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that the work contained in this assignment is my own, unless otherwise acknowledged. No substantial part of the work submitted here has also been submitted by me in other assessments for my degree course, and I acknowledge that if this has been done an appropriate reduction in the mark I might otherwise have received will be made. Signed: CHIDINMA I NWANDU......................................................................
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MODULE TITLE: Financial Analysis and Cost Control MODULE CODE: FACS01 MODULE DATE:

NAME/NUMBER: .............1164976.......................................

TABLE OF CONTENTS FINANCIAL ANALYSIS OF Greggs PLC...........................................................................4 1.0 INTRODUCTION.......................................................................................................... ......................4 1.1 COMPANY FINANCIAL ANNUAL REPORT ..................................................................................4 1.2 THE COMPANY: Greggs PLC .............................................................................4 2.O REVIEW OF GREGGS PLC FINANCIAL PERFORMANCE .........................................5 2.1 INCOME STATEMENT................................................................................................................. 5 2.1.1 DEFINITION OF INCOME STATEMENT...........................................................................5 2.1.2 ANALYSIS OF SOCO INTERNATIONAL PLCs INCOME STATEMENT..5 2.2 BALANCE SHEET STATEMENT ..6 2.2.1 DEFINITION OF BALANCE SHEET STATEMENT..6 2.2.2 ANALYSIS OF GREGGS PLCs BALANCE SHEET STATEMENT..6 2.3 CASH FLOW STATEMENT .7 2.3.1 DEFINITION OF CASH FLOW STATEMENT.7 2.3.2 ANALYSIS OF GREGG PLCs CASH FLOW STATEMENT.7 3.0 PERFORMANCE ANALYSIS 8 3.1 INTRODUCTION ..8 3.1.1 FINANCIAL RATIOS ..8 3.1.2 PROFITABILITY RATIO.............. ...8 3.2 DEFINITION ..9 3.2.1 OPERATING MARGIN 9 3.2.2 RETURN ON CAPITAL EMPLOYED(ROCE): ..9 NET PROFIT MARGIN I NTERPRETATION OF RATIOS.. .10 3.3.1 EFFICIENCY .10 3.3.2 AVERAGE INVENTORY TURNOVER: 10



1.0INTRODUCTION: Chen K.H et al(1981) are of the opinion that Financial ratios play a very important role and analysing a companys true financial position. Although a very old paper its claim still stands in the present day. Atrill et al (2008) states that Financial ratios examine various aspects of financial position and performance and help with planning. This paper will look at Greggs Plcs Annual Report, I will attempt to analyse the companys true financial position by examining its balance sheet, income statement as well as cash flow statement. The financial ratios of the company will also be calculated and compared to previous performances from the company as well and any available similar businesses.

1.2 THE COMPANY: GREGGS PLC Greggs PLC has gone from a single baker to arguably the biggest and fastest growing fast food chain within the United Kingdom, with over 1,500 stores. Greggs currently employs approximately 19,000 people and has been voted as one of the best places to work in 2009 and 2010. Part of Greggs winning strategy has been in my opinion pricing, picking the right locations as well as its marketing strategy. Its advertising slogan is the home of fresh baking they are able to achieve this by having regional bakeries that cater to their over 1500 stores. Greggs prices have also aided in their growth, for example a sandwich, drink and packet of crisps for 2.99. Which makes this accessible and affordable to an average person. Greggs can be found in a diverse variety of locations; such as High streets, schools, hospitals, universities, and airports. Greggs is still expanding rapidly and with plans to open 600 more stores in a few years. and Account 2010) (Culled from the Greggs PLC Annual Report

2.0 Review of Greggs PLC Financial Performance: A review of Greggs PLC annual report will be carried out comparing Financial year 2010 to 2009. This will help us to come to the conclusion on the strength or weakness of the company as well as its true financial position moving forward. 2.1 INCOME STATEMENT:

2.1.1 DEFINITION OF INCOME STATEMENT: According to Atrill et al (2008) An income statement summarises the performance of a company over a certain period of time . It highlights and measures the profitability or loss the company has generated. The income statement examines the Revenue, Gross Profit, Operating Profit, Taxation and Profit after tax in other to determine how healthy the company is. 2.1.2 ANALYSIS OF GREGGS PLC INCOME STATEMENT The following interpretation is the interpretation of the company of the financial years 2009 and 2010:

