ICAN Case Study- Models(with audio lecture)

ICAN Case Study- Models

1.      Elements

If you correctly identify the elements of the model they asked you to use, you automatically get 5 marks. For example, if SWOT analysis is required and you talk about Strengths, Weaknesses, Opportunities and Threats in your report, that’s an easy 5 marks. Here are past marking boxes:

November 2014	May 2015	November 2015
Performs PESTEL analysis • Political factors • Economic factors • Socio-cultural factors • Technological factors • Ethical factors • Legal factors	• Identifies the inbound logistics issues •  Identifies the operational issues •  Identifies the outbound logistics issues •  Identifies the marketing and sales issues •  Identifies the service (after sales) issues	• Identifies the financial perspectives issues • Identifies the customer perspectives issues •  Identifies the learning and growth perspectives issues • Identifies the internal processes perspectives issues • Identifies the ratios relevant to MNC’s industry that need to be computed

In November 2014, PESTEL was required, so writing about the elements of PESTEL was worth 5 marks.

The required model in May 2015 was the Value chain model. Just writing about the elements of the value chain diagram was worth 5 marks.

In May 2015, the required model was the balanced scorecard. Correctly identifying and writing about its elements was worth 5 marks.

Note, what you write should be relevant to the case.

Remember

You only need to score four points to get your full 5 marks. So, if you only remember the Political, Economic, Legal and Technological components of PESTEL, you will still get your full mark for writing something about them (that is relevant to the case ooooooo)

Conflict

In some situations, a point can be includes in two or more elements of a model. For example, tax is a political factor and a legal factor.

In this case, there’s no need to repeat your point. You can either choose to put tax under political or legal factors.

Conclusion

If you learn all the relevant models, you are guaranteed 5 marks.

2.      Limitations

There’s always a mark for identifying the limitations of the required model. So, learn them as well. For example, a limitation of balanced score card is that you may sweat before preparing it.

3.      Alternative model

Also, there’s always a mark for suggesting another model that you can use instead of the model they asked you to use. For example, Value chain can be used instead of SWOT.

4.      Diagram

You can score another mark by drawing the model’s diagram in your appendix.

5.      Models that could be tested

i.                    SWOT

ii.                  PESTEL

iii.                Strategic planning model

iv.                Three levels of strategy,i.e Corporate Strategy, business strategy and functional strategy

v.                  Strategic lenses

vi.                Mendelow’s Stakeholders’ mapping

vii.              Types of culture- Charles Handy

viii.            Strategic cultures- Miles and Snow

ix.                The cultural web

x.                  Key drivers of change in the business environment

xi.                5 forces

xii.              Porter’s diamond

xiii.            Nine Ms model e.g men, money, e.t.c.

xiv.            Value chain

xv.              Value network

xvi.            Product life cycle

xvii.          Ansoff’s matrix

xviii.        Porter’s generic strategy

xix.            Strategic clock

xx.              BCG

xxi.            Strategic rationale- Johnson and Scholes

xxii.          Ashridge Portfolio

xxiii.        Marketing mix

xxiv.        Business process re-engineering

xxv.          Harmon’s process strategy matrix

xxvi.        Mintzberg’s structural confihurations

xxvii.      Force field analysis- Lewin

6.      How do I learn all these models?

A good way to learn them is by looking at them over and over again. Some people can sing all Wizkid’s songs from A to Z simply because they have listened to his songs many times.

I think you should use ACCA’s P3 materials. You can also jot small notes on the models that you can easily go through over and over again.

7.      Additional cheap marks.

In May 2015 and November 2015, ICAN dashed more cheap marks for the required model

November 2015	May 2015
• Recognises the Balanced Scorecard Model • Considers the four perspectives of the model • Considers the usefulness of the model •  Applies the model using information from the case	•  Recognises the Value Chain Model •  Considers the primary activities of the model. •  Considers the support activities of the model •  Applies the model using information from  the  case  to  determine  the company’s strengths and weaknesses

i.                    Recognising model

A very very simple mark was available for just using the model when writing the report.

ii.                  Full model

I said that you can get 5 marks in the previous marking box without knowing the full model. In this second box, ICAN awarded marks to students that explained all the elements of the required model in their report.

