QUETSION 01

(1)
When discussing about the frame work for strategy analysis, it will begin with several steps.
Will be referring to one of the public limited company in Sri Lanka, Nestle Lanka PLC
Company.
1st step - As the first step of the frame work when developing the strategy, should analyze
the current company situation.
That can be done by using BLS analysis, BCG analysis and BEP analysis

Investigate the industry's origins, progress, and growth. Charting the critical events in an
industry's history - that is, the events that were most distinctive, pivotal, or significant in
shaping the business into what it is now – is an effective method for examining how it has
changed. Geographical distinctions, whether business-level techniques dominated at various
times, whether broad or focused strategies worked better, marketing decisions, and apparent
functional or operational talents necessary for success are only a few examples. Additionally,
changes in the sector's leadership are critical to examine. Establishing a schedule for the
industry — employing a monthly, quarterly, or yearly cycle to schedule such significant
events — may be useful.

Conduct a review of the company's strategy (BLS). Determine the company's BLS: is it
differentiation or low-cost leadership; is it broad or focused; or is it integrated? In view of its
relative competitive position, how has the business utilized its resources? Has the business
made use of several BLS in diverse regions? It may, for example, offer a low-cost product in
one area while selling a variety of other products in others. Explain a company's BLS in
detail to illustrate how it competes.

The Break-Even Point as a Function of Time

The volume of sales at which the contribution from each unit sold equals the fixed and
additional variable costs of the company is referred to as the break-even point. To begin,
calculate contribution margin (CM = P – VC), which equals the unit price less a single unit
variable cost. BEP = FC / CM, where the fixed cost of the company is divided by the
contribution margin per unit, yields the breakeven point.
Step 02 – External environment

For that several tools can be used such as PESTLE analysis, porter’s five forces analysis, and
SWOT analysis for Nestle. When developing the strategies it is important for the Nestle to
analyze internal and external environment. Through SWOT analysis the company can
analyses its internal environment and through PETEL they can analyses the external
environment.

SWOT Analysis for NESTLE

Strengths

 The firm's strong cultural values to its integrated business model and commitment to
its stakeholders.
 Three critical aspects of business support this strategic position: quality leadership,
customer satisfaction, and inovation and technology.
 Nestlé is committed to corporate social responsibility in a substantial way, with the
phrase "long-term commitment" describing its strategy.
 A wide and varied brand portfolio.
 The company's worldwide popularity has been aided by the presence of several well-
known brands in its portfolio.
 Due to the company's long history, Nestlé has earned an unique place in the hearts of
its consumers.
 Increased trust and loyalty, as well as an increase in the firm's competency.

Weaknesses
 Some of the products contains ingredients that are not good for the body like Maggi
Noodles

Opportunities
 COVID-19 pandemic has motivated people to eat more precooked foods and instant
noodles
  With the COVID-19 pandemic may people have lost their jobs and NESTLE has the
ability to get the labor for minimum wage
Threats
 Threats comes from competitors like Prima
 Current economic condition has affected increase of materials
 Restrictions over imports

Analysis of external environment

Examine the immediate vicinity. This category includes the competitive (i.e., rivalry)
environment, the industrial environment (supply, buyer, replacement, new entrant, rivalry),
and the broader (physical, sociocultural, global, technological, political/legal, demographic,
and economic) environment. When assessing environmental possibilities and threats, Nestle
should take into account all competitive groups, industries, and macro-environments. At the
industrial level, Porter's Five Forces model and the Stages of Lifecycle model are particularly
relevant (birth, growth, maturity, revitalization, death). Notably, while conducting a Porter's
Five Forces analysis, ensure that you determine the industry's attractiveness in terms of an
existing firm's entire ability to generate a profit.