1. Revenue: Sales Revenue has risen to 662 million in FY10 from 658 in FY09.
The growth can be attributed to addition of new stores as well as new products. However, this is a 2.1% increase, which is relatively low incomparison to the number of new stores that have been opened, this can be attributed to the slow economic growth. Gross Profit: Gross profit gone up, from 405,902 million in FY09 to 409,675 million in FY10. This is a 1% increase, which is hardly notable. Operating Profit: Greggs operating profits has gone up to approximately 52.4million in FY10 from 48,433 in FY09. This is an 8.1% increase 2009. Although there has been an increase in distribution and selling costs as well as Administrative expenses, it has not gone up considerably because according the Annual Report they have managed to streamline their operations and costs. Profits before tax: Pre tax went up by 7.1% up from 48.4million to 52.2million. The annual reports points out that no exceptional items during the year. Taxation: Tax went from 14.4 million in FY09 to 14.6 million. In FY10. Although it seems to have increased in figures in terms of percentage it has gone down as the Tax rate has gone down from 29.5 per cent to 27 per cent. This is due to Governments reduction in corporation tax rate. Profit after tax: Profit after tax stands at approximately 38 million in FY09 up from 34.3 million in FY10. Which is a 10% increase. It could be higher, however the tax adjustment in FY10 is almost triple the amount it was 2009, which is a significant increase. This should be looked into. 2.2 Balance Sheet: 2.2.1 Definition of Balance Sheet Statement: A balance sheet is a financial statement that summarises the financial position of a business over a period of time. This can be achieved by looking at the companys assets, liabilities and shareholders' equity (Atrill et al 2008).

2. 3.

4. 5.


Non-Current Assets: This is also referred to as Fixed Assets. They are assets that last for a long time usually over a year. They include property and investment. Greggs Group published Fixed Asset figures for FY10 at 226,583 million, up from 211,734 million in FY09. This is a 7% increase, and can be attributed predominantly to acquisition of new stores and equipments for the new shops and regional bakeries as mentioned in the Annual report. Intangible costs have dropped in FY10, and it is important to find out why this has occurred. It may be connected with falling short of their 2010 targets, such as providing information on the nutritional value for the foods they sell. Also not being able to significantly improve their Green credentials.

Current Assets: These assets are held for a short while usually within a business year cycle. There is a decrease in FY10 which was 57,982 from 67,711 in FY09, This is a 14% reduction. This can be attributed mainly to the reduction in cash and cash equivalents, which is down to the expansion of the company. FY10 has seen an increase in current assets up to 284 million from 279 million. This is despite a significant drop in Cash and cash equivalent. Inventories remain the same as 2009, however there was a 3 million increase in other investments (current investment) which has been identified as a fixed rate bond, whilst there was none in 2009. Total Assets: This is the total of non- current asset and current assets. This has seen a 1.8% increase. Which has gone up from 279,445 million in FY09 to 284,565 million in FY10. A 1.8% increase. As stated above, this is because of an increase in property, plant and equipment due to the expansion. Non-Current Liabilities: These are long term payables, that will be paid over more than one business cycle. Non-Current liabilities in FY10 is -30,792 a 8.7% decrease from -33,756 This has gone down to 30 million in 2010 from 33 million in 2009. This is a decrease for the second year running. And is a good sign that the company is able to pay its debts. Current Liabilities: These are short-term debts payable within the year. Greggs group posted a -77,546 in FY10, which is down 4.7% from -81,452 million in FY09. This is good and shows that they have their debts under control and are paying their suppliers on time. Provisions has also increased significantly from FY09, this might have to do with the shops being refitted and providing for any shops closed for possible relocation. The annual report says extra has been provided because under the current economic climate, it is more difficult to sublet the properties. Total Liabilities: Total liabilities for FY10 is -108,338 million, which is a 5.9% reduction from FY09 at -115,208. Although not considerable it still shows improvement. Total Equity: This refers to the sum of the ordinary shares and reserves of a company. (Holmes al 2005) Total equity for the Greggs group increased by 7.3% FY10 was 176,226 million., whilst FY09 was 164,237 million. This is a slight improvement and can be attributed t



