Compliments of the season,

Please I need help with the financial analysis of below briefing documents. How do I work out the third year figures? - Many thanks in advance

Briefing document

About the business

You are the CEO of a multi-national financial services business. Founded in the UK in the 1980s, the business concentrates on providing specialist insurance, trade finance, and associated services, including consulting, for companies involved in international commodities trading.

The business does not have retail customers. Its expertise and focus are business-to-business.

Shareholders and company control

The company is listed on the main London Stock Exchange with a roster of institutional shareholders, the largest of which is an insurance company with an 8% stake. You and the other directors collectively own around 2.5% of the company.

The value of the shares is 440 million.

Trading performance

The business's clients are UK based in the main with 85% of the turnover and 90% of the profits after tax coming from UK commodity traders and brokers. There are a few European based companies who provide the rest of the business.

Group turnover is 500 million per annum with net profits at 60 million, and profits, after tax, are 45 million. There is no debt. Cash in the bank totals 89 million at the time of the report. ROCE is 35%.

Despite this healthy financial position, over the past few years, business growth has stagnated somewhat.

Opportunity knocks

However, because of your positive reputation, you have been asked on many occasions, to provide services for Australian commodity businesses who export to China. Similarly, Chinese commodities buyers based in London have asked you to provide services for them in their local markets.

You feel that you should expand to exploit the Chinese market and believe that, in order to do the job properly, you need to commit to opening a business where commodity buyers and sellers are - therefore in China.

Over the years, several of your predecessors as CEO have proposed similar actions. Indeed, once the company did expand into the US market, only to close the operation when commodity prices slumped resulting in client collapses with your company being owed significant fees. Other issues included cultural differences. You view this as a valuable learning experience for the company, rather than a reason not to try and expand again.

Board approval

You have had the long phone calls and lunches discussing ideas and options.

You have gathered the information and have a plan in your mind. You conclude that China is a long- term, super-scale market. You also feel that, in order to compete and be taken seriously, you need to be there physically and culturally.

To get the project up and running, you need full Board of Directors approval in order to propose the expansion to shareholders at the Annual General Meeting.

You need to write single Board Paper as a business report, covering all the essential information. The report will be reviewed and commented on by two Board committees. These are the Audit Committee (who are interested in the financial impact and the risks of doing business in China and Australia) and the Corporate Social Responsibility (who may focus on wider social and environmental issues).

You estimate that, by the third full year, the new business will turnover 150 million per annum with net profits at 48 million, and profits, after tax, will be 31 million. You think the capital requirement for the expansion is in the region of 60 million.

The directors have indicated that you can borrow some, or all, of the funding required if you think it is appropriate. They have indicated that they would not support issuing new shares.

The Board have agreed that you need to present financial information for the proposal as if it is in the third year only, (you will not need to provide information about years one and two).

The board is expecting to see some financial analysis to cover by business, at least the operating profit, return on capital employed, capital, and debt and interest if there is any.