Financial Decision Making: Case Study – ABC Consulting LLP

2. Assessment Brief 2.1. Case Study – ABC Consulting LLP Your role You have just completed your MSc Management and are partway through the recruitment phase to join ABC Consultancy as a trainee management consultant. As part of your assessment you have been asked by HR to produce a 3,500 word business report on ABC Consulting LLP that will go forward to the recruitment panel of partners. 2.2. Task Prepare a 3,500 word business report for your manager providing analysis and business advice on the following: Format: business report with headings, sub-headings and paragraphs 1 mark Executive summary – key highlights/findings drawn from each task within the report 4 marks Note no introduction is required. No marks will be awarded for an introduction. Part 1: Business Performance Analysis You will need to calculate and use appropriate ratios in your analysis for the sections required below: Heading: Statement of Profit or Loss Analyse and comment on the financial performance of ABC Consulting LLP (exhibit 1). Your analysis should critically evaluate the lines of the Statement of Profit or Loss. Use the additional information (exhibit 1) to support your evaluation. You do not need to include a review of the segmental analysis in this section. 20 marks Heading: Statement of Financial Position Analyse and comment on the financial position of ABC Consulting LLP (exhibit 1). Your analysis should critically evaluate the lines of the Statement of Financial Position. Use the additional financial information (exhibit 1) to support your evaluation. 20 marks Heading: Statement of Cash Flows Consider this quotation from the Members’ Report Extracts in Exhibit 1: “Members of the partnership receive a distribution out of the profits of the LLP…. The average payment for 2017/18 shows a drop of 17.5%. This drop has been necessary in light of our small drop in profits and cash.” Use the Statement of Cash Flows (exhibit 1) to identify why ABC Consulting LLP has experienced a drop in cash. Calculate and explain ABC Consulting LLP’s Operating Cash Cycle (OCC) for the year ended June 2017 and June 2018. ACB Consulting LLP makes payments to its partners, evaluate the 2017/18 payment and explain whether you think the partnership was right to make this level of payment or not. 10 marks 

 Heading: Segmental Analysis Use exhibit 2 to compare and contrast the financial performance of the different segments of the business for the two years given. Based on your findings, to assist the board with their decisionmaking, recommend with financial rationales the pricing and operating costs strategy for the different segments. 10 marks Part 2: Investment Appraisal Critically evaluate the investment appraisal information (exhibit 3) supplied by the Financial Director. Challenge the management forecast in the first part of your answer. Then, in the context of ABC Consulting LLP, critically evaluate the following investment appraisal techniques and their results considering the benefits and limitations of each technique. Use the following sub-headings to structure your answer: Management Forecast Investment Appraisal Techniques – Payback period – Accounting Rate Of Return – Net Present Value 20 marks Heading: Sources Of Finance ABC Consulting LLP is considering a further investment, to fund an expansion into Eastern European markets of £500m from 2019. Advise the Partners as to which two alternative sources of finance for this further investment they should choose. To justify your decision, you need to give the benefits and drawbacks of the two options, and include an assessment of their appropriateness in this case. 10 marks Heading: Non-Financial Factors Advise the partners on other non-financial factors that they should consider regarding an expansion into Eastern European markets. Your answer should be specific to ABC Consulting LLP. 5 marks Total 100 marks The word limit is 3,500 words excluding numerical tables, bibliography and appendices as per instructions. Words in tables are included in the word count and will be counted. The executive summary is included in the word count and should be approximately 175 words. To assist you with this task you have been supplied with the following information: Exhibit 1: Extracts from ABC Consulting LLP’s Financial Statements for 2017/18, including the Statement of Profit or Loss, Statement of Financial Position and Statement of Cash Flows. Exhibit 2: Segmental analysis Exhibit 3: Investment appraisal – US Markets 

CASE STUDY – ABC CONSULTING LLP ABC Consulting LLP is a successful professional services company headquartered in London, UK where it was established during the 1980s. It purchased an Australian competitor in 2006 and is a well-known provider of consultancy support to assist in transforming businesses from a wide range of industries. Its status as a limited liability partnership (LLP) since 2001 means its partners (or members) have limited liabilities, i.e. each partner is not liable for another partner’s misconduct of negligence. The present Chair and Senior Partner is Asha Kewenna who has been with ABC Consulting LLP since 1995. The partnership prepares its accounts to the end of June. Members’ Report (Extracts) from ABC Consulting LLP Our revenue is derived from the various services we offer, combining strategy, technology and management consulting expertise to help our client organisations to achieve superior results. The Western market is mature now, driving our 2019 objective to expand into Eastern Europe. Based on the local competition we have been able to increase prices in Australia, but have had to maintain prices in the UK. As a service industry, we do not have costs of inventory to track; our revenue net of expenses and disbursements on client assignments is one of our key performance indicators (KPIs), as is our gross profit is calculated using net revenue and taking staff costs as a proxy for cost of sales. Despite the setback in our US expansion (see below) and a tightening labour market we have experienced decent results in these two KPIs. Members’ payments Members of the partnership receive a distribution out of the profits of the LLP. The final allocation and distribution of profit to individual members is made by the Executive Board, once their individual performance has been approved. Each member’s payment is determined by assessing achievements against a balance scorecard of objectives, to ensure delivery of quality services. The average payment for 2017/18 shows a drop of 17.5%. This drop has been necessary in light of our small drop in profits and cash. ABC Consulting’s expansion ABC Consulting LLP is in the middle of an expansion strategy: • Phase one – which commenced at the end of 2016 is an investment in the US, amounting to £800m in total, including costs of purchase. ABC LLP has purchased the property, plant and equipment of an American consultancy. These assets are included in our non-current assets. Initial results have not lived up to expectations in part due to a delay in acquiring all the targeted offices, which despite being forecast for completion at April 2017, has seen just over 50% of the costs set back into our 2017/18 financial year. • Phase two – in 2019 ABC Consulting LLP is seeking to expand further this time into Eastern Europe. We have identified a target consultancy we wish to acquire with good geographical coverage in this growth area. We need to secure finance of a further £500m.

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