Home / Business /     ​​​​​​​ MINI CASE: A multinational company, Fines Cosmetics ltd (FC) is considering awarding a franchise to a Zambian company to be a sole distributor of all its beauty products in Zambia. Fines has been one of major players in the cosmetic industry with a trading history of over 50 years. They are currently looking at entering the Zambian markets through franchising. Applications have been received from three (3) Zambian companies that meet the requirements. MBS ltd is a large Lusaka based distribution company that has been in business for many years. Yinu ltd is a small niche player in the Zambian distribution market formed about 5 years ago. Miguel ltd has been trading for a long time but is only a fraction of the size of MBS ltd. All the three businesses have shown logistical and operational capacity to the handle the FC franchise. Therefore, the board of directors of Fines Co ltd have indicated that the successful applicant will be based on the relative financial strength of the three firms. Below are the key financial figures on each of the three companies vying for the franchise. INCOME STATEMENTS STATEMENT OF FINANCIAL POSITION Page 2 of 3 REOUIRED: Write a report to the directors of Fines Co ltd in which you: a) Analyze the performance of the three (3) firms over the two years (2021 and 2022) using appropriate ratios i.e. profitability, liquidity, activity, and debt ratios. b) Highlight the strengths and weakness of each company. c) Based on your analysis in (a) above, make recommendations of which of the three companies should be given the franchise and why? Give reasons for your choice. d) Discuss ANY THREE non-financial factors that must be considered awarding the franchise.

Question     ​​​​​​​ MINI CASE: A multinational company, Fines Cosmetics ltd (FC) is considering awarding a franchise to a Zambian company to be a sole distributor of all its beauty products in Zambia. Fines has been one of major players in the cosmetic industry with a trading history of over 50 years. They are currently looking at entering the Zambian markets through franchising. Applications have been received from three (3) Zambian companies that meet the requirements. MBS ltd is a large Lusaka based distribution company that has been in business for many years. Yinu ltd is a small niche player in the Zambian distribution market formed about 5 years ago. Miguel ltd has been trading for a long time but is only a fraction of the size of MBS ltd. All the three businesses have shown logistical and operational capacity to the handle the FC franchise. Therefore, the board of directors of Fines Co ltd have indicated that the successful applicant will be based on the relative financial strength of the three firms. Below are the key financial figures on each of the three companies vying for the franchise. INCOME STATEMENTS STATEMENT OF FINANCIAL POSITION Page 2 of 3 REOUIRED: Write a report to the directors of Fines Co ltd in which you: a) Analyze the performance of the three (3) firms over the two years (2021 and 2022) using appropriate ratios i.e. profitability, liquidity, activity, and debt ratios. b) Highlight the strengths and weakness of each company. c) Based on your analysis in (a) above, make recommendations of which of the three companies should be given the franchise and why? Give reasons for your choice. d) Discuss ANY THREE non-financial factors that must be considered awarding the franchise.

