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Case Study- Individual Report CASE STUDY: CRANES LIMITED Name of the Student: Student’s Identification Number: Module Name and ID: Date of Submission: Name of the University: 1 | P a g e

Executive Summary The UK-based Cranes Limited Company is a division of the Kenyan RCT Group. It provides small- to medium-sized businesses (SME's) with investment property money. The company is currently having cash flow problems and is very reliant on the parent company. Cranes Limited is thinking about starting new businesses to grow the company and raise the necessary money in the UK or Europe. It is thinking about launching a new information system called the Suite as well as a premier centre that offers two new service package types: the professional level and the basic level. The projects are anticipated to bring in money for the company. 2 | P a g e

Introduction Due to cash flow issues, Cranes Limited is thinking about taking on additional projects. If investing in initiatives doesn't seem to be viable, businesses that are having trouble making ends meet may look for alternative sources of finance. The breakeven analysis, budgeting, and net present value are suitable methods for determining whether a project is worthwhile. The project's net present value tells whether the corporation will gain anything from it. Other methods of investment appraisal do, however, exist. The breakeven analysis reveals how many goods and how much sales are needed before the business starts turning a profit. The budgets are a useful tool for forecasting profits because they represent the expected inflow and outflow of funds over a given time period (Caprio and Demirgüç-Kunt, 2021). Even if there are other methods for evaluating projects, the net present value, breakeven analysis, and cash budgeting will be specifically utilized to evaluate Cranes constrained projects, and their significance will be covered in great detail. Additionally, additional funding options for Cranes Limited Sources of Funding Sources Disadvantages Advantages Bank Loan The company must be profitable in order to qualify for a loan from the bank; otherwise, the bank will not provide loans to such businesses, which are extremely uncommon with start-ups. Due to the possibility of business relationships with banks, bank loans are regarded as a simple way of finance. Additionally, compared to certain alternative forms of funding, bank loans are typically less expensive (Xu, 2021). Venture Capitalists The major drawback is that each company will have to give up a portion of its profits or ownership to the investors. As the most potential source of finance, this technique is currently acquiring a lot of appeal. Since capital can only be 4 | P a g e

Additionally, since investor opinions and business objectives may diverge, there may be a conflict of interest (Castillo and Guasch, 2021). Finding suitable venture capitalists is a challenging task, and it might mean making changes to the company because their objectives might differ from yours and they might put pressure on you to adjust some things. raised up to a specific level through other means, a significant sum can be raised from this source. The majority of venture capitalists are well-known individuals with extensive knowledge in a variety of fields; this opens up new networking opportunities and provides experienced advice. Own Capital Shared ownership exists, and investors might anticipate a portion of the company's earnings. Preference shares receive payment preference over equity shares if funds are generated in the form of preference shares. There is no loan involved with this that the business must repay. This makes it the simplest approach. As a result, the business is not required to pay any monthly interest. Creditworthiness is not a concern with this approach. The methods for one company to raise money are covered in the discussion above. These are not the only ways to raise money; there are other ways as well, such as borrowing money from family or friends or acquiring bank overdraft advances (Drury, 2005). Every one of the aforementioned methods has pros and cons, so when a business is choosing a funding source, it should always weigh both the advantages and disadvantages. Raising capital is a significant decision for any business 5 | P a g e

Internal Rate of Return When evaluating investments, the internal rate of return technique might be helpful. Over the course of the project, it is the overall rate of return. When the calculated internal rate of return exceeds the cost of capital, the project will be increasing the owner's wealth. However, this approach has some drawbacks : It is a relative metric and does not provide an absolute measure to draw conclusions; It does not account for the duration of the new project or the quantity of the investment; It takes into account a project's long-term sustainability while ignoring any immediate losses that may occur; it makes no mention of the gain or fall in shareholder wealth. The internal rate of return gives an estimate, and since there is a difference between it and the required rate of return, it may be inaccurate and lead decision-makers astray. Additionally, there are situations in which the internal rate of return does not always support wealth maximization (Aryasri, 2021). Another significant drawback of this approach is that it makes the unrealistic assumption that the generated cash flow surplus can be used to fund an investment with a positive internal rate of return. Management Tools- Budget & BEP Use The top management employs management tools to discover various challenges that are present in a given project and make the necessary adjustments for a better outcome. The management can use these tools to help with project planning, execution, management, and control (Holland, 2021). These tools enable management to spot gaps in the organization's processes, and as a result, management can utilize the knowledge to make adjustments that will improve the efficiency of ongoing activities. The budget is designed to track the company's cash flow, which will aid in tracking the influx and outflow of cash and, in turn, aid in better liquidity management. If a corporation has a high level of liquidity, it will be considerably better able to manage its operations (Nyarombe et al ., 2021). This allows for the identification of misappropriated cash flow, which can then be best utilised to increase the value of the company. 7 | P a g e

A BEP point is the point at which a specific quantity of sold goods is not recorded as having generated a profit or loss. Cranes Limited can be leaner and use these resources to eventually reach a certain sales volume if Cranes Limited realize this before create a product. Computation of Breakeven Analysis and the Cash Budget Break Even Point Particulars BP (in £) TP (in £) Sales Price (per unit) 300 410 Variable Cost (per unit) -170 -210 Contribution (per unit) 130 200 Fixed cost 123, 400 123,400 Break Even Point (Fixed cost ÷ Contribution (per unit)) 949.23 617.00 Cash Budget Month Janurary (in £) Feburary (in £) March (in £) Sales (in Cash) of BP & TP (60%) 99900.00 99900.00 99900.00 Next month sales (in Cash) of BP & TP (40%) - 66600.00 66600.00 Variable Expense -BP 59500.00 59500.00 59500.00 -TP 31500.00 31500.00 31500.00 Fixed Expense (per month) 41133.00 41133.00 41133.00 Closing Cash Flow -32,233.00 34,367.00 34,367.00 8 | P a g e