In November 2015, an additional mark was awarded for explaining the four perspectives of the balanced score card.

The value model is divided into primary and secondary activities. In May 2015, 1 mark was available for explaining the primary and secondary activities.

iii.                Applying the model to the case

The question will tell you what to use to model for. If you do what question says you should do, you will automatically get this mark.

iv.                Usefulness of the model

In November 2015, 1 mark was available for stating the advantage of using the Balanced scorecard. This is the only time that a mark has been awarded for doing this. Despite that, try to state the advantage(s) of the required model in your report.
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8

Full solution to ICAN CASE STUDY-NOV 2015

Report

To: The Finance Director, Magic Network Communications Limited

A (draft) Report on The Strategic Performance and the Call Centre of Magic Network Communications Limited

Prepared by: Phoenix-Adele Global Partners

Date: 19 November, 2015

Disclaimer

The report has been produced for the sole use of Magic Network Communications Limited . No liability is accepted except to the Directors of Magic Network Communications Limited.

1.      Strategic Performance of Magic Network Communications Limited

i.                    Wider context

MNC is an un-listed company. Therefore, it is not subject to pressure from the stock market to increase its profits. There is also a lower amount of pressure on it to pay dividend from it earnings.

This will change when it obtains a stock market listing.

ii.                  Financial Perspective

a.       Net profit margin (Appendix (number/letter/roman numeral-whatever you use to number your appendix)) e.g Appendix 1

MNC’s net profit margins were 5.5% and 8.1% in 2015 and 2014 respectively. This represents a fall. (sometimes, there may be different marks for stating the ratio and stating whether or not it increased or decreased)

This fall is probably due to the fall in MNC’s service rating form 7.9 in 2014 to 5.7 in 2015.(justify every figure)

b.      Current Ratio

MNC’s current ratios were 0.5:1 and 0.8:1 in 2015 and 2014 respectively. Its current ratio fell. This implies that MNC’s liquidity was poorer in 2015.

The fall was probably due to the sharp rise in MNC’s current liabilities from N73.41bn in 2014 to N105.67bn in 2015.

c.       Gearing

MNC’s gearing was 32.2% and 0% in 2015 and 2014 respectively.  The gearing rose.

A possible reason for this is that MNC took on some debt to finance its investment projects.

d.      Operational Cashflows

MNC’s operational cashflows were N134.34bn and N55.35bn in 2015 and 2014. This represents an increase.


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Kindly note that I will not accept reports submitted after the 11th of May.


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Foreign exchange risk management(Part 3)- Hedging with options

Foreign exchange risk management(Part 3)- Hedging with options

1.      Foreign exchange option

This is an instrument that gives you the choice as to whether to buy/sell a foreign currency at a future date. An instrument is a sheet of paper that evidences something. If you buy options from someone, the documentary evidence is an “instrument”.

2.      Choice

It is not compulsory to exercise your option. You will only do so if it is favourable to you unlike a forward contract.

 For example, Liverpool has an option to buy Jordon Ibe back from Bournemouth. They will only exercise this option if Ibe’s market value rises higher than the option’s exercise price. That’s one of the reasons Madrid bought Morata back.

3.      Premium

A premium must be paid if options are used. This premium can be very expensive. That’s what discourages companies from using options to hedge.

 The premium is the maximum loss that can be suffered due to hedging using options.

4.      Types of Options

a.      Call option

A call option gives you the right to buy a foreign currency at a fixed exchange rate and at a future date.

b.      Put option

This gives you the right to sell a foreign currency at an agreed exchange rate and at a future date.

Call=buy, Put=sell

5.      Exercise/strike rate

The is the exchange rate at which you can choose to sell/buy a foreign currency at a future date. It is the rate stated on the option’s instrument.

6.      In-the-money option

An option is in-the-money if you will gain from exercising it.

