Effectiveness of Beyond Budgeting (BB) and BB Techniques
You should identify the Annual reports of a company that has the following characteristics:
a. The company is listed in the London Stock Exchange (LSE);
b. The company belongs to the following super sectors: Technology, Health Care, Real Estate, Automobiles and Parts, or Retailers.
Identify your preferred company form the LSE website: https://www.londonstockexchange.com/resources/trade-resources?tab=rules-and-regulations. After you have identified a company of interest, engage in online research to download and save the relevant annual reports of your company (including all appropriate financial statements) from 2018 to 2020 from the LSE. That is, three years of publicly available information.
You are required to use the data found in the annual reports to compile a report that provides insights on the topics covered in the questions below.
Describe the main areas of your annual reports and elaborate on what these reports are communicating and to which key stakeholders. Justify the reason why each stakeholder might use these reports. Then, present the main financial statements in a compiled form as they appear in the annual reports. You can make use of the Appendix to place these statements.
Assess the financial performance of your selected company in four key areas: profitability, efficiency, liquidity and gearing. This assessment should be done over three years. You should prepare the main ratios for each area as follows:
● Profitability: Return on Capital Employed (ROCE), Operating profit margin, Gross profit margin and Return on Ordinary shareholders Funds (ROSF) ratios.
● Efficiency: Average inventories turnover period, Average settlement period for receivables, average settlement period for payables and Sales revenue to capital employed ratios.
● Liquidity: Current and Acid test ratios.
● Gearing: Gearing and interest cover ratios
Comment on the profitability, efficiency, liquidity and gearing of your selected company over the three years using these ratios. You should also justify changes (or stability) of performance from 2018 to 2020 using a combination of ratios and other income statement information.
You are now in a position where you know the most recent performance of your company. As all companies, your company is interested in engaging in various investment activities to expand, grow and survive in the long-term. However, to survive in the long-term, they also need to settle their short-term finances. Based on your data on question 1 and 2, identify and describe four possible funding options that your company can use at the moment. Consider two sources: internal and external. Identify two for each and justify their suitability and the main reason why your company can use such sources. Finally, critically evaluate these sources in light of your company’s characteristics.
Your company is willing to engage in Beyond Budgeting (BB) and abandon their problematic and laborious traditional budgets. You are an expert in the topic, and you are required to evaluate this decision for the company.
You are required to:
1. Evaluate the effectiveness of BB in modern organisations.
2. Identify and describe two possible BB techniques that your company can utilise.
3. Assess the suitability of these two techniques for your company by critically evaluating the selected BB techniques in light of your company.
Please see below for some suggested literature as a starting point. However, you should search and identify further appropriate academic literature to support your analysis in this question.
● Hope, J., & Fraser, R. (2003). Who needs budgets?. Harvard Business School. ● Bourmistrov, A., & Kaarbøe, K. (2013). From comfort to stretch zones: A field study of two multinational companies applying “beyond budgeting” ideas. Management accounting research, 24(3), 196-211. ● Libby, T., & Lindsay, R. M. (2010). Beyond budgeting or budgeting reconsidered? A survey of North-American budgeting practice. Management accounting research, 21(1), 56-75.
Format and Mark Allocation
Your assignment should be written in the format below and should be capable of being read as an independent and complete document. The following schedule sets out the main areas to be examined in your report:
1. Provide a brief introduction (around 250 words) which (10%):
a. Introduces your company briefly;
b. Sets out the aim and purpose of the report;
2. Break your main body into parts as advised by the questions provided and present your answers in parts (2,000 words):
a. Annual report analysis and financial statement presentation (15%)
b. Ratio analysis and comments (25%). To calculate the ratios in question 2, please refer to Appendix 1 of this document and use the table provided as a presentation format.
c. Sources of finance analysis (20%)
d. Beyond Budgeting discussion and evaluation (25%)
3. Draw a brief conclusion (around 250 words) (5%).
4. References: please remember to include, in the references, the hyperlinks of all the annual financial statements that you have used to calculate the ratios so we can verify your calculations. In this regard, figures used in ratios must be clearly cross referenced to the financial statements indicating company names, year, and page numbers. Please remember that any other information from any sources should be correctly cited