The amount of Nan-current assets has increased due to; an increase in stock, increase in receivables and decrease in cash. The amount of stock has been increase because the company believe that they are going to be able to sell more cars and therefore they need more materials to make them. Due to this strategy they have had to take on more debtors to be able to meet the increase in demand for the materials and in order to stay competitive they have offered more of their customers credit periods so that they will be encouraged to buy from Rolls Royce.
Due to the fact that they are offering their customers credit this has led to a decrease in the amount of cash that the business has had and looks as if it could be the start of a cash flow problem which is why Working Capital has been decreased. The amount of current liabilities has been increase because Rolls Royce are paying for more materials to build more cars to meet an increase in demand. a) The procuring of equipment in order to increase the companies output. b) They are offering more credit because they want a competitive edge. ) Due to have more eceivables this has led to a decreased amount of cash in hand. d) Buying more raw materials to increase the amount they make. e) The company has been successful and is therefore valued at a higher price per share. Case study Questions 1 . There has been an increase in non-current assets which is extremely positive for the company for it shows that it is not selling its assets to raise capital. By increasing the amount of non-currents assets it has it shows that Rolls Royce is really thinking ahead for the future and is therefore looking at an expansion strategy.
Due to this expansion strategy there has been a decrease of cash in hand which could in the short run destabilise the finances of the company and therefore they will have to mon itor the amount they spend so they do not run into short term financial difficulties and have to procure and overdraft. However the amount that the cash in hand has decreased is less than ElOOmiIlion and therefore is not likely to damage the company in a significant way. They have managed to keep a good grasp of their finances because of the amount of change in non-current assets being more than E600miIlion.
The amount of current assets has increased by over E800million since last year despite the fact that they have had a decrease in the amount of cash flow they have. They have increase both their current and non-current assets in relation to the year before with an expansion policy. The amount of current liability has increase by about El 00million and this could be seen predominantly as a bad thing but however it is a very big positive. It is reinforcing that they have been more successful in 2008 than in 2007 because there is also a growth of current assets to countermand any xpenses that have arisen from the expansion strategy.
The growth in both current liabilities and assets is just below and above ElOOmillion showing that the growth of the company is being controlled in an efficient manner. The fact that current liabilities and assets have increased by about the same amount shows that the company is putting good use to the increase amount of materials they are buying. Working capital is extremely important to a business because cash is the lifeblood of a business.
In 2008 the amount of working capital they have has been decreased meaning that they have less oney and room for mistakes. If they run into trouble and cannot pay for their supplies they will be able to get an extension on their credit period but they will have damaged their brand name and this could have massive repercussions on their credit score and as a result the amount of suppliers who are willing to work with them. However despite having a decrease in the amount of Working Capital the company has they have still managed to increase their net worth.
They are valued more in the stock market and therefore their shares are more expensive showing that they have been more uccessful in 2008 than in 2007. 2. Financially Rolls Royce are expect to increase benneen the years 2008-11. This is due to the companies different strategies of spreading risk and having a competitive edge. At the end Of 2008 Rolls Royce celebrated their 1 00th anniversary at the Farnborough air show. By doing this in a very public fashion they have managed to increase their brand image and their assurance of quality.
They have boasted their brand image because they have showcased their excellent engines whilst reminding the public that they have been at the top of their market for the ast 1 00 years and are carrying on strong. They also showed the public the spitfires whose frames contained their engines showing that the British government trusted them to build the engines of the plane with the most successful service record. They have managed to spread out there focus over many different parts of the mechanical industry and in doing so they reduce the risk of going bankrupt.
This sense of security is one of the business’ main strategies. They have decided not to let no one contract provide more than 3% of the sales of the entire company and in so doing this limits the damage hat any contract can do to the business and means that they are too reliant on any one contract. Rolls Royce is only one of a few companies in England that can boast about being the 2nd biggest in their industry worldwide. In 2008 they reached profits of over E3. 7bilIion of which E3billion was reinvested into the company’s reserves.
To add to this they have just procured to deals which are worth $1 billion each with the US military further increasing the image of the business being synonymous with quality. However the orders to don’t stop there they have E53. billion on the order books which is “a very secure level for a company with annual sales of less than E8billion”. The company in 2008 had 53% of sales being replacement parts showing that the companies who bought them were confident in the products they had been sold that they made repeats purchases which bodes well for the future.
There was however a decline in retained profit in 2008 due to a E380milIion R project. This could have led to a decreased amount of dividends that the Shareholders received and therefore could have led to a decreased perception of share confidence. This however helps the company because R is one of the main factors attributing to the success of Rolls Royce because it gives them a competitive edge. The business also release a statement saying that they have predicted growth of 12%.
A direct quote from the text is ‘the future looks bright for Rolls Royce” further proving my points above that they are going to only get more impressive as the years go on due to a variety of failsafe’s and controlled growth. 3. The information provided in the case study is a reliable basis for the future of strategic decision making by Rolls Royce. By disposing of the cars side of their operations it has allowed them to focus of adapting the Trent engine to a variety of different methods of transport and as a result they have become extremely wealthy.
On a focusing note they had decided that in their air operations they will focus on the development of next gen Boeings, air buses and military grade engines. By focusing in on the military side they have managed to secure a Sl billion dollar deal with the US to help develop next gen engines for fighter planes. Rolls Royce have managed to ave both of their engines on the two next gen type commercial planes the Airbus A380 and the Boeing 787 Dreamliner proving that this strategy is working. 3% of their sales can be attributed to their replacement and upgrade service and the order books suggest that there is going to be an increase in these requests so it stands to reason that one of the future strategic decisions would be to carry on stocking high levels of these replacements and to make sure that their staff are highly qualified. There is to be a predicted rise of 12% to the forecasted growth levels for the next year howing that the direction they have started to head in is paying off and that they were right to pick the strategy they have done.
Probably the biggest point of all is the basis of the risk reduction by making sure that no one contract attributes to more than 3% of their sales. They would do well to keep this in the future for it will help to reduce the risk of focusing too much on a certain product and therefore help to ensure growth in the future. They have E53. 3billion to fall back on if some of their future plans don t work out which will play into the decision making for the future.