2.3.1. DEFINITION OF CASH FLOW STATEMENT The cash statement is an analysis of the business cash movements for the period. It is a summary of the cash receipts and payments over the period concerned. (Atrill, et. al, 2008) 2.3.2 ANALYSIS OF GREGGS PLCS CASH FLOW STATEMENT:

Amortisation: There has been an increase in FY10 from FY09, this is due to intangible assets as mentioned in the non current assets. This can be credited to the increase in goodwill, for example their association and partnership with several charities that focus on children. i.e the breakfast club that feeds a couple of thousand children for breakfast as well as raising almost a million pounds for children in need. The annual report points out that Greggs Plc has also placed a lot more emphasis on efficiency for the production of the foods in their stores and bakeries to ensure that

customers are satisfied. All these things can lead to the increase in intangible assets, which can explain the increase in amortization.

Receivables/Debtors: There is a reduction in the amount of money they got from their debtors in FY10 than in FY09, There is no mention of this in the Annual Statement, so it is difficult to know why there has been a reduction. It raises more questions than answers such as ; Did they extend their credit limit? Have they become inefficient in managing their bad debts? Perhaps they need to reassess their receivables policies or offer early payment discounts to encourage their debtors to back sooner in order to increase their cash flow, Though a 35 % decrease in receivables from FY09 to FY10 might not be a lot, it has had a negative impact on their cash flow and this should not be the case Payables / creditors: Money out because creditors were paid, this has a twofold effect, bad because cash going out which reduces the cash balance for FY10 but positive because creditors do not like to be owed money, reducing payment time can affect the relationship that Greggs has built with their suppliers, if suppliers feel like Gregg do not respect them by paying on time. The Annual Report does Greggs Plc does point out that a lot of focus is paid to the relationship with the supplier. Sale of own shares: Greggs Plc made 734 in FY10, they sold shares and this raised cash, but it diluted their shareholdings, there is however no indication to why the shares were sold. There is no mention of needing extra funds. It would be interesting to know why the shares were sold? The Greggs plc annual report mentions that they have an overdraft facility as well as short term investments so this should not be an issue. Dividend payout: Cash outflow due to increase in dividend payout as compared to last year. Again this has a twofold effect, bad because cash out reduces cash balance at the end of the year. However, the dividend per share increase from 16.6 in FY09 to 18.2 in FY10 This is good for the shareholders because the reason for investing in the firm is to maximize their wealth and get return on capital employed. Also an increase in Dividend Payout acts as a signaling effect for the market as a whole. Shows potential investors and stakeholders at large that Gregg is doing well enough to pay out dividend.

Finally, there is less cash flow in FY10 than in FY09. This is not the good news for Greggs Plc because it makes them look like they have a cash flow problem. However, it is not necessarily a bad thing, because it is down to payment of dividends and paying creditors. They must however look at their receivables policy to ensure that they are not over trading or expanding too rapidly, which may affect their cash balance.

3.0 PERFORMANCE ANALYSIS This assesses the financial position of a business to understand the true financial position of a business. Ratios are usually figures gotten from the financial statement and compared to each other in order to compare the financial health of different businesses. (Leweller, 2002)This is especially important for shareholders as well as investors, although it only gives figures and still needs to be interpreted; it is essential to highlight the strengths and weaknesses of a business. (Atrill et al 2008). In other to have an effective comparison, it needs to be compared to at least one of the following; Past Periods

Planned Performance Similar Business There are different types of Ratios; in other to calculate and analyse Gregg plcs financial ration, we will look at the five categories; Profitability Efficiency Liquidity Financial Gearing Investment 3.1 PROFITABILITY RATIOS 3.1.1 DEFINATION Profitability Ratio measures a firms ability to generate profit which is usually the main reason why companies are set up; To generate wealth for the owners. Greggs Plcs profitability can be analysed by using the following profitability ratios; 3.1.2 GROSS PROFIT MARGIN: Gross Profit Margin: This is the difference between the revenue and cost of sales. And measures the profitability before all other expenses are taken into account. (Artrill, et. al, 2008)

i. Gross Profit Margin= Gross Profit * 100

Sales FY10 : 409,675 *100 662326 FY09: 405,902 * 100 658186 =61.85% =61.67%

The gross profit margin has been relatively stable. There has however been a very slight increase in this ratio. There has been approximately 400,000 increase in cost of sales in FY10, but also an increase in Revenue. This may be attributed to the store renovations and new openings, as well as the recent installations of coffee machines in over 1500 stores may well have contributed to this increase. Operating Margin: This relates the operating profit for the period to the sales revenue during that period.