7.      Out-of-the money option

An option is out-of-the-money if you will lose due to exercising it. It will not make sense to exercise this option.

8.      At-the-money option

Exercising this option will neither lead to a gain or loss.

9.      Gain/loss

This can be measured at any day. It is not only at the exercise date that you can measure whether an option is in/out/at the money.

Example

You bought a call option on Monday to buy a Dollar on Thursday for N350

The spot rates were N300, N350 and N400 on Tuesday, Wednesday and Thursday respectively.

On Tuesday, the option was out-of-the money because you could buy a dollar at a cheaper price in the FOREX market.

On Wednesday, the option was at-the-money because the strike rate was equal to the spot rate. So, no gain, no loss.

The option was in-the-money on Thursday because the you could gain by exercising it. If you exercised it, you will have bought a dollar at cheaper price than you could have bought it in the FOREX market. So, your gross gain will be N50.

 To get your net gain, you have to deduct the option premium you paid.

10.  Exchange-Traded Option

This is an option that you can buy in the market. The market for options is known as the options- exchange just like the market for futures is the futures exchange.

11.  Over-the-Counter Option

This is an option that you buy from the bank. The calculation for this one is more straight-forward.

12.  Relative merits of exchange traded-options

i.                    They can easily be sold in the market if not required

ii.                  No time is wasted negotiating with a bank

13.  Relative merits of Over-the-counter options

i.                    They can be used for exact-hedging

ii.                  Can be used to hedge larger amounts and and hedge for longer periods of time

14.  Hedging

If you buy a dollar, you give out naira. That means that you are selling Naira. The currency you receive is what you are buying and the one you give out is what you are selling.

15.  Question- Over-the-Counter Option

You have an Over-the-Counter put option to sell $1000 at N200/$1. The option premium is N5,000. Determine the amount of Naira you will actually receive  if the spot rate on the exercise date is N250/$1?

You have to option to sell the dollars at the rate of N200/$1. The means that for every dollar you sell, you will receive N200.

The price at which you can sell the dollars in the market is N250/$1. You can make more money by selling the option in the market, so, the option shouldn’t be exercised.

When you eventually sell the $1000 in the market, you will makeN250,000. This is your gross receipt

When hedge with options, you must always deduct the option’s premium determine your net payment or receipt. Your net receipt will be N245,000(N250k-5k). this is what you will go home with.

Premium reduces your receipt because it’s a bad thing and a gain is a good thing. The premium will be added to your gross payment because they are both negative figures.

16.  Question- exchange-traded option

A European company owes a US supplier $1,000,000 payable in August. The spot rate is $1-$1.1=E1

The details for $/E E50,000 options (cents per E ) are as follows.

Premium cost per contract

                            Calls                                    Puts

Strike price        June    July   August  June  July  August

1                        6.34     6.37    6.54     0.07   0.19   0.50

1.05                   3.86    4.22    4.59     0.08   0.53   1.03

1.1                     1.58    2.50     2.97      0.18   1.25   1.89

Show how traded currency options can be used to hedge the risk at a strike price of $1.05/E1. Calculate the Euro cost of the transaction if the spot rate in July is $1.3-$1.4 to 1 euro

First of all, the company will have to pay Dollars in May because it is owing $1m. To pay dollars, it has to buy dollars and sell Euros. The question said we should determine the Euro cost, so, we have to think in terms of Euros. So, it will be selling Euros. Since, it will sell Euros, a put option should be bought.

         The option price of $1.05 means that the company has the choice to sell 1 euro for $1.05.

In the market, the company can sell 1 euro for $1.3. This is because the bank will buy at the cheaper rate.

Therefore, the option is out of the money and should not be exercised. Euros should be sold in the market.

The gross amount of euros that will be needed to pay the loan is $1m/$1.3=E0.769m. Now, let’s calculate the option’s premium.

The formula for calculating the option’s premium is=

Contract size*Number of Contract s*Premium cost/contract

We will use the table to calculate the option.

The first thing is to determine the number of options to be bought.