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Transcribed Image Text: MINI CASE: A multinational company, Fines Cosmetics ltd (FC) is considering awarding a franchise to a Zambian company to be a sole distributor of all its beauty products in Zambia. Fines has been one of major players in the cosmetic industry with a trading history of over 50 years. They are currently looking at entering the Zambian markets through franchising. Applications have been received from three (3) Zambian companies that meet the requirements. MBS ltd is a large Lusaka based distribution company that has been in business for many years. Yinu ltd is a small niche player in the Zambian distribution market formed about 5 years ago. Miguel ltd has been trading for a long time but is only a fraction of the size of MBS ltd. All the three businesses have shown logistical and operational capacity to the handle the FC franchise. Therefore, the board of directors of Fines Co ltd have indicated that the successful applicant will be based on the relative financial strength of the three firms. Below are the key financial figures on each of the three companies vying for the franchise. INCOME STATEMENTS STATEMENT OF FINANCIAL POSITION Page 2 of 3 REOUIRED: Write a report to the directors of Fines Co ltd in which you: a) Analyze the performance of the three (3) firms over the two years (2021 and 2022) using appropriate ratios i.e. profitability, liquidity, activity, and debt ratios. b) Highlight the strengths and weakness of each company. c) Based on your analysis in (a) above, make recommendations of which of the three companies should be given the franchise and why? Give reasons for your choice. d) Discuss ANY THREE non-financial factors that must be considered awarding the franchise.
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Transcribed Image Text: MINI CASE: A multinational company, Fines Cosmetics ltd (FC) is considering awarding a franchise to a Zambian company to be a sole distributor of all its beauty products in Zambia. Fines has been one of major players in the cosmetic industry with a trading history of over 50 years. They are currently looking at entering the Zambian markets through franchising. Applications have been received from three (3) Zambian companies that meet the requirements. MBS ltd is a large Lusaka based distribution company that has been in business for many years. Yinu ltd is a small niche player in the Zambian distribution market formed about 5 years ago. Miguel ltd has been trading for a long time but is only a fraction of the size of MBS ltd. All the three businesses have shown logistical and operational capacity to the handle the FC franchise. Therefore, the board of directors of Fines Co ltd have indicated that the successful applicant will be based on the relative financial strength of the three firms. Below are the key financial figures on each of the three companies vying for the franchise. INCOME STATEMENTS STATEMENT OF FINANCIAL POSITION Page 2 of 3 REOUIRED: Write a report to the directors of Fines Co ltd in which you: a) Analyze the performance of the three (3) firms over the two years (2021 and 2022) using appropriate ratios i.e. profitability, liquidity, activity, and debt ratios. b) Highlight the strengths and weakness of each company. c) Based on your analysis in (a) above, make recommendations of which of the three companies should be given the franchise and why? Give reasons for your choice. d) Discuss ANY THREE non-financial factors that must be considered awarding the franchise.
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【General guidance】The answer provided below has been developed in a clear step by step manner.Step1/4A) Performance analysis of 3 firms for 2 years1) Profitability Ratioi) Operating Profit ratioOperating profit/Revenue from Operations*100 ParticularsMBS LTD(In %)Yinu Ltd(In %)Miguel Ltd(In %)20220.94339622641509444.4444444444444451.904761904761904920211.76100628930817623.751.875Yinu is having higher Operating profitii) Return On InvestmentEBIT(Earnings before interest and tax)/Capital Employed*100Capital employed = Total Assets - Current LiabilitiesParticularsMBS LtdYINU ltdMiguel Ltd202220212022202120222021EBIT(Operating Profit)25028020154030Total Assets835573903920415057305590Current liability2750211085080015501460Capital Employed560552803070335041804130ROI(In %)4.4603033006244425.3030303030303030.65146579804560270.447761194029850760.95693779904306220.7263922518159807MBS Ltd is having higher ROI2) Liquidity Ratio`i) Current RatioCurrent Asset/Current liabilityParticularsMBS LTDYINU LTDMIGUEL LtdCurrent LIability202227508501550Current LIability202121108001460Current Asset 2022535520203230Current Asset 2021489019003140Current Ratio 20221.94727272727272732.3764705882352942.0838709677419356Current Ratio 20212.31753554502369672.3752.1506849315068495Current Ratio is higher for YINU and is consistent over 2 yearsii) Net Working Capital ratioCurrent Assets - Current LiabilitiesParticularsMBS LTDYINU LTDMIGUEL LtdCurrent LIability202227508501550Current LIability202121108001460Current Asset 2022535520203230Current Asset 2021489019003140Net working capital 2022260511701680Net Working Capital 2021278011001680Net working Capital is higher in MBS Ltd3) Activity Ratioi) Accounts receivable Turnover ratioRevenue/Average Accounts receivablesParticularsMBSYinuMiguelRevenue265004502100Average Acc Receivables1747.5785900Accounts receivable TO ratio15.1645207439198850.57324840764331212.3333333333333335MBS has higher Accounts receivable ratioii)Total Asset Turn over ratioRevenue/Average Total AssetParticularsMBSYinuMiguelRevenue265004502100Average Total Asset787240355660Accounts receivable TO ratio3.3663617886178860.111524163568773230.3710247349823322MBS is having higher Total asset TO ratio4) Debt RatioTotal Debt/Total Assets2022ParticularsMBSYINUMiguelTotal Debt43559201730Total Asset835539205730Debt Ratio0.5212447636146020.234693877551020420.3019197207678883 ... See the full answer

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