ii. Operating margin = PBIT * 100

Sales FY10: 52,365 * 100 = 7.91% 662,326 FY09: 48.433 * 100 = 7.36% 658,186 There is a slight increase in the operating margin from 2009, however it does show that they have a healthy operating margin. The annual report lists some of the reasons for this as ; Better buying Benefits from reorganising the product range and business. A reduction in shop waste.

3.2. RETURN ON CAPITAL EMPLOYED: Return on Capital Employed (ROCE): The relationship between the operating profit and the long term funds (Atrill, et. al, 2008).

1. ROCE =

Operating Profit * 100 Share capital + reserves + Non- current liabilities

FY10: 52,365 * 100 = 25.29% 207019 FY09: 48433 * 100 = 24.46% 197993 This ratio shows a good return, it shows they utilised their long-term capital, but not by much as the increase from FY09 to FY10 is less than 1%. 3.2.1 NET PROFIT MARGIN Net Profit Margin: Looks at how much of a companies revenue is actually kept as net income. So owners are able to look at how much it makes from every pound it generates from its sales revenue. Net profit margin: Net Profit * 100 Sales Revenue FY10: 37934 =5.73% 662326 FY09: 34374 = 5.22% 658186 Profit has increased slightly however at 5% it is low. However it is not unusual in the retail industry, which works at low net margins. They mainly rely on high turnovers for profit. It is important that it is overlooked but rather monitored, and to look for potential ways to increase it. 3.2.2 INTERPRETATION: Gross Profit Margin: Operation Margin: ROCE: Net Profit: FY10 61.85% 7.91% 25.29% 5.73% FY09 61.67% 7.36% 23.46% 5.22%

A quick overview of all the profitability ratios shows that Greggs Plc. Is a profitability business, however, there has been very little growth within the last two financial years. In my opinion this is down to the expansion of the company, as well as the general slow economic growth in the country as of the time this annual report was filed. It is however impressive that despite all of this, they are still able to make a healthy profit 3.2.3 Efficiency This looks at the different ways some resources are managed in the company. For Greggs Plc at the following will be analysed; Average inventories turnover period Sales Revenue per employee Average Receivables Settlement Period: Average Payables Settlement Period


3.3.2 Average Inventories turnover Period: This measures average number of days or months inventories are being held before being sold. Gregg plcs Closing Inventory has been used on this calculation. Average Inventory Turnover Ratio = Average inventories held * 365 Cost of Sales 2010: 11883 * 365= 25261 2009: 11886 * 365= 252284 17.17 days 21 days

This ratios show that there has been a reduction on the number of days it takes Greggs Plc to turnover its inventories, which includes the material such as flour etc. This is a significant achievement, and shows improvement on efficiency. This may be attributed to the new regional bakeries, which means that products are made closer and dispatched faster, which means there is more products for sale. Also the opening of the new stores may be another reason for this reduction. 3.3.3 Sales Revenue per Employee: This is a labour efficiency measure, that measures the average revenue each employees generates for Greggs Plc. (Atrill, et. al 2008) Sales Revenue per employee = FY10: 662,326 = 34.85 19000 FY09: 658,186 = 39. 89 16500 Sales Revenue per employee has dropped significantly by approximately 5 pounds. In their annual report, Greggs This might be due to the rapid expansion within the year, with new recruitments and new stores. It might also be attributed to the newly introduced self serving machines which reduces staff roles and numbers. 3.3.4 Average Receivables Settlement period: The time it takes for their debtors to pay money owed to Greegs plc. Average Receivables Settlement Period= Trade receivable * 365 Sales 2010: 1690 * 365 = 0.95 days 662326 2009: 709 * 365 = 0.4 days 658186 Looking at ratio, it takes less than a day. This is because it is predominantly a retailer, and so all their customers pay before collecting the goods. 3.3.5 Average Payables Settlement period: This measures how long it takes Sales Revenue Number of employees


