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The given report is based on analysis of financial as well as market position of a business named as Light Feet Ltd. On the basis of this analysis results, the financial advice would be provided to this client. The financial advice includes providing recommendations and suggestions related to the business. The client organization will seek a regular advice on things they need to do and the things that they don’t need to do. So, the client for which we need to provide financial consulting is a solar power shoes manufacturer which has just set up a business is trying to get funding and finances. As a financial consultant, we are supposed to suggest the client, the appropriate funding sources which are suitable for start-ups and provide the quality funding as well.

The financial resources available for start-ups are personal savings and borrowings, bank loans and retained earnings. In order to expand the business, company have financial resources like angel investors and venture capitals. For our client, the financial resource which would be most helpful in its initial phase is personal borrowings which includes personal savings as well as borrowing funds from family and friends. At later stage, bank loans and retained earnings can be used to boost up the business. The company is later converted into a public company in order to raise large amount of funds for the purpose of expanding their operations and businesses. In order to do this, they need to prepare their financial statements such as balance sheet, income statement, cash flow statement etc. In order to complete this task, client has provided us with plethora of information regarding their financials.

As a part of third exercise, the client now wants to analyze their performance in the last three years on the basis of their financial statements and financials ratios. Their ratios need to be compared with the industry average ratios for each parameter. In the field of profitability, the client is constantly performing better than its industry standards especially the return on equity parameter. Company’s efficiency ratios are sub-par the industry standards by almost fifty percent. There is a drastic change which can be observed over last three years, as far as average inventory turnover period is concerned. The company has shown continuous decline in case of this parameter.

Company’s liquidity position has been improving in last three years, but it is still lower than the industry standards. This means the company do not have much liquid resources to cover up its short-term obligations. As per the financial data provided by the company, its debt position is zero which means that its capital structure is only made up of equity components. The company has been paying to their shareholders in the form of dividends for last three years and it is more than an industry average, but the amount has been decreasing if we look at the figures from all the years. This means that company is keeping more and more profit as a part of retained earnings in order to use it in the business at later stage. This analysis is very helpful for the business in order to understand its weaknesses and strong areas, so that the areas which need proper attentions can be improved.

In the further assignment, the client company has encountered a lot of projects which it would be interested to get into, but it is not sure which project to take. As per the basic understanding, the project having cost of capital equal to or more than the weighted average cost of capital of the business is the one which would improve the value of the business. The first step to deal with this problem is to calculate weighted average cost of capital for the business by separately calculating the cost of all the sources of capital and then determining the market value of all the sources of capital. Finally, the weighted average of cost of capital for the client business came out to be equal to 8.9%.

Now, the company is planning to take up a project which involves acquisition of a new machine which would help the business in improving the production of their new solar novelty shoes. The method which is used here to find out the feasibility of the project is calculation of net present value of the project. This involves development of free cash flows for the useful period of the machine and which is then followed by calculating the net present value with the use of cost of capital of the firm. If the NPV is positive, then the project will be beneficial for the company otherwise not. In case of this machine, the NPV came out to be negative which indicates the fact that the company should not take up this acquisition project.

In another one year of time, company has expanded its capacity of manufacturing solar novelty shoes by using weighted average cost of capital and project evaluation methodology. Due to increase in the competition in the industry which the client is operating in, it wants us to work on company’s budgeting and production planning. This task would involve calculating various budgets for the company such as inventory budget, cash budget, accounts receivables budget and accounts payable budget on the basis of demand forecasting. Further, it is required to calculate the break-even point for the client which would involve calculating the level of production that the company can comfortably achieve as per the latest data and forecasted estimates. One of the concerns is the accumulation of company’s cash balance which need to be spent in order to generate the income as interest on the funds invested. As per the break-even analysis, company is comfortable in achieving its break-even point which is 605 units.

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