Step 03 – Internal capabilities

When building the strategy, as third step NESTEL should do the internal capability analysis
Perform a value chain analysis and a SWOT analysis. When you do the second phase of your
SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats), you consider the
company's internal strengths and weaknesses in relation to external threats and opportunities.
Create a chronology of the industry's events and use it to describe the company's strengths
and weaknesses through time. Examine each of the firm's value creation functions (i.e., the
value chain) and determine which activities the company is currently strong in and which are
weak. Consider the following scenario: a business with a small marketing department but a
large R&D department. Utilize data to corroborate your observations and conclusions
wherever possible. Make a list of your own accomplishments and weaknesses. The Business
Writing Style Guide includes a SWOT analysis checklist that will help you decide what to
include in your analysis.
Conduct an examination of a building's construction and control systems. Which
organizational structure and control mechanisms does the company use to carry out its
strategy and to decide whether or not that structure is the most appropriate? How effective is
the Nestle management team in running the business on a daily basis? Are employees in
Nestle being recognized and rewarded appropriately for their efforts? Are they compensated
fairly? Are enough incentives in place to promote collaboration within divisions while
minimizing the formation of harmful internal competition? Does the client use a balanced
scorecard to evaluate their performance against key financial and strategic controls
(customer, business process, and people)?

Step 04 – Identify key problems and opportunities

Price – Cost = Profit

SWOT Analysis
Organization Controls
Type 1, 2, 3 Rivalry
Strategy Diamond
Action Checklist: Understanding and Managing Competition Over Time

At this stage, it is critical to identify the report's principal focus. Nestle should already have
an in-depth awareness of the external environment's potential and risks, as well as the
organization's capabilities' strengths and limitations. Nestle must now summarize and
prioritize all of the information you have accumulated thus far. Which of the following is the
most critical to company? It makes no difference how successful a firm is; no business has
unlimited resources or runs without space for improvement; businesses cannot do everything,
and there is always room for development.
To prepare for the subsequent phase, Nestle should utilize the models listed above to assist in
organizing and prioritizing company work.

Step 05 – Make actionable recommendations

Rules of analysis
The quality of recommendations is strongly connected to how well Nestle completed their
research and prepared for the analysis. The recommendations are aimed at resolving any
current strategic difficulties the company is facing as well as increasing its future
profitability. When making recommendations, ensure that they are consistent with your
research; they should follow logically from the observations and facts presented in the report.
Making your advice actionable involves providing clear, measurable, and thorough
instructions that are likely to result in a favorable outcome for the consumer.

Proposals that are actionable have credibility because they are specific, measurable, and
contain sufficient information to facilitate execution. As long as they corroborate results,
there should be a direct link between the issue and the corrective action done. Company ideas
should direct company reader's behavior in such a way that they understand precisely what is
expected, when it is required, for how long it is required, and who will be held accountable.

(2)
Yes. I agree with the above statement

 This is because they include critical information about a company's history, current,
and future operations.
 For markets to function successfully, accurate information regarding listed companies
must be made publicly available.
 Financial information is critical for markets to operate effectively, and it is one of the
most important forms of information accessible to aid investors and creditors in
making investment and credit decisions.
Typically, firms give financial information in the form of financial reports. Frequently,
financial reports include the following components: financial statements, management
commentary and analysis of those financial statements, and extra regulatory filings.
Management predictions, analyst presentations, other corporate reports, and press releases on
major topics are all examples of additional voluntary communication that some businesses
engage in on a regular basis. While some businesses print and file these reports with the
relevant authorities, others make all of this information public on their websites.
Financial analysts, industry professionals, and members of the financial press all provide
information about firms.
It has been asserted that there is no such thing as a perfect stock market anyplace on Earth
and that the bulk of stock markets exhibit suboptimal form market efficiency. Due to low
form efficiency, it is conceivable that the market makes investment judgments based on prior
firm financial information. According to the implication, capital market participants are
supplied with information that serves as a foundation for making fair judgments about stock
prices in order to make and execute rational investment and financing decisions via financial
reports and disclosures issued by businesses' accountants. That’s how financial statements
help improve the efficiency of capital market.