Greggs plc. To settle its debts. Average payable settlement period = trade payables * 365 Cost of sales FY10: 33382* 365 = 48.23 days 252651 FY09: 35167 * 365 = 50.88 days 255584 Greggs Plc has reduced its payable period by 2.25 days, this is a significant drop. In my opinion Greggs plc has created a payment plan whereby it pays its suppliers after they have generated enough revenue from their customers, so that that way, they do not have to take loans to settle their debts. This is good for Greggs Plc, it would be interesting to find out how the suppliers feel about this arrangement. = Inventory conversion period + Receivables conversion period Payables conversion period 3.3.6 INTERPRETATION: FY09 Average Inventories turnover Period Sales Revenue Per Employee Average Receivables Settlement Period Average Payables settlement Period FY10 17.17days 34.85 0.9days 48.23days 21 days 39.89 0.4days 50.88days

An overview of the two financial years shown shows that on most areas measured, Greggs Plc. Has improved their efficiency significantly. Sales per revenue as was mentioned earlier did drop by almost 10%, so it is important that this is picked up on and investigated further by the company.

3.3.7 LIQUIDITY RATIOS: This analyses if a company can meet its short-term financial obligations. (Atrill, et. al 2008) Current ratio: This ratio compares the current asset to the current liability. Current ratio: Current ratio= Current Asset Current Liabilities 2010: 57,982 = 0.74 77546 2009: 67711 = 0.83 81452 The current ratio is also very low which is Under 1. This is not a bad thing for the company because it is a cash business. It however needs to be examined more closely. It is a cash driven business and so not indicative of a problem. 3.3.8 Quick Asset/ Acid test Ratio:


This looks at how liquid a company is without inventories, which can sometimes be difficult to sell quickly. (Weggendt,2006) In Greggs case, it takes an average of 17 days to sell inventories, so it advisable to also measure liquidity without inventories. Quick Assets = Current Assets Inventory Current Liabilities 2010: 57982-11883= 0.59 times 77546 2009: 67711 11886= 0.68 times 81452 3.3.9 INTERPRETATION: FY10 Current Assets Acid Test Ratio 0.74 0.59 0.83 0.68 FY09

Ideally the liquidity ratio is considered good if it is 1. Greggs in both ratios, is below 1, in both financial years. In fact it seems that there was a drop in This shows that the current assets cannot cover the current liabilities, which means there is a liquidity problem. This may be due again to the expansion of the company and acquisition of new equipment, it is important that this is checked constantly, before it becomes a problem a bigger problem.. It is important to point out that they have however grown over the year. This can be credited to the growth strategy for the company.

Investment Ratios: This ratios given potential investors or investors realise the return on their investment. (Weggendt, 2006) Return on Assets: Gives an insight into how profitable an company in relation to its Assets ROA: Return on Assets =Net Income Total Asset (In this case net income = profit after tax) FY10: 37934 = 284565 0.13 or 13%

FY09: 34374 = 0.12 or 12% 279445 Return on Equity: Measures how much profit a company has made based on Shareholders investment.


ROE: Return on equity =

Net Income Shareholders Equity

FY10: 37934 =0.22 0r 22% 176227 FY09: 34374 =0.21 or 21% 164237 INTERPRETATIONS: ROA ROE FY10 FY09 13% 12% 22% 21%

According to Grunewald et al (2006) the average ROA for the bakery industry is 10%, Greggs Plc in FY10 had 13%, this shows that although it may seem low initially it is performing better than its competitors in the same industry. This result should make investors happy, and shows that it has a good Return on Assets. The Return on Equity does not fare as well, 22% seems like a good Return on Equity, on first look, however a similar competitor President Bakery has a return on Equity of 28%. This shows that Gregg Plc still has a lot of work in other to be more attractive to investors. FUNDAMENTAL ANALYSIS: Figures gives a comprehensive insight into a business for investors, however other external factors cannot be ignored when . Some of which include; Healthy Lifestyle: Greggs is loved by many, and seen as the home of comfort food. However with the emergence of fight against obesity, Greggs sales could potentially fall, Fast Food restaurants are coming under increasing pressure to display the nutritional value of their products, which will make people aware of the content of the comfort food. This could potentially reduce their revenue. Greggs PLC has recently introduced information leaflets with this information, is yet to be seen the effect this will have on their sales. ECONOMIC DOWNTURN: Economists have said that Britain is said to be going through a double deep recession, which means that a lot of people have less disposable income. Although a lot of families are down grading to Greggs snacks, which is considerable cheaper than its competitors, more and more people are going back to making their own snacks in other to save costs. This can again harm Greggs revenue and profit margins. Conclusion: In summary, Greggs PLC has had a very good year, despite all issues such as the economic downturn. This is due to good planning and a good strategy. Greggs is rapidly expanding, and so far it has paid off, however in my opinion they need to slow down. In my opinion, this rapid expansion could see Greggs, loosing money, it is important that they tred with caution especially in this economic climate.


