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Case Study of Lego Plc

Question :

Finance plays an important role in running the business as it is the most important asset for the company. The project is based on the case study of Lego Plc which operates in the United Kingdom. It covers the following-

  • application of accounting technique to analyze critically the financial data.
  • Making of financial judgment based on the result of the analysis.
  • Understanding the objectives of the preparation of management information
  • application of techniques in order to evaluate the management decision in context to price, product, site, and marketing strategy.
Answer :
Organization Selected : Lego Plc

INTRODUCTION

Finance is crucial part of organisation in order to accomplish long term targets and desired goals. Business analysis from finance perspective indicates towards analysing the financial performance of position of business. It helps to collaborate the long term goals with the financial feasibility of organisation (Almarri and Blackwell, 2014). There is a case study of Lego limited given in which business expansion plan is proposed for developing the business structure of organisation. Use of appropriate accounting techniques are done to critically analyse financial data in a variety of business decision making sources. Financial judgements on the basis of outcomes are defined in this context. Source of funding, investment appraisal techniques, evaluation of targeted companies and the issues occurs while making investment plans are considered in this context.

Literature review

According to Philippon, (2015), accounting model is a combination of accounting concepts, assumptions, rules and procedures which helps to determine the method of recognising, measuring, recording and reporting the financial and non financial transactions of organisation. It provide a path to cover overall transactions in recording and classifying them according to accounting practices in different categories. There are different accounting practices are adopted by organisation which helps to bifurcate the transactions for sharing the information to managers. Cluster model of accounting helps to correlate the accounting structure which belongs to common accounting orientation and practices which are formed in explanatory and effective manner.

As per Vogel, (2014), Full disclosure is one of the essential accounting model which helps to define the disclosure requirement of business while publishing financial information to stakeholders, investors and the financial institutions. This model is centralised around providing clear information about the structure, standards and policies which are adhered by organisation to effective execution and control. In this model financial statements be able to justify the real financial situation and position of organisation. This provides a ethical and professional framework to derive the changes and basic structure of business.

According to Li, and Trutnevyte, (2017), break-even analysis is one of the analytical tool to analyse the point of profit and no loss. This is one of the simple method which is used by managers to make decision making process and analysing the profitability of organisation. This tool provide a vast information and overview in terms of building the strong structure of sales forecasting and management approach.

As per mixed economy model also provide an overview and analysis to bifurcate the level of private organisations and capitalism and socialism. Converge theory of accounting helps to collaborate the financial status and measurement aspect for a business for effective growth and development. This model helps to define the roles and responsibilities of organisation to produce effective financial information.

Source of funding

Sources of funds are main element which helps to build up the base of new entity and exploring the business structure of existing organisation. Without adequate and effective source of fund imagination of new business and expansion projects are worthless. Funding is considered as an art to develop the values and efforts or time to execute the dimensions of business. There are type of source of funding are available in the market through which finance requirement could easily be done by organisations (Penning-Rowsell and et. al., 2014).

Internal source

These are the sources discovered inside in business under which reserves are produced by organization itself. There is no any additional cost looked by association in return of using the source. Major inward wellsprings of subsidizing are characterized below:

Owner's capital:

This is also the type of internal source of subsidizing. Entrepreneurs, executives put capital and supports by their own quality. This source of reserve for the most part incorporated around contributing the sum to making more capital. Building solid capital base is the primary goal of this source of subsidizing (Griffith, Stephenson and Watson, 2014).

Advantages:

This basically connected with making viable and strong capital structure and base for wealth creation. This upgrade the estimation of association by putting extra capital with in business.

Disadvantage:

Type of advantages are found as far as extending the capital structure and base of viable working.

Retain earnings:

This is one of the internal source of financing which is develop by companies by sparing the cash as surplus and reserve funds (Brealey, Myers and Mohanty, 2012). Investors value, holdings, capital reserves, benefits, recovery savings are the structures in which association holds the assets.

Advantages:

It diminishes the additional cost which is paid as interest expenses. General control centralised in the hand of association directors. Managers can use these assets in required regions.

Disadvantage:

Excess utilization of hold income diminish the gaining, stores and surplus which affect the credit furthest reaches of association. from financial specialists and investor's point of view it is required for association to hold an ideal measure of stores and surplus to keep up a good credit assessment.

External sources

These are the sources which are created outside the association. Business need to pay additional cost to outer gatherings. There are some outer sources characterized as follows:

Debentures:

These is additionally sort of money related credit however not taken shape bank and any monetary organization (Jordà, Schularick and Taylor, 2016). Debentures are considered as a long term security rate of interest instrument through which association have the capacity to meet its future targets. There are two sort of debentures exist as anchored debentures and unsecured debentures.

Advantages:

This is beneficial in keeping up the estimation of association. Possession does not separated among debenture certificate holders.

Disadvantage:

Large amount of interest is paid by association which because of which benefit of association diminished.

Bank loan:

This is known as monetary credit given by bank to satisfy long teem and short term necessity of business. Organisation needs to pay interest on the sum taken by association. Bank advances essentially taken by association for completing long term future goals of business (De Grauwe and Grimaldi, 2018).

