Balances as at 30th April 2013 One to One Ltd Pontypridd

Evan Saunders has recently been promoted to the post of Finance Director at One to One Leisure Ltd, a small but expanding leisure management company operating across South Wales.

One to One Leisure Ltd main business activities centre around the management of leisure centres. Many of these leisure centres had previously been owned by local authorities, but have recently been privatised as a result of a move to reduce public expenditure. The companies’ most recent acquisition (purchased from Rhondda Cynon Taff Local Authority) is a leisure centre based at Pontypridd.

When Evan gained his promotion one of the first tasks he was given was to undertake a review of the profitability of the new leisure against the most profitable leisure centre in the sector. Evan had assumed that this financial information would have been available in order to carry out the comparison. Unfortunately it had since transpired that his predecessor was not as financially aware as he liked to appear!

Evan was well aware that local authorities in the area have a poor reputation in respect of providing accurate financial information, but last week, following a meeting with the Leisure Services accountant from the Rhondda Cynon Taff Local Authority, he really began to worry. During this meeting it transpired that even though he had anticipated a lack of financial information, the amount of financial data produced by the council was even less than he had envisaged!

At the meeting the leisure services accountant had presented him with little more than a small file for the recent acquisition of the Pontypridd leisure centre. The file contained only a list of end of year balances & brief details of income & expenditure as follows:

Balances as at 30th April 2013 One to One Ltd Pontypridd

Capital Account 280,000
Reserves 75,000
P&L Account (c/f) 125,000
Land & Buildings 386,000
Machinery 75,000
Vehicles 15,000
Stock 8,000
Debtors 14,000
Cash 28,000
Creditors 12,000
Taxation 24,000
Long Term Liabilities 10,000
Employee Costs:

Salaries, wages and other related costs such as NI and pension contributions & including overtime payments which equal £125,000 are included in the total figure.

£
Manager 65,000
Assistant Manager 50,000
Gym Instructors 175,000
Exercise Class Instructors 100,000
Restaurant staff 55,000
Receptionists 40,000
Cleaners 35,000
Maintenance 60,000
Security Staff 45,000
———-
625,000

Equipment and materials:
£
Sundry small equipment 130,000
Cleaning materials 54,000
Swimming pool chemicals 111,000
———-
295,000
Heat and Light:
£
Electricity 45,000
Gas 55,000
———-
100,000

Insurance Costs

Buildings Insurance 100,000
Contents 100,000
Public Liability Insurance 50,000
————
£250,000

Repairs and maintenance

Repairs and maintenance costs £75,000
————
£75,000

Other Expenses

Chemicals for Pool £30,000
Security £50,000
Cleaning Materials £25,000
Depreciation £40,000
Snack Bar Supplies £100,000
Licensed Bar Supplies £80,000
Head Office Overhead £150,000

Income:

£
Entry charges: £1,000,050
Bar Income £300,000
Children’s parties £150,000
Wedding parties £200,000
——–
£1,650,000

Evan recently attended a meeting with Lewis James, the Managing Director of One to One Leisure Ltd. Lewis wasn’t impressed when Evan presented him with what little information he had.

Evan agreed with Lewis that the existing information for Pontypridd was neither well presented nor sufficiently detailed to be able to make comparisons with others centres. Also there did not appear to be any form of budget planning & control system operating in the Pontypridd centre.

Lewis spoke of the need for the Pontypridd centre to start producing improved financial information as well as monthly or quarterly management accounts (budget reports etc)

In recent years there has been an increase in competition within the leisure industry as local Government are constantly promoting healthy living campaigns. Lewis spoke about refurbishing and updating facilitates at various centres in order to remain competitive in the leisure industry. Lewis stated that in order to pursue this option, the company would need to raise a considerable amount of additional capital to finance the expansion & upgrading.

Lewis also expressed the need for the Pontypridd centre to look at new income streams that could continue to increase profitability in the future in order to remain competitive in the leisure industry.

Required:
The following questions need to be answered in a business report format.

Question 1

Produce a Profit & Loss Account & Balance Sheet for the Pontypridd centre for the year ended 30th April 2013 using the information provided in the case study.

(10 marks)

Question 2

The key financial ratios for the most profitable centre in One to One Leisure Ltd for the financial period ending 30/04/2013 are shown below. (Table A).

Table A
Key Financial Ratios

1 Operating Profit
Operating Assets 36%
2 Operating Profit
Sales 10%
3 Sales
Operating Assets 3.6 x
£278
4 Expenses
Sales 90%
5 Sales
Fixed Assets 3.94 x
£254
6 Sales
Current Assets 41.7 x
£24
7 Sales
Stock 181.8 x
£5.5
8 Sales
Debtors 153.85 x
£6.5
9 Sales
Bank 83.3 x
£12
10 Current Ratio 1.8:1
11 Quick Ratio 1:1
12 Gearing Ratio 15%

a) Calculate for the recently acquired One to One Leisure Ltd Pontypridd 12 ratios (as above to enable a comparison to be made between performance of the most profitable centre and the Pontypridd leisure club for the financial period ending 30/04/2013.
(6 marks)

b) Critically analyse the performance of One to One Leisure Ltd Pontypridd and the most profitable centre highlighting areas of strength, and identifying any weakness that will need to be addressed.
(24 marks)

Question 3

Critically outline the benefits that could result from the introduction of a system of budgetary planning & control at One to One Leisure Ltd.
(25 marks)

Question 4

Critically outline three possible sources of external finance that could be adopted by One to One Leisure Ltd & the relative advantages & disadvantages of each. (15 marks)

Question 5

Critically discuss any suggestions you may have for improving the profitability at the One to One Centre Pontypridd. e.g. additional income streams or cost reduction programmes. (15 marks)

• 5 marks will be awarded for presentation and style of the business report.

Word limit: Your assignment should be about 1500-2000 words long. Please indicate the exact word count at the end of your assignment.

• There has been some confusion about the word count for the finance element coursework of AF4S30.

Different from other coursework, this particular coursework contains calculation and written part. The calculation part requires you to product P&L account and Balance sheet with the information provided (Q1) and to calculate relevant financial ratios (Q2 part a). With the written part, you are required to provide answers and analysis for Q2 part b), Q3, Q4 and Q5.

In summary, the work you perform on calculation part will be considered equivalent to 1500 words (you are not required to produce 1500 words for calculation). You are then required to prepare answers and analysis to for Q2 part b), Q3, Q4 and Q5 using word count between 1500-2000 words

Presentation: Please use Times New Roman 12 point font and 1.5 line spacing. Include a full list of all references used. Harvard referencing system is required. (An explanation and examples of Harvard referencing can be found on the module handbook
Any appendix should be very brief.
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