This report analyzes Renata Ltd's financial activities in Round 6 as a finance manager. Key activities included reducing the gearing ratio to 48% from 50.88%, increasing return on capital employed to 16.08%, and reducing production costs by 5.62% through investments and cross-currency hedging. Working capital was managed by investing in raw materials and production efficiency. Bottom-up budgeting was used to minimize unit costs considering rising material and transport costs. The objectives of reducing production costs by 2% and gearing ratio were achieved, but failing to gain the targeted 60% market share. Lessons were learned about various financial concepts to apply towards an MBA program.

1. RENATA LTD.
2012
Activity Analysis Report: Finance
Muhammad Tanvir Hossain
Student ID: 4325352
C O V E N T R Y U N I V E R S I T Y L O N D O N C A M P U S

2. Activity Analysis Report:Finance 2
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Table of Contents
1. Introduction: ........................................................................................................................3
2. Individual Activity: Finance: ................................................................................................3
2.1 Gearing:.......................................................................................................................4
2.2 Return on capital employed (ROCE):.........................................................................5
2.3 Working capital management: ....................................................................................6
2.4 Budgeting: ...................................................................................................................7
3. Conclusion:.........................................................................................................................8
4. References:.........................................................................................................................9
5. Appendices:......................................................................................................................10
Appendix 1: Sales and marketing cost ................................................................................10

3. Activity Analysis Report:Finance 3
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1. Introduction:
This is an activity analyse report based on Renata Ltd., where in round six, business
decisions taken by me as a finance manager. This financial business report for the
pharmaceutical industries in the major market in Finland, France and USA.
In this round six, the market condition is positive and negative either way in the
perspective of finance. The rise of the demand for cement and steel production in
Asian countries increase the costs of building materials approximately 40-50% all
over the world. As a finance manager, I am using budgeting to gain economies of
scale, to reduce production costs by 2% to expand competitive advantages over our
competitors in the market and achieve 60% market share globally in this round six. In
this case, investing minimum on buildings and taking advantages of advanced
technology for machineries.
Euro is expected to strengthen against USA in the market and European central
bank commence to lower the interest rates, it has both positive and negative effects
on decision making process as a finance manager. To reduce the risk, I am
considering gearing and risk management, as well as working capital management.
My objective in this round is to reduce gearing ratio to 48% and hedge currency risk
to gain more on return on capital employed, where the current gearing ratio is:
50.88%.
2. IndividualActivity: Finance:
Finance is a branch of economics concerned with resource allocation as well as
acquisition, investment and resource management (Investor Words, 2012). It can be
also describe money and market, where money rise through sales of debt and/or
equity and insurance. There are three basic sources of company’s funds: which are
shareholders (owner of the business), lenders (i.e. Banks, venture capitalists,
government) and retained profit in according rounds (Proctor 2009: 45).
One of the main part of finance is investing. investment involves resources being laid
aside now to produce a return in the future, for example, investing building and
machinery tools to produce goods for next year (Arnold, G. 2008:20). In the chart 2.1
below shows how cash flows within the organization:

4. Activity Analysis Report:Finance 4
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Chart 2.1: Cash flow cycle
Source: Business Education
In this cycle, cash is used to purchase raw materials, wages and other production
costs. Finish goods are sold to generate more cash and some external debts, which
will allow me to have better understanding of gearing.
2.1 Gearing:
Gearing ratio describe a financial ratio that indicates company's relationship between
some form of owner's equity or capital to borrowed funds. This activity allow measure
of financial influence by owner's funds versus creditor's funds (Investopedia, 2012).
Organizations profit varies on how much the organization borrowed cause it has
effects on profitability, as organization has to pay interest on borrowing funds. My
objective is to reduce gearing ratio to 48% as Renata's current gearing ratio is
50.88%.

5. Activity Analysis Report:Finance 5
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The long-term liabilities also include preference shares and mortgages where capital
employed includes share capital, retained earnings and long-term liabilities. Where
Renata's long-term liabilities 75,000 and share capital is 5,000.
Graph 2.1: Current gearing ratio
Source: Cesim sim firm
In the graph 2.1 illustrate, as a finance manager, I was able to increase the profit of
the organization to reduce gearing below 50% from previous round. The current
gearing ratio is 48.43%, where my objective was to reduce 48%.
2.2 Return on capital employed (ROCE):
ROCE referred to the business returns (profits) had made on the resources available
on to it. It is calculate the percentage of profits earned before paying taxes and
interest versus total (entire) amount of capital invested to earn profit. The higher
percentage of ROCE is better for the business.
I have invested on production efficiency 10.0 (K Units) in USA and Finland, as well
as I have invested on cost efficiency improvement to minimize the production cost to
47
47.5
48
48.5
49
49.5
50
50.5
51
Round Five Round Six
Gearning Ratio
Gearning Ratio