The formula is Transaction amount/Option value

The option value is E50k and the transaction amount amount is $1m. These two figures must be in the same currency. The option value is a fixed amount, so, the transaction amount has to be translated to Euros. The strike rate of the option was bought will be used because the $1m will be paid on the exercise date of the option.

$1m/$1.05= E0.952m.

So, number of contracts= E0.952m/E0.05m= 19.04 contracts. The number of contracts should be approximated to a whole number. This is because, you can either buy 0/1/2.... contracts. You can not buy half. So, the number of put options to be bought is 19.

The date of the put option should be the payment date. So, 19 August put options will be bought. This makes every non-August figure in the table irrelevant.

Next, we use the exercise price to determine the premium. The exercise price is $1.05/E1. Go back to the table and the pick the premium.

The premium is 1.03 cents/Euro. It is cents and not Dollars, go back and read the sentence before the table.

We have to convert this to dollars. 100 cents are equal to 1 dollar. So, 1.03 cents are equal to $0.0103. This is the premium cost/ dollar. We now have everything we need.

Total premium= $0.0103*19 contracts*E50,000=$9,785.

The currency of the premium is the currency of the premium/contract. In this case, it was dollars.

The question asked for the Euro cost of the transaction, so, this premium has to be converted to Euro. Premium is paid when the option is bought. So, the spot rate on that date will be used.

The premium is quoted in dollars. So, you have to buy dollars to pay it. Therefore, you have to sell Euros to the bank to buy dollars.

The bank will buy your euros at the cheaper rate, so, the exchange rate for the premium is $1.

The convert the premium to Euros= $9,785/$1= E9,785.

The net cost in euros will be the gross cost+premium= E769,000+E9,785= E778,785.

17.  If the option is exercised

In the above example, the option was not exercised because it was out-of the money. Assuming the option is exercised:

 the gross payment= Number of options*option value=19*E50,000=E950,000. The premium will be deducted as usual.

The gain/loss incurred due to not using usual the exact number of contracts required also has to be added/deducted. The gain or loss= transaction value-gross payment. These two figures must be in the same currency.

The transaction value is $1m.

The gross payment is E950,000. This payment will actually be made on the exercise date of the option, so, the exercise rate will be used to translate it to dollars.

=E950k*1.05=$997.5k.

The gain earned due to hedging using the options is $1m-$0.9975m=$0.0025m

So,net cost= E950k-25k+9.785k= E934.785k.

The premium remains the same. The gross payment is standardized and you have to determine any net gain/loss

18.  Conclusion

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GUEST POST- Enterpreneurship

                                                      Enterpreneurship
To the untrained eye, an entrepreneur may appear to be a person who has started his or her own business. While this is technically true, there's so much more to the journey of entrepreneurship than just bringing a business idea to fruition. It takes unwavering passion, dedication and innovation, and it's certainly not the right path for everyone. An entrepreneur is someone who seeks to profitably solve a problem that the world has, in exchange for enough monetary compensation to achieve their dreams.

[It doesn't] mean you won't read a book or work for a boss ever again. The most successful entrepreneurs spend time studying others' successes — what are their processes and daily methods, and how can I apply those principles to my own life and business?. To me, entrepreneurship is creating something, nurturing and leading it. It is a labor of love, guts and hard work.
There is more to it, and you will grow more than you could ever imagine. But it is not easy, and the road can be windy!.. I don't think anyone decides to be an entrepreneur; they simply reach the point where they can no longer not be an entrepreneur. Sure, it takes a certain type of individual and certain set of circumstances, but suddenly you have this sense of unwavering commitment and the belief that you can succeed. That sense is what I refer to as the yin and yang of the entrepreneur: the perfect balance of arrogance and stupidity.
Starting a business (and surviving) is really, really hard. You have to have the confidence that you can actually do it, and the stupidity to think you're right. Being an entrepreneur is not about love at first sight; it's about having an idea that intrigues you and increasingly pulls you In until you can no longer ignore it.