(3)

To analyze profitability

To analyses the profitability ratio analysis can be used as a tool. In order to analyze the
profitability these ratios can be used;
1. Gross profit margin ratio
2. Net profit margin ratio
3. Operating profit margin ratio
To the layman, each of these three terms simply refers to a different way of expressing profit
when various sorts of costs are included. Gross profit is defined as the difference between
revenues and costs associated with items sold. Operating profit is defined in business as the
difference between sales and the cost of the items or services delivered, plus any marketing or
administrative expenses. The final definition of net profit is the difference between total net
sales and total costs, which includes income taxes.

To analyze risk

1. Risk matrix
Similar to a hammer or a screwdriver, the risk matrix is a tool that will be used again in a
variety of scenarios. One of the most significant benefits of using a risk matrix is that it
enables you to assign a numerical risk rating to a hazard, which can then be filtered according
to company standards governing how various levels of risk should be managed.
What Is a Risk Matrix and How Is It Calculated? Risk is calculated by multiplying
probability by the possibility of an effect. Each degree of likelihood and impact is quantified
and scaled using a risk matrix. This enables the values to be shown on a matrix and the risk
associated with each set of values to be computed.
2. Decision tree
A decision tree is a less often used risk assessment approach, although it is nevertheless
effective in specific scenarios. It is quite useful to understand how to apply regulations and to
pick between various courses of action.

It's Simple to Use a Decision Tree: A decision tree is a series of questions or alternatives that
can result in a variety of distinct outcomes. To determine whether a threat warrants the
deployment of a Critical Control Point, quality professionals in the food industry, for
example, might reference a decision tree (CCP). Additionally, data may be utilized to inform
a decision tree, for example, to evaluate if it is safe to release a new product into the market.
QUESTION 02
a)
Ratio 2020 2019 Variation
Return On Capital employed = Earnings before interest and tax/ Average capital
employed
           
  40 66.7% 75 107.1% -40.5%
  60 0.667 70 1.071 Decreased

In 2020, the operating profit has reduced due to the decrease of revenue. Though the revenue
decreased, it shows that the cost of sales is more than 30% of the sales value when it’s around
16% in 2019. So, operating profit reducing has impacted decrease of ROCE
Calculations
2020 2019
Total assets 160 145
Total liability 100 75
Capital employed 60 70

Note; since the 2018 value has not given to calculate the average equity value, the total
amount has considered here..
b)

Ratio 2020 2019 Variation

Return On Equity = Net Income/ Share Holder's equity
           
  18 30.0% 43 61.7% -32%
  60 0.300 70 0.617 Decreased

ROE has reduced by 32% in 2020, when compared to last year. It can be seen that the
retained earnings has reduced in 2020 due to decrease of revenue and that has directly
impacted the reduction of retained earnings through decrease of net profit. So that ROE has
reduced.

c)
 Ratio 2020 2019 Variation
Gearing ratio = debt (short and long term) / shareholder’s equity
           
  100 166.7% 75 107.1% 59.5%
  60 1.667 70 1.071 Increased

This company’s gearing ratio has increased in 2020 by 59.5%. This company is highly
geared. The reason for increase of gearing in 2020 is decrease of retained earnings due to
decrease of revenue and increase of cost of sales.

d)
Ratio 2020 2019 Variation
Current Ratio = Current Assets/ current Liabilities
           
  80 800.00% 85 566.67% 233.33%
  10 8 15 5.67 Increased

The current ratio has increased in 2020 and the company has maintained good current ratio
throughout the years. There can be seen only small variations of the current ratio as inventory
value has increased in 2020, and accruals payment reduction has affected decrease of current
liabilities.

e)
Ratio 2020 2019 Variation
Quick Ratio = (Current Assets -Inventory) / current Liabilities
           
  50 62.50% 60 70.59% -8.09%
  80 0.63 85 0.71 Increased

The quick ratio value has decreased in 2020. The main reason for that was increase of
inventory.