Cash Management: Majority of businesses need cash in other to be able to run day to day. Different businesses need different levels of cash in other to run. Atrill et al (2008) says that a business holds some of its assets as cash for several reasons. Some of which are; 1. To be able to meet its everyday commitments which include salaries, materials, bills and overheads. It is important for businesses to have a good cash flow, in other for the business to survive, this is because although a business is profitable, without cash, failure is inevitable. 2. Holding cash is also a good idea because it gives the business the opportunity to make quick decisions that can be profitability. For example being able to buy materials at discounted prices or other businesses that become available at attractive prices which may help the businesses growth. 3. It is also important just incase, the business has customers who are not able to meet up with payment as agreed. This is especially important in this economic climate. It would help to be able to be able to meet other business obligations without solely depending on the customer. Winning Margin: As the Commercial Manager for my group in the Winning Margin simulation excersice . We were required to grow the company by securing contracts that would help to build a profitable business long- term. We had access to limitless cash via a bank loan. This made the business a lot easier than it could be in real life to run. It was my job as the commercial manager to liaise with mostly the finance Manager and Marketing Manager to ensure that we were bidding for the right jobs at the right amount. We decided to only bid for the Terrier in the EU and the UK . We felt that this would enable us to focus on one product, which would inevitably bring our costs of production down. We however made an expensive mistake by bidding too highly for the Terrier product support in year 1 in comparison to our competitors. Although this gave us a second choice to pick our choice contracts, we had not budgeted enough machines for the number of products size of products we bid for. This meant that before long, we had to borrow money to buy new machines. There was not efficient communication between all the managers, which meant that a lot of times we bid for more than we could actually handle. By year 3 we had succeeded in getting penalised for late delivery, as we had bid for more products than we could afford to buy. We had an issue with our cash flow, we had borrowed to heavily and had not been paid on time to buy the machines in other to deliver. We also found ourselves discounting as well as borrowing in year 3 as that was the only way we could reduce our cash flow problem. Managing Cash in a Real Business: As I said earlier, it was easier to manage cash in the exercise because we had unlimited access to cash via the bank loans. A real business especially in todays economic climate has to be careful with cash flow. This is because it is difficult to get loans from the banks, also there is an increase in bad debts. In other to avoid being in this situation Atrill et. al (2003) suggests the use of upper and lower limits to help to manage cash balance. He suggests businesses should invest in assets that are easily liquidated. This is important in other to keep cash within control, so that there is not too much cash lying around and not being put to good use.


