Financial Strategy

FIS8X00

ASSESSMENT OPPORTUNITY ONE

13 March 2023

Time: 1 Hour 45 minutes (105 Minutes) Marks: 50

Assessors: Mr K Thomas

Question Topic Marks Time

Reading and Uploading Answer Templates --- 15 minutes
1 Scenario Question –Objectives & Constraints 25 45 minutes
2 OTQ’s – Various Topics (Refer Blackboard) 25 45 minutes
50 105 minutes

SUGGESTED SOLUTION
(5 PAGES)

() = 1 Mark
(½) = ½ Mark
PROGRAMME: B.Com Hnrs (Financial Management) / PG Dip (Financial Management) Page 2 of 5
MODULE: Financial Strategy (FIS8X00) (AO1 – MARCH 2023)

QUESTION 1 [25 marks]

1.1 E-Mail addressed to board of directors Max
Marks
E-MAIL
()
TO: BOARD OF DIRECTORS
Layout
FROM: FINANCIAL MANAGER
RE: OBJECTIVES AND CONSTRAINTS FACING HIGHER
MAX 1
EDUCATION
DATE: 13 MARCH 2023

Introduction
As requested, I have prepared an e-mail:
a. Discussing reasons for the differences in the objectives between
Universo, UG and SA Study. In addition I have addressed how the
convergence of the three entities’ objectives may be achieved; ()
b. Discussing possible constraints facing the UG and SA Study; and
c. Evaluating whether Universo Ltd achieved its financial objectives for the MAX 1
years ended 31 December 2021 and 2022.

(MAX = 2 + 1 = 3 FOR CONCLUSION BELOW)

1.1 Differences in the objectives of the three entities Max

Marks
Organisations and objectives
 Private sector entities such as Universo Ltd have more readily defined
objectives and have a greater emphasis on financial objectives compared ()
to public sector entities and not-for profit organisations like UG and SA Study.
 University of Gauteng’s (UG) main objective is to remain within its funding
limits. UG will also focus on creating and advancing knowledge as well as ()
producing graduates with integrity.
 UG’s and SA Study’s objectives would mainly be qualitative (non-financial)
compared to Universo Ltd whose objectives are mainly financial and offering ()
access to quality higher education (non-financial).
 Universo Ltd would also need to almost ensure that graduates find
employment otherwise, students will not pay to attend the university. ()
 While UG and SA Study will also focus on employability, they will possibly not
obtain as high an employability rate, (SA Study’s 75% employability rate is
fairly low and will probably not be acceptable to Universo Ltd). ()
 Universo Ltd is able to focus on the future of work and adapt its curriculum
quickly to required changes and could possibly transition to online learning ()
quicker than SA Study for example when the Covid-19 pandemic started.
 Any other relevant point. ()

Stakeholders
 In South Africa, many students perceive the quality of higher education at
public institutions to be better than private institutions. ()
 Private sector entities’ main responsibility is to shareholders and they are
obliged to maximise their return on investment and make it comparable to ()
similar risk investments.
PROGRAMME: B.Com Hnrs (Financial Management) / PG Dip (Financial Management) Page 3 of 5
MODULE: Financial Strategy (FIS8X00) (AO1 – MARCH 2023)

QUESTION 1 (CONTINUED) [25 marks]

1.1 Differences in the objectives of the three entities Max
Marks
Stakeholders (Continued)
 Universo Ltd offers quality higher education to students that can afford to
pay, while UG will offer quality higher education at a subsidised rate to all ()
students and SA Study offers free higher education to students that cannot
afford to attend UG or Universo Ltd.
 UG has to ensure the government as well as the students it services are pleased
with the quality of education it provides. Most of its funding will come from
taxpayers so they must ensure they show them their money is going to good ()
use.
 Failure to show ethical conduct as well as provide a quality education will
result in taxpayers being dissatisfied and possibly the NSFAS funding being ()
used for other purposes.
 SA Study’s main stakeholders are the students that study for the BBA
degree as well as the donors. Its objectives are therefore aimed at ensuring
these stakeholders are satisfied. They must ensure that donors are satisfied ()
with where their money is going, otherwise they will not be willing to make
further donations.
 Universo Ltd is a listed entity and will therefore maximise profits by satisfying
students, considering the needs of stakeholders such as employees and ()
lenders.
 Failure for Universo Ltd to meet its stated objective of generating a net profit
margin of 14% could result in a loss of investor confidence as well as ()
shareholders being dissatisfied.
 If Universo Ltd is perceived to have profitability problems, lenders might also
be hesitant to provide them with finance and suppliers to continue their
relationship. At this stage there do not seem to be any problems as lenders ()
advanced Universo Ltd R200 million in 2022.
()
 Any other relevant point.