f)
Ratio 2020 2019 Variation
Debtor Turnover = Credit Sales / Average Account Receivables
           
  63 406% 105 656% -250%
   15.5 4.06 16 6.56 Increased

Ratio 2020 2019 Variation

Debtor turnover days= 365 / Debtor turnover ratio (Days)
           
  365   365   34
  4.06 90 6.56 56 Increased

The account receivable collection period has increased in 2020 by 34 days. The reason for
that was decrease of revenue in 2020.

g)
Ratio 2020 2019 Variation
Interest Coverage ratio =EBIT / Interest Chargers
           
  40 246.91% 75 446.43% -199.51%
  16.2 2.47 16.8 4.46 Increased

The interest coverage ratio has decreased in 2020. The reason for that was decrease in
revenue in 2020.
QUESTION 04
(1)
 Because a cash flow statement is based on the cash basis of accounting, it is highly
useful for financial analyst analyzing a business's financial condition.
 A projected cash flow statement may be prepared to ascertain a business's future cash
position, allowing the business to plan and coordinate its financial activities more
efficiently in the future. By preparing this statement, a business may ascertain how
much cash will be earned and how much cash will be required to make specific
payments, helping the business to better plan for future cash requirements.
 A comparison of historical and expected cash flow statements may be made to detect
variations and inadequacies or other performance differences, allowing the business to
take swift and effective action.
 A set of intra- and inter-firm cash flow statements can be used to evaluate if a firm's
liquidity (capacity for making short-term payments) is improving or deteriorating over
time and in contrast to other firms during a certain period of time.
 Cash Flow Statement is the fifth item on the list. The cash flow statement is used to
prepare for long-term financial requirements, such as loan repayments, asset
replacement, and similar long-term cash requirements. Furthermore, it is critical while
making capital budgeting decisions.
 Elaborates on the causes for a company's poor cash position in the face of high
earnings by examining the company's various cash applications. Additionally, it aids
in the resolution of certain difficult situations, such as what happened to the net
profits? What happened to all the money? Why haven't more dividends been given
despite the existence of sufficient profit?
 Cash flow analysis is more useful and suited for short-term financial analysis than
funds flow analysis because, for a relatively short period of time, cash is more
essential than working capital when estimating a company's ability to meet its
immediate obligations.
  Due to the lack of a standardized format for the funds flow statement, the cash flow
statement prepared in accordance with AS-3 (Revised) is more suitable for
comparison than the funds flow statement.

 In addition to other financial information, the cash flow statement contains

information about all operations classified as operating, investing, and financing.
Even when the finances statement was prepared on a cash basis, the cash flows
associated with such operations were not separately recorded. The funds statement is
therefore less useful than the cash flow statement in this situation.

(2)
The growth share matrix is based on the premise that market leadership results in greater
long-term returns. Finally, the market leader establishes a self-perpetuating cost advantage
that competitors find impossible to equal or surpass. As a result of these high growth rates,
the markets with the highest development potential are selected.
Companies should evaluate two criteria when selecting where to spend their money: company
competitiveness and market attractiveness, with relative market share and growth rate acting
as the underlying drivers of both aspects, as indicated by the matrix.

Each of the four quadrants contains a unique mix of relative market share and growth:

 Low growth rate, yet a sizable market share Businesses should capitalize on these
"cash cows" to generate revenue for investments.
 Rapid expansion equates to a huge market share. Businesses should make large
investments in these "stars" since they have tremendous future potential.
 Rapid expansion, yet a little market share. Businesses should invest in or dismiss
these "question marks" based on their future potential as stars.
 Market share is inversely proportional to growth. The corporations should liquidate,
sell, or redeploy these "pets."

