Decision and Accounting Making on Waldron’s Divisions
Please prepare a report for Waldron’s Board which addresses relevant financial information, issues and potential solutions ahead of the decisions the Board must make.
You may structure your report as a list of answers to the following questions, using appropriate accounting and financial techniques to support your conclusions and recommendations.
1. Critically evaluate the trends in Waldron’s sales, costs, overheads and profitability during 2013 relative to 2012, using your analysis to discuss any issues you believe Waldron’s Board should address in the light of the company’s present circumstances and the outlook for 2014. Your discussion should incorporate a commentary on the financial performance of each division, as well as for the company as a whole.
2. With reference to the Statement of Cash Flows and Operating Cash Cycles for Waldron, examine why Waldron experienced cash flow issues in 2013 and provide a minimum of FOUR recommendations which the Board might implement to improve cash generation in the business.
3. Review Stellex Engineering’s performance compared to budget in the first two months of 2014, referring to the comparative 2012-2013 budget and actual results (Appendix 2) as well as the Commercial Director’s report (Appendix 4) and other information in the case study. Your answer should analyse the key variances and vulnerabilities in Stellex’s profit forecasts for 2014 and identify the key issues which appear to be potential sources of slippage against budget.
4. Describe the limitations of Stellex’s current approach to calculating tender bid prices, and discuss an alternative costing approach (or approaches) which might be more appropriate for this division in its present circumstances. You should support your answer with financial examples drawn from Appendix 4 and other case study information.
5. Discuss the results of the investment appraisal (discounted cash flow and payback) for the Durafit joint venture with Industrias Tenas. Your answer should include a recommendation to the Board as to whether the proposed investment should proceed, based on a comprehensive analysis of the financial outcome of the investment appraisal as well as non-financial factors that should be taken into consideration by the Board in relation to this potential investment.
6. Critically discuss the advantages and disadvantages of Waldron raising £2.3bn debt or £1.8bn equity and £500m debt to resolve its current funding issues. Your answer should include an explanation of the differences between debt and equity funding as well as an interpretation of Waldron’s liquidity, capital structure and financial risk under each funding scenario.
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