Accuracy of Financial Information and Decision Making

The Case Study 
Jeffrey owns Sweet Tooth Ltd which makes handmade chocolates and sweets in their factory in Portsmouth. Sweet Tooth owns 12 shops selling the company’s sweets and chocolates across the country. The company wants to expand and to start making ice cream, cakes and other desserts at their Portsmouth factory. They plan to start selling their products to other retailers and supermarkets. They have one large supermarket chain who is already very interested in stocking their products in their stores across the country. To be able to supply this supermarket with products, Sweet Tooth will need to expand their factory significantly. Sweet Tooth has obtained planning permission from the local council to build a large extension to their existing factory in Portsmouth. 
Jeffrey would also like to open a new shop in Central London selling sweets, icecream, tea, coffee and cakes. Setting up a new shop in Central London will be expensive, but Jeffrey thinks they can make it work. 
Jeffrey has put together the following basic financial information regarding the expansion plans.
Building cost for extension to Portsmouth factory £1,500,000
Purchase of new equipment and freezers for storage in the factory will cost £600,000.
Fixed costs are estimated to rise at the factory by £25,000 per month 
New production staff will be paid £16,000 per year each 
 A new advertising and promotional campaign to encourage more customers £45,000 
Rent for new shop in Central London £273,000 per year 
Annual fixed cost for the Central London shop £80,000 
Shop fittings £65,000 for Central London shop
Central London Shop staff £14,000 per year each 
Jeffrey has prepared a quick budget estimating the sales income and costs for the new Central London shop
Jeffrey believes that they will need to borrow £2,100,000 from the bank to build the extension to the factory and to purchase the new equipment and freezers, and the remainder of the money needed to expand will come from retained profits. 
The bank feels that the expansion plans will put a lot of pressure on the cashflow of the whole of Sweet Tooth Ltd. Therefore the bank is reluctant to lend Sweet Tooth Ltd any more money.
Required: 
You are required to write a report which discusses the following; 
 Discuss how having accurate financial information can help with the decision making process in Sweet Tooth Ltd (15 marks).
 Discuss and evaluate the benefits to Sweet Tooth Ltd of preparing a detailed business plan as well as accurate cash-flow forecasts and budgets before beginning their expansion projects (15 marks).
 Identify and discuss the problems with the financial information that Jeffrey has prepared so far, and give some suggestions as to what further information may be needed in order for the company to make the right decision about the expansion projects (10 marks). 
 In order to have enough money for both projects Sweet Tooth Ltd will need to generate additional finance. Identify and discuss any problems that you believe Sweet Tooth Ltd may have when trying to generate internal finance in the form of retained profits, and external finance from lenders (10 marks). 
 Based on the information provided in case study, explain any other problems that you think Sweet Tooth Ltd may have with the development of these new projects, and give your opinion as to whether you think based on information provided in the case study whether Sweet Tooth Ltd should continue with their expansion projects. Explain your opinion in full (10 marks). 
Additional Marks:
Additional marks can be awarded for the following,
10 marks – up to 10 marks can be awarded for the structure and clarity of the report, the use of appropriate headings and/or sub-headings, organisation of points, and use of English and fluency. 
10 marks – up to 10 marks can be awarded for quality, reliability and scope of research, referencing and bibliography/list of references.
Case Study Analysis Report 80 Total Marks 
Guidance Notes: 
 You must prepare your answer in a report format. You will lose marks if you do not write in a report format. 
 The report must be written in your own words 
You should not copy and paste from websites or the resources on the Business Studies Study Smart page 
 Your report should be a minimum of 1500 words.
 Read the case study carefully and think about all of the issues being faced by the company, and consider these when completing your report. 
If you need to do further reading and research around the key topic areas in the case study then do so before writing your report. But try to 
keep your answers in the context of the case study i.e. relevant to the issues raised in the case study and to Sweet Tooth as a business
 If you take information from your research sources and include it in your report, then you must fully reference your sources in the body of the report and create a bibliography/list of references