6. Activity Analysis Report:Finance 6
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earn maximum profit. It allows me to gain more ROCE. After round six the return on
capital employed is: 16.08%. The ROCE has few drawbacks, such as it measures
return against the book value of assets in the business. As the assets has
depreciated value, The ROCE will increase but cash flow will remain same.
2.3 Working capital management:
Every firm need to invest in order to prosper. To invest new factory or new
machinery is the part of long term investment. it is also necessary to expand in
additional resources devoted to current assets (Arnold, G. 2008:529). The figure 2.2
shows the working capital cycle for a typical firm, such as Renata Ltd. as it is a
manufacturing firm rather than business services.
Exhibit 2.2: The working capital cycle
Source: The working capital cycle
As on the diagram, in the upper part where capital invested in raw material
inventories which are then used in the production process. Some of the finish goods
then sold for cash and rest are sold on credits. As a finance manager, I have
invested in raw materials and production efficiency as raw materials and wages

7. Activity Analysis Report:Finance 7
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prices are going up in global market. Current wages of production in Finland is 49 (K
EUR) and 51 (K EUR) in USA respectively.
The bottom part of the diagram 2.2, shows non-working capital cash flow. These are
generally long term expenses. In the market condition, building cost rises 40-50%
and my objective is to reduce production cost by 2% in this round. As a finance
manager, I did not invest any amount on new buildings because of investment
expenses on building in Finland and USA are 215 (EUR/unit) and 158 (EUR/unit)
respectively compare to round five 145 (EUR/unit) and 107 (EUR/unit) in that order.
To manage the currency risk, I have cross currency swap agreement with my raw
materials suppliers:
Exhibit 2.3 Cross currency swap:
source: Bank for international settlements.
and I was able to reduce my production cost by 5.62% compare to previous round,
where my objective was to reduce by 2%.
2.4 Budgeting:
I have used bottom up budgeting approach to reduce production, sales cost and
effective use of logistic to use minimise unit cost. Considering the rise of material
cost for building and raw materials as well as transportations. figure 2.4: bottom up
budgeting

8. Activity Analysis Report:Finance 8
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Exhibit 2.4 Bottom up approach
Source: Government of Pakistan, ministry of finance
By using bottom up approach I have decided to utilize 100% production capacity to
maximise the use of space and inventories. My sales and marketing budget (Refer
Appendix 1) was to achieve our main objective to gain 60% market share globally.
We have failed to capture 60% market share, where our global market share after
this round is: 50.66% and at the same time our competitors Pharmateam and Ecolab
Pharma has 9.35% and 39.99% correspondingly.
3. Conclusion:
In conclusion, I would say the budget operations and finance is very important in an
organization. As a finance manager I have faces many challenges to achieve our
objectives, which ultimately we have failed to achieve.
The decision I have took without having more financial knowledge in previous round
helped me to gain more experience and better understanding of some of critical
financial aspects, such as gearing, ROCE, risk management and working capital
management which allowed me to achieve my objectives as a finance manager in
this round to reduce production cost by 2% and minimize gearing ratio to 48%.
Finally, I have developed couple of crucial skills during this round, such as currency
and exchange rates, gearing etc. My personal development plan is to gain more
knowledge in finance as it is a very vast subjects and there are few interesting
concepts and which I will learn during my MBA at Coventry University, for example:
shareholder value-based management, total shareholder return, dividend policies,
value sharing and stock exchange.

9. Activity Analysis Report:Finance 9
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4. References:
Arnold, G., (2008). Corporate Financial Management, 4th Edition, Pearson
Education Limited, England.
Bank for international settlements. [online] available from
<http://www.bis.org/publ/qtrpdf/r_qt0803z.htm>
Business Education. [online] available from
<http://www.bized.co.uk/reference/diagrams/The-Flow-of-Working-Capital---Cash-
Flow-Cycle> [16.07.2001]
Cesim Sim Firm. [online] available at
<http://sim.cesim.com/results/se/IncomeStatementPage/wicket:pageMapName/wick
et-0>
Investopedia. [online] available from
<http://www.investopedia.com/terms/g/gearingratio.asp> [2012]
Investor Words.[online] available from
<http://www.investorwords.com/1940/finance.html> [2012]
Government of Pakistan Ministry of Finance. [online] available from
<http://www.mtbfpakistan.gov.pk/mtbf-process-bottomup.htm>
Proctor R (2009) Managerial Accounting for Business Decisions (3rd Ed) Harlow.
FT/Prentice Hall
The Working capital cycle. [online] <http://withfriendship.com/user/boss/working-
capital.php>

10. Activity Analysis Report:Finance 10
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10
5. Appendices:
Appendix 1: Sales and marketing cost