Budgets Budgets can be utilized for product mix decisions, financial decision-making, and performance evaluation, according to a study by (Stevcevska-Srbinoska, 2021). Even if the author notes the opposing viewpoints on budgeting, it is clear that it benefits businesses more than it does harm. It emphasizes the value of budgets in the planning, management, and coordination of corporate operations. (Lidia, 2021) provides an example of how budgets can identify problems and prompt decision- makers to take action. Additionally, it illustrates how budgets help to increase efficient resource management. A valuable instrument for anticipating the inflow and outflow of cash in a corporation is a budget, especially a cash budget. According to an article by (Eton et al., 2021), cash budgets make ensuring that business expenses are in accordance with cash flows. Additionally, it makes it more likely that extra cash will be detected. The individuals in charge of planning and making decisions can then assess if there is sufficient intake to maintain the organization through budgets. Budgets also help in estimating how much will be spent on overhead and costs. Knowing these numbers will enable management to take action to cut costs and overhead in the company. Budgets are crucial decision-making tools for management because they forecast the amount of profit anticipated in a future period. Importance to Business  When this is accomplished, Cranes Limited will be able to pinpoint the exact moment at which it breaks, either winning or losing. This makes it simple for the business to decide how many units to sell. Sales below the break-even point cause the company to lose money, while sales over the break-even point for the company to make money (Omoshagba and Zubairu, 2021). Each business will thereafter have access to the information required to produce its goods. By scheduling the production of each product in advance, businesses are able to allocate resources where they are needed.  The budget aids management in long-term planning and early project needs evaluation so that the proper policies may be written and resources can be distributed in accordance with those policies. In this sense, it is deemed to be a crucial managerial tool for the company. Further monitoring can be done to ensure that the procedure is being followed, and if there are any violations, 10 | P a g e

they can be fixed right away. Cash flow budgets will be created on a monthly, quarterly, or annual basis so that undesirable cash flows can be identified and used more effectively. Some other problems that the Management should consider Top management should also take into account a variety of additional factors or matters in order to increase company profitability and assess its business performance, such as:  Funding Sources : The management needs to take very careful note of this important problem. After carefully weighing the source's benefits and drawbacks, choose the one that is most appropriate for your business. This will aid in lowering the capital's risk in relation to the company.  Cost Composition : Management should be mindful of the cost structure in order to lower costs per unit produced, which will inevitably boost profitability.  That company's personnel should receive training to boost their motivation and productivity, which will cut down on unproductive hours (Peterson and Fabozzi, 2021).  Each business should seize every financial opportunity by applying the financial evaluation method and making choices that will benefit the shareholders. Recommendations and Conclusion The management needs to do market research and think about charging more up front for the High-End Suite so that it won't influence customers' decisions and so that it can be utilized to offset rising overhead costs. The business might start a discount offer to entice customers to pay in cash right away rather than risk becoming debtors. As long as the discount doesn't significantly lower revenues to the point where they can't pay for costs or lower cash collections over the course of the three months, this could increase the total inflow of cash during that time. When compared to the High-End Suite, the Premier Center is the preferable choice because it will result in a positive cash inflow for the company. Despite the relatively high breakeven point, it will undoubtedly turn a profit from the sale of its goods at 11 | P a g e

References Alnasser, N., Shaban, O.S. and Al-Zubi, Z., 2021. The Effect of Using Break- EvenPoint in Planning, Controlling, and Decision Making in the Industrial Jordanian Companies. International Journal of Academic Research in Business and Social Sciences, 4(5), p.626. Aryasri, A.R., 2021. Managerial Economics and Financial Analysis. Tata McGraw-Hill Education 3. Caprio, G., and Demirgüç-Kunt, A., 2021. The Role of Long-Term Finance: Theory and Evidence. The World Bank. Castillo, L.L., and Guasch, J.L., 2021. Overdraft Facility Policy and Firm Performance: An Empirical Analysis in Eastern European Union Industrial Firms. The World Bank. Drury, C., 2005. Management Accounting for Business. Cengage Learning EMEA Eton, M., Mwosi, F., and Ogwel, P.B., 2021. Cash Budgeting and Organizational Performance of Private Firms in Uganda: A Case of Kabale District, Western Uganda. Götze U, Northcott D, Schuster P 2007. Investment Appraisal Springer Science & Business Media. Holland, R., 2021. Break-Even Analysis. University of Tennessee Lidia, T.G., 2021. Difficulties of the Budgeting Process and Factors Leading to The Decision to Implement This Management Tool. Procedia Economics and Finance, 15, pp.466-473 Nyarombe, F., Kipyegon K., Kamar, I. and Gwaro., S., 2021. An Investigation of Capital Budgeting Techniques on Performance: A Survey Of Selected Companies in Eldoret Town. 13 | P a g e

Omoshagba, T.P., and Zubairu, U.M., 2021. A Systematic Review of the Field of Debt Financing. Covenant Journal of Entrepreneurship, 1(3). Patton, R.W., 2021. The Business Side.: In Health and Fitness. Breakeven Analysis is an Important Business Planning Tool. ACSM's Health & Fitness Journal, 3(3), p.36. Peterson, P.P., and Fabozzi, F.J., 2021. Capital budgeting: Theory and Practice. John Wiley & Sons. Stevcevska-Srbinoska, D., 2021. The Advantages of Budgets: A Survey of Macedonian Legal Entities. Business and Economic Research, 8(2), pp.33-55. Xu, H., 2021, July. Using the Net Present Value Rule to Make Value-Creating Investment Decisions. International Conference on Chemical, Material and Food Engineering. Atlantis Press. 14 | P a g e