Advantages:

Bank encourages causes to association to met the future requirement of finance related necessity or building up of new business prerequisite. There are is a particular time term is settled subject to reimburse of advances. Business get the assessment refund as far as advances and advances.

Disadvantage:

Bank advances lessen the credit rating of association and abatement the estimation of association. Speculators likewise don't place enthusiasm for those associations which are having abundance measure of advance.

Investment proposal and investment appraisal techniques

Lego limited is seeking to invest in software technology to develop and improve the productivity of organisation. There are three major issues are required to considered before investing in technology as availability of appropriate tools and sources as budgeting and break-even, business expansion plan of acquiring the organisation in Europe. It is important to considered the rate of interest of taxes and economic rate of return of country.

Investment appraisal techniques

Capital investment appraisal is considered as a technique to break down the viability of speculation proposition and plans. This technique primarily recognizes and decide the best venture gets ready for long term objective and goals. It assist the decision making process and help to execute the management decisions (Jackson,Johnson and Persico, 2015). capital speculation will be gainful for association turn out to be simple with the assistance of venture examination systems.

Net Present Value:

This the major part of the agreeable technique as far as distinguish and break down the viability of venture designs. Net cash inflows and cash outflows are considered to assess the net present estimation of investment. According to above given contextual investigation LEGO Plc has a investment proposition of actualizing the plant of Lego Super and Lego stage. Both the venture designs contains the rate of enthusiasm as 15% and 18% separately.

Benefits:

It contains the general cost of capital which remain related with proposed designs regarding deciding the reinvestment as IRR.

Limitations:

This present the anticipated data identified with viability of venture designs and investment plans.

Accounting rate of return:

This capital speculation evaluation procedures recognize the benefit that can be earned by the concerned ventures to the measure of starting speculation capital stay required for the undertaking.

Benefits:

It helps to deal with figured pay back time of investment and provide a stability and sustainability of project plans.

Limitations:

There is a lack of correctiveness of data and plans are found in this techniques which extend the investment plan.

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Internal rate of return:

IRR is a method which for the most part connected with breaking down the plans and business goals with viable and effective way. There is a marked down rate of return checked as inside rate of return.

Benefits:

This gives an outline of issue as far as making the arrangements and methodologies by thinking about the inward rate of return. Nature of this conviction remains centralised around building viable and effective foundation of business (Lee, Sameen and Cowling, 2015).

Limitations:

There is a lack of proper arrangement and evaluation perimeters to identify the sustainability of investment plans and structure.

Evaluation of the target companies

Lego limited has an expansion plan to build up the share capital through acquiring one of the organisation among Puteaux finance and Melia spain. This is considered that organisation is having a potential to retain sustainability in capital structure is required to acquire by Lego ltd.

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Issues to be considered

There are sort of issues are required to considered while forming development and improvement design. Dealing with the activities and administration by considering issues may drives the association towards its coveted achievement. Adequacy of capital speculation evaluation system principally surrounded and picked by administration by considering these issues which are characterized as follows;

Quality would not be an option, it would be necessities:

Maintain quality of delivering merchandise and services according to client point of view is significant issue considered while making extension arrangement. As the Lego constrained is hoping to actualize new plant to enhance the nature of items and picking up the interest and accept of client at time.

Maintain regular record and valuation:

This additionally considered accurate records and valuation of plan illuminate the cost of speculation to be required for executing with in the association. Proper records and information are required to keep up to track the situation of venture design (Verguet,Laxminarayan and Jamison, 2015).

Check of proper planning before execution:

It is required to break down the venture design shape introductory level to end organize. There are some sure sources required to recognize as essential and optional sources to accumulate the information and data identified with business development. In above case situation supervisors of Lego plc it is required to investigate the arrangement of association. What are the controlling and non controlling variables are related with the speculation designs is additionally required to examine.

Recommendations

Lego limited in seeking for acquiring the organisation with high competitiveness and growth of organisation. There is an analysis of two organisation as Puteaux France and Melia Spain done subject to find out more adequate organisation for assisting the organisational structure of organisation.

As per analysis of financial position of Puteaux finance it is seen that organisation is earning profits for last three years and its liquidity position also become strong form last three years. There is a proportionate increment also seen in terms of net profitability of organisation. Apart form it, Financial analysis of Melia Spain shows less financial viability. Melia Spain is having loss for last three years. It liquidity and solvency position is also not adequate in comparison to Puteaux France.

It is recommended that Lego limited should target to first company which has adequate financial position in the market. It will be beneficial for Lego limited in terms of building string capital structure and expanding the business and operations further. Melia Spain has negative returns and gainfulness which may build additional obligation proportion to Lego restricted. So according to examination it is proposed and suggested that association ought to go for Puteaux France (Verguet, Laxminarayan and Jamison, 2015).

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CONCLUSION

Analysis of finance and investigation is the critical piece of examining the marketable strategies for better understanding. According to above characterized report it is abridged that how investment evaluation strategies and accounting techniques examines the supportability of budgetary plans and capital venture. Benefits and disservices of various kind of capital venture examination procedures and There is an utilization of spending plan and make back the initial investment administration apparatus to investigate the business volume and inventory network administration. Assessment of focused association additionally considered in shape securing point of view. Issues which are required to considered while making the arrangements and structure additionally considered in this report.

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