
You must analyse the ratios and comment on:
• The change in the ratios over the time period, using a minimum of two consecutive years of financial accounts.
• The trends shown by the data.
• Through reviewing the annual reports, any reasons that you can see for the movements in the figures, or areas of activity that are driving the changes.
• When analysing the financial ratios, you must compare the ratios with an industry comparator and analyse the differences identified.
Your conclusion to Part 1 must contain a recommendation as to whether the company analysed is suitable to help undertake the project. It should also draw on the rest of your report in order to reflect the key reasons for your recommendation.
(Note: Please restrict yourself to just the ratios covered in class, you need not calculate the investment ratios).
A complete copy of the FULL ANNUAL REPORT must be attached as a separate file in the submission. DO NOT use the interim (half-year) annual report.
The full annual report can be obtained online from the respective company’s website or by carrying out a search using your preferred internet “search engine". Use the FAME database (accessible through the UWE Library) to check this and only use companies that are “Active and Publicly quoted”. Note that FAME should only be used to compare the ratios, but all the ratios should be calculated manually.
You must use the most recent annual report available to you. A UK PLC must file its financial statements within 6 months of its year-end or face substantial penalties so this will help you ensure you have the most recent accounts.
Note: If the most recent annual report is not used, your mark will be penalised.
Part 2: 38 Marks
Development decision-making (1200 words)
You are required to propose two (2) housing schemes on the site for MF4BE to pick from. Decide on the total number of residential dwellings proposed for this site and the housing mix and types (e.g., 1 bedroom, 2 bedrooms etc). Note: a minimum of three house types is required for both proposed schemes.
To enable MF4BE in decision-making you must carry out the following tasks:-
a. Undertake breakeven analyses (charts included) based on only the development of houses on both proposed schemes. Based on the break even analyses, advise MF4BE on which of the twos chemes is the best.
Market information can be gleaned from a variety of databases e.g., "Rightmove" that will provide reasonable comparables. Cost information can be obtained from sources such as the Building Cost Information Service (BCIS) or Spon’s. (18 marks)
b. With the use of the information from (a) above, advise MF4BE on the viability of the two proposed schemes by carrying out capital budgeting using the Return of Capital Employed (ROCE), Payback Period (PP), Net Present Value (NPV) and Internal Rate of Return (IRR). Discuss which of these appraisal methods IS the most suitable for this task and advise which of the two proposed schemes is the best.
Make appropriate assumptions regarding the timing of the construction and sale of the units. (22 marks)
Overall Presentation (5 marks)