When considering the study.com they can be considered as in the “question mark” cash
position. Study.com is still growing within the market place. As said in the question, there is
a high growth for the online courses of the institute. So that most of the courses are in the
growth stage. But when considering the online education sector, there are many competitors
in the market with the effect of COVID-19 pandemic. So that the company is still having a
very low market share within the online education industry. Question mark position indicates
that the company’s in the growth stage, but still the company is having very low market
share.
b)
Cash cows are one of four types of firms that have a significant market share in a low-growth
industry, according to the BCG matrix.
It may be defined as a period during which the firm operates at a low cost while earning a
high profit. As a result, it generates a sizable amount of cash revenue, which is represented in
the greater cash flow valuation.
However, if the firm reaches the decline stage, it cannot sustain a high level of sales income
to fund its operations. According to the cash flow statement, this would result in a decline in
earnings from the firm's products, therefore decreasing the company's cash inflows.
QUESTION 05
(1)
Yes I agree with the statement
The Financial Accounting Standards Board (FASB) establishes and maintains the generally
accepted accounting principles (GAAP) (GAAP). To reduce the cost and complexity of
financial statement preparation, the FASB eliminated the accounting treatment for
extraordinary items and eliminated reporting requirements from generally accepted
accounting standards in the United States (GAAP).
Prior to 2015, businesses spent considerable time and money determining if a certain incident
was extraordinary. Gains and losses from unexpected items, net of taxes, were needed to be
recorded separately from income from ongoing operations on the income statement in order
to be reported.
Firms and their auditors will no longer be needed to evaluate whether an incident was
uncommon enough to qualify as an extraordinary item, beginning with the fiscal year 2015
fiscal year. While businesses are still obligated to disclose uncommon and unexpected
situations, they are no longer considered extraordinary events. As a result of these changes,
companies are no longer required to evaluate the income tax impact of extraordinary events
and declare the impact on earnings per share (EPS), which is a ratio of a company's profit to
its outstanding equity shares.
The accounting amendment made no changes to the rules for reporting and disclosing
extraordinary and rare occurrences or transactions. While companies are no longer obligated
to identify exceptional occurrences and their repercussions, they are nevertheless required to
disclose uncommon and unusual events on their income statements, as well as their effect
prior to taxation. Additionally, GAAP permits companies to provide more detailed names for
these occurrences, such as "Effects of Fire at Production Facility." Exceptional items are
excluded from accounting requirements under the International Financial Reporting Rules
(IFRS).
So, due to that reason cannot agree with the above statement.

(2)
I agree with the statement.
When viewed purely mathematically, the accounting-based equity valuation model is
resistant to accounting manipulations under the clean surplus relation. Profit overstatement
results in increased book values, which reduces future residual revenue for businesses that
overstate their net income. Conservatively estimated net income results in lower book values,
which benefits the firms that report it by increasing future residual revenue. Profitability
projections, on the other hand, are developed in light of current and prior financial results.
Accounting manipulations that have the ability to influence users' estimates of net income
will affect the value of the firm to the extent that these manipulations are successful.

(3) A part

2022

sales 15910 16,494 15,326

cost of goods sold 12684 13,101 12,267
Gross profit 3226 3,393

Admin expenses (2489.5) 2,728 2,251

Depreciation (222.5) 278 167
Interest (25.5) 34 17
Income before tax (488.5)
Income tax expenses 132
Net income 356.5
QUESTION 03
(1)
Fair value accounting is a type of accounting that evaluates current market values to
determine the appropriate amount of assets and liabilities to record. The expected price at
which an asset may be sold or a liability can be satisfied in an orderly transaction with a third
party is referred to as the asset's or liability's fair value in the current market environment.
The following concepts and words are included in this definition:
At the time of writing, market conditions existed. Fair value should be determined in light of
market conditions at the time of measurement, not on the basis of a prior transaction.