Managers can set limits of the highest amount of cash they are allowed to keep as well as the lowest amount, with a limit that is a warning. That way, they are able to decide, when they may need to borrow more money. BUDGETING: Budgeting in a Real Business: Budgeting is very essential to a business. It helps them to be able to make future plans for their cash flow. With a Budget businesses are able to anticipate their Revenue which in turn helps them not to spend more than they are potentially going to earn. It also helps them to decide where to invest funds if necessary. For example, estimated revenue can help a company decide how much to spend on marketing. This is especially for small companies who may not find it easy to raise money, which has become increasingly common in the current economic climate. When businesses do not create a budget its usually left with lot of issues, which can have different knock on effects on the way the business is run. It is also very important for businesses not to adopt to a rigid budget, so that they can be flexible if any unanticipated costs arise. Businesses usually set aside miscellaneous expenses in their budget to cover this. This helps the unanticipated costs that may arise during the financial year. WINNING MARGIN ACTIVITY BASED COSTING: During the simulation exercise, my groups biggest problem was budgeting and probably our down fall. The financial manager and the treasurer dealt with the budgeting, unfortunately it did not go according to plan. We had over estimated our factories capacity and spent most of our budget bidding for contracts that we could not realistically deliver. As the commercial manager, it was part of my job to make sure that my figures tallied with that of the other managers, especially the production manager to ensure that we could deliver. This ended up being a costly mistake as we had to borrow from the bank, discount out debts. Despite all of this we were still not able to meet up with our deadline and were thus penalised. Activity- Based Costing: An overhead cost allocation system that allocates operating expense to multiple activity cost pools and assigns the activity cost pools to products or services by means of cost drivers that represent the activities used. According to Kaplan Et al (2003), This is when every cost of a job can be linked to a particular job/unit. It is usually difficult to attach costs such as overheads, however this can be determined by assigning the activity through time logs, interviews and direct observation. According to Atrill et. al (2008) the world of industrial production has fundamentally changed, and its new characteristics include: Capital intensive and machine paced production A high level of overheads relative to direct costs A highly competitive, international market. WINNING MARGIN ACTIVITY BASED COSTING: During the simulation the team looked at the different cost of producing the Terrier. We determined what activities and tasks needed to be carried out for the production of the terrier decided to go with producing the terrier after looking at the costs involved with each production. This includes the machines and investment in new markets ACTIVITY BASED COSTING IN BUSINESS: In theory Activity based costing is able to help. Many companies have overhead recovery rates that are almost 5 times higher than the pay rates. It is useful


because it helps management to identify their expenses, which in turn helps them to create an efficient budget. ABC is more effective when it is being used as longterm plan/ strategy. INVESTMENT APPRAISAL: Investment is very important for building a business, it is however important to make the right decision because investing in the right assets can increase profits. Investment appraisal is important because it makes sure that before projects are executed by ensuring that they stick to a pre-set strategy which ensures that they are able to achieve the set goal whilst measuring their performance. Perry T. and Clifford K. (2011) According to Atrill (2008), In other to evaluate investment opportunities, four major methods have been identified as; Accounting rate of return Payback period Net present value Internal rate of return. WINNING MARGIN INVESTMENT APPRAISAL: The team worked collectively by looking at each product and the different markets available, taking into account how they had performed in the past. As well as their forecasted future performance. With this in mind we decided to stay with established markets, and one product, instead of diversifying to unfamiliar grounds. This turned out to be a good strategy as we recorded profits subsequently in Year FY1, FY2 and FY3.

INVESTMENT APPRAISAL IN BUSINESS: Investment Appraisal is very important for businesses; it helps them to be identified as businesses opportunities that are capable of maximizing whatever resources are available to them. It is not unusual for investors to invest in a business because it seems to be profitable without checking out the financial ratios which shows, profitability, liquidity, efficiency. However they are becoming increasingly aware of the disadvantages of investing solely for profits. Information to aid with the investment appraisal is now readily available and so a lot of businesses take this very seriously when making decisions.


Reference: Atrill, P. and Mclaney, E (2008) Accounting and Finance For Non- Specialists 6th ed. Pearson Education Limited Greggs PLC (2011), Annual Report and Accounts 2010, Newcastle Upon Tyne Grunewald S. and Boland. M (2006) Food Business and Agric Business Profitability Profile. Agricultural marketing resource centre. Kaplan, S. and Anderson, S (2003) Time Driven Activity: Based Costing. . Saner. E (2010)On a roll: The Unstoppable rise of Greggs the bakers Perry.T. and Clifford, k. (2011) Financial Analysis and Control Systems (FACS): Course Notes, Coventry: Warwick University. Leweller, J. (2002) predicting Returns with Financial Ratios President Bakery PCL s=PB:SET Weygandt, J, Kimmel. P and Kieso, D (2009) Managerial Accounting: tools for Business Decision Making 6th ed. Wiley


APPENDICES ITEMS IN THE APPENDICES ARE AS FOLLOWS; 1.1 Breakdown of financial figures culled from Greggs International PLCs annual reports and accounts for 2010. 1.2 Income Statement, balance Sheet and cash flow statement of the company 1.3 Financial records from the Winning Margin Simulation Exercise.