FORECASTING SCENARIO – ASSESSMENT, TEAM HARICOT

FORECASTING SCENARIO – ASSESSMENT, TEAM HARICOT (Group 2)

Name of Company:	Haricot Limited
Background:	Haricot Ltd is an SME, selling luxury household products ‘business to business’. The market is mature and competitive. The product components are sourced from a series of low-cost local suppliers. Through a series of added value processes, packaging and marketing the business sells and delivers to a wide range of loyal customers across the UK.   The business has been around for many years and is well established in the sector. That said, it has not been a star performer. It is barely profitable and is run mainly by an aged owner. They were the founder and are reluctant to sell any shares outside their immediate family. There have been approaches in the past as it is recognised that with investment the business could be very successful. Apart from holding onto the equity the owner is resistant to change and is happy to ‘muddle’ along. The main motivation of the owner would appear to be the receipt of a £100k dividend per year.   The business has reasonable relationships with all its various stakeholders mainly due to longevity and loyalty. However, it operates very near its overdraft limit with the bank.   The company operates from an asset base of their own premises which are quite old and need of an upgrade. It is equipped with semi-modern plant and equipment which gets the job done!   Inventory levels are planned at a level of about 60 days’ worth of sales to be held at all times. By and large Haricot Ltd has managed to achieve this.   Sales are made on credit with standard terms of payment at end of month following month of sale. In reality, the recent trend is a consistent 60-65 days.   Trade payables days are around 40-50 days which is the outer limit of what key suppliers will tolerate.   The business is VAT registered   The business is financed by a combination of equity and long- term debt. The equity is held by the aged owner and their family. The long- term debt is with a clearing bank and is repayable at £0.2M per year. This debt has a floating interest cost.   Haricot Ltd pays dividends annually at around £0.1M per year from its retained earnings. This is the main motivation of the equity owner as mentioned above.
General Economic Conditions	The economic environment is stable, with no turbulence forecast for the next 2 years. General interest rates are low with a marginal increase in the pipeline. Inflation is running at about 2% per annum with a similar outlook for the forecasting period.

 

 

Information relating to the most recent financial year:

 

Notes to SPoL:

Expenses - Sales and Distribution
People Costs	800
Marketing	150
Distribution & Packaging	450
Depreciation	215
Total	1,615
Expenses - Administration
People Costs	300
Depreciation	215
Other	250
Total	765

 

  Tax                                                                                          20%

 

 

 

 

Information relating to the most recent financial year:

 

 

 

 

 

 

 

 

 

Notes to SoFP:

Property
Cost	5,000
Accumulated Depn	4,250
Plant and Equipment
Cost		1,800
Accumulated Depn	1,428
Investments	25
Trade and Other Receivables
Trade Receivables Days	60
Trade Receivables (inc VAT)	1,973
Prepayments	100
Other	20
Trade and Other Receivables	2,093
Trade and Other Payables
Trade Payables Days	45
Trade Payables (inc VAT)	1,110
Accruals	150
VAT Control	80
Other	50
Trade and Other Payables	1,390

 

 

 

 

 

 

 

 

 

 

S4A Forecasting –Assumptions

Requirements:

PART A

In your allocated Groups, create forecasts in Excel for the next TWO accounting years (X1 and X2) using the data provided, for your designated company and scenario.

The forecasts should include the following;

·                Statement of Profit or Loss (IAS1 compliant)

·                Statement of Financial Position (IAS1 compliant)

·                Statement of Cash Flows (IAS7 compliant)

·                Appropriately detailed notes and schedules

·                Appropriate ratios to facilitate analysis and interpretation of the financial statements

(Weighting: 50% of the marks for this part of the Skills module)

PART B

(To be done once you have prepared your forecasts.)

Assume you are a group of ambitious and able part qualified accountants. You have been tasked to record a 15 minute video group presentation which presents the forecasted statements, together with analysis and interpretation thereof. Your audience are some busy financial line managers who need to be assured that the forecasts are accurate based on the assumptions that have been supplied to you. The managers have good generic accounting knowledge but have little knowledge of the Companys activities themselves.

As these are forecasts the assumptions may can be inaccurate or plain wrong! The managers also wish you to ascertain the risk in the outcomes you have modelled. As part of your video presentation you should include a piece which ascertains the risk inherent in your forecasts.

(Weighting: 50% of the marks for this part of the Skills module)

 

                                                                                                (Continued)

 

Notes:

·               How you present and the exact format is left to the Group decide.

·               All members of the group should participate in the video in equal proportions.

·               It is not obligatory to use Powerpoint. You decide which software or mix of software you use

·               We recommend using recording equipment which can be hired from the Library. You can make use of any IT equipment which helps to get the message across.