Intent. The holder's desire to keep ownership of an asset or liability is irrelevant in

determining the asset's or liabilities fair value. Without such a reason, the measured fair value
might be different from the measured fair value. For instance, if the objective is to sell an
asset quickly, it may be assumed that this will result in a rushed sale, resulting in a lower sale
price.
Prompt completion of the transaction. For the purpose of determining fair value, an orderly
transaction is necessary. This implies that there is no undue pressure to sell, as could occur in
a corporate liquidation.
Involved is a third party. The seller's fair market value is to be calculated based on a
hypothetical sale to a third party who is not a company insider or otherwise linked to the
seller in any way. On the other side, a transaction involving a related party may skew the
price paid.

Advantages
 Information that is timely and relevant - Because fair value accounting relies on data
that is specific to the era and current market circumstances, it makes an attempt to
provide the most pertinent estimates possible. It adds significant information value to
the company as a whole and promotes the rapid execution of corrective actions.
 Financial statements have a greater ability to inform when compared to the other
accounting approach, historical cost accounting - Fair value accounting has the
capacity to offer financial statements with additional information. Due to the fact that
determining fair value requires a thorough disclosure of the methodology used, the
assumptions made, risk exposure and associated sensitivities, and other issues, an
organization must give a great deal of information in order to generate a complete
financial statement.
 The production of such financial statements improves an organization's financial
transparency. This enhanced financial openness benefits potential investors,
contractors, and lenders in particular, since they acquire a better understanding of an
organization's stability and riches.
 Trustworthy information - Financial data must be verifiable and impartial in order to
be trustworthy. That dependable information is given at a reasonable price.
 Provides information on an asset's true value - In today's dynamic and volatile market,
customers are interested in learning an asset's genuine value as of a certain date.
 According to the Financial Accounting Standards Board, the most critical statistic is
the financial value of a financial investment.

Disadvantages
  A frequent complaint leveled about fair value accounting is the degree of uncertainty
with which assets are assessed for financial reporting purposes. Price fluctuations are
frequently highlighted as a disadvantage of fair value accounting. Pricing fluctuations
can be manipulated by capitalizing on the method's ambiguity.
 When businesses seek to get fair value estimates for their investments, the risk of
price manipulation by the enterprises is also a problem. The trading actions of firms in
illiquid markets may have an effect on both traded and quoted prices.
 A fair value estimate, which is supposed to offer the most trustworthy information, is
more difficult to get in the absence of a market price, which is more difficult to obtain
in the absence of an active market for a specific asset.
 Limited dependability - The financial statements generated by the FVA approach
contain information that is only relevant and trustworthy for a limited period of time
after the technique is applied. Financial statement information is time-sensitive for
certain market conditions; thus, a change in the market environment can result in a
significant change in a business's or other organization's true financial position.
 Volatility is inextricably linked to the problem of insufficient dependability, which
was explored in greater depth previously. If the fair value of an asset varies as the
market environment changes, the market's volatility can have a detrimental effect on a
company's investment capacity.
(2)
Account analysis is a process in which specific line items in a financial transaction or
statement are extensively examined for a particular account, often by a certified auditor or
accountant. Account analysis can assist in identifying patterns or offer insight into the
revenue performance of a particular account.
Financial statement analysis is the process of reviewing and evaluating financial statements in
order to help in decision-making and obtain a better knowledge of an organization's overall
health. Financial statements must be examined using financial statement analysis in order to
be more beneficial to investors, shareholders, managers, and other interested parties.
This is a technique used in cost accounting to examine and assess a business's product or
service's cost behavior. This stage examines cost drivers and categorizes them as fixed or
variable. After gathering data from the business, the cost accountant can estimate the variable
cost per cost-driver unit or the predicted fixed cost per period.
In banking, account analysis takes the form of a periodic statement detailing the financial
services provided to a certain firm or organization. Typically, the statement is provided once
a month and includes all important account information, such as the business's average daily
balance and any fees or charges incurred by the financial institution.

(3)
Plants Machines Tools
Average age 3.6 Years
Remaining life span 38.9 Years
Total life span 42.5 Years

Plants
Depreciation rate = 200/8500 = 2.35%
Yearly depreciation for 700 worth plant = 164.7
Total years = 8500/164.7 = 42.5

Machines