Entrepreneurs may blindly follow their passion but they are certainly not dumb. They choose to downplay the risks, underestimate the competition, and overestimate their talents because they are driven by an overwhelming curiosity. That commitment and passion is really what makes entrepreneurs who they are.

Great ideas are far more common than you think but the people who can turn the great idea into a company are incredibly rare. When those two abilities come together... that's the magic catalyst... A story which I admire is that of ferrucio lamborghini...To me, key factors to becoming a successful entrepreneur include passion and perseverance.. As Steve Jobs said "only people with passion can change the world".

Author: ELENDU SAMUEL, Final year Accounting University of Lagos
Phone number: 09090333292
Email: Prince_sirme@yahoo.com
Twitter : prince_sirme
IG: samuelelendu
If you interested in making a guest post, contact me. Full credit will be given to you.

ICAN Prizewinners-May 2015 and November 2015

ICAN Prize Winners for the MAY 2015 and November 2015 diets

May 2015

FOUNDATION

Adeniyi Oluwagbenga Segun	1st
Ibideji Olumide Oluwagbenga	2nd
Olumuyiwa Segun John	3rd

SKILLS

Name	Award
Adebisi Adebayo Innocent	1st
James Kayode Adeleke	2nd
Audu Sandra Eleojo	3rd

PROFESSIONAL

Name	Award
Ijilana Fadeshola Cynthia	1st
Onabanjo Adetola Oluwatosin	2nd
Salau Adeyemi Waheed	3rd

SWAN Prize for the best qualifying female candidate for the diet:

Ijilana Fadeshola Cynthia

Akintola Williams Delloite and Touche Prize for the best qualifying candidate in a diet:

Ijilana Fadeshola Cynthia

November 2015

FOUNDATION LEVEL

Name	Award
Enekwe Ikechukwu Sylvester	1st
Akinola Oladayo Nurudeen	2nd
Otunla Oluwaseyi Skills	3rd

Ogunmuko Olaoluwa Oluwatosin 1st
Adebisi Adedolapo Hilary 2nd
Dawodu Omoteniola Monsurat 3^rd

Professional. Award
Okewole Ronke 1st
Agboola Rasheedat Bimpe 2nd
Eniang Esther Etim 3^rd
Level Subject Prize Winner
FOUNDATION
Financial Accounting Late Sir John A. Balogun Oni Oluwabusayo Olanrewaju

Business Law I.O. Sulaimon Princess A.A. Adeniran Otunla Oluwaseyi

Quantitative Techniques in Business Mr. M. Ayo Oni Iji Kolawole Babatunde

Management Information Late Chief E.F. Oke Late Prof. M.A. Adeyemo Enekwe Ikechukwu Sylvester
SKILLS
Taxation Late Z.O. Ososanya Iyizoba Theresa Odera

Auditing and Assurance N.L. Westgarth Agomo Eberechi

Performance Management G.J. Burk Ogunmuko Olaoluwa Oluwatosin

Financial Reporting S.B. Baylis-Smith Ogungbola Aminat Adesewa

Management, Governance& Ethics PricewaterHouseCoopers Oziri Uche Celestine

Public Sector Accounting& Finance Balogun J.O. Omidiora Bolaji Samuel Omotomoye
PROFESSIONAL
Corporate Reporting Arthur Young, Osindero& Moret Ogbue Nelson Christopher

Advanced Audit & Assurance J.M.T. Morris & KPMG  Eniang Esther Etim

Strategic Financial Management Dr. Bola Kuforiji-Olubi Elder M.E. Daniels Odusanya Femi Dare

Advanced Taxation Akintola Williams & Co. Olushola Adekanola

Essien Uforo Anietie Case Study KPMG

SWAN Prize for the best qualifying female candidate for the diet:

Okewole Ronke

Akintola Williams Delloite and Touche Prize for the best qualifying candidate in a diet:

Okewole Ronke

Akintola Williams Prize for the best qualifying candidate in a year:
Level Name Examination No.
PROFESSIONAL Okewole Ronke

Source:

ICAN 2015 Annual report