1.1 Convergence of the objectives of the three entities Max

Marks
Objectives and Stakeholders
 The objectives of public and private sector entities are moving closer
together, the public sector recognising its needs to be more accountable for ()
taxpayers’ money and the private sector recognising there are stakeholders
in the entity other than shareholders.
 This explains Universo Ltd’s focus on widening access to higher
education, as it will enable them to become more profitable in the future. ()
 Private sector entities have more readily defined objectives and have a
greater emphasis on financial objectives compared to UG and SA Study.
However, if UG and SA Study do not focus on financial objectives, they will not ()
be sustainable in the future.
 All three entities have a strong focus on students and widening access to
higher education. The student is the primary stakeholder for each ()
organisation. Without students, each organisation is not sustainable in the long-
term.
 Any other relevant point. ()

(MAX = 11
PROGRAMME: B.Com Hnrs (Financial Management) / PG Dip (Financial Management) Page 4 of 5
MODULE: Financial Strategy (FIS8X00) (AO1 – MARCH 2023)

QUESTION 1 (CONTINUED) [25 marks]

1.2 University of Gauteng and SA Study are facing the following constraints Max
Marks
 Economic constraints (such as high inflation and interest rates) will affect UG
and SA Study - particularly during the current economic climate with high ()
interest rates and low growth in South Africa.
 Funding for both institutions will be a challenge, as the majority of the
finances will come from taxpayers (UG) and donors (SA Study). NSFAS is also ()
a big funder for public universities as this government funding comes via
taxpayers.
 Demand for higher education in South Africa exceeds supply, so there will
be limited space for students leaving school to get a place at UG or SA Study. ()
 Protests at UG will prevent students from studying and attending classes.
This may affect students’ performance in exams. ()
 Protests at UG may result in damage to property and venues on campus.
This may prevent students from attending lectures on campus resulting in ()
lectures being moved online.
 UG and SA Study may not be able to offer online classes if there is limited
funding to invest in technology. The campus protests may also result in online ()
classes becoming a necessity.
 Students may study a BBA at Study SA because it is free, even if they have
no interest in business. This may result in a waste of resources and many ()
students may drop out.
 The employability rate of 75% for SA Study graduates is quite low and it is
()
concerning that only 3 out of 4 graduates are able to find a job.
 Any other relevant point.
()
(MAX = 6)
PROGRAMME: B.Com Hnrs (Financial Management) / PG Dip (Financial Management) Page 5 of 5
MODULE: Financial Strategy (FIS8X00) (AO1 – MARCH 2023)

QUESTION 1 (CONTINUED) [25 marks]

1.3 Calculations 2022 2021
R’ Million R’ Million Comments

Net Profit Margin = Net Profit 166 125

Revenue 1 128 933
14.72% 13.40% Achieved in 2022, not 2021
(½) (½)

Gearing = NC Liabilities 660 460

(NC Liabilities + Equity) (660+1 142) (460+976)
36.63% 32.03% Achieved in 2021, not 2022
(½) (½)

1.3 Evaluation of objectives – Conclusion () Presentation Mark Max

Marks
 Therefore Universo Ltd achieved its net profit margin objective in 2022, but not
in 2021 and it achieved its gearing objective in 2021, but not in 2022. N/A
 The reason Universo Ltd did not achieve its net profit margin objective in 2021
could be due to the Covid-19 pandemic. Due to global lock downs in 2020, ()
students may not have registered to study at Universo Ltd in 2021.
 Alternatively, the costs associated with switching to online learning could
have been expensive and this could have increased Universo Ltd’s operating ()
expenses.
 Universo Ltd exceeded its gearing ratio in 2022. This was due to an
additional bank loan of R200 million that was taken out in 2022. Perhaps
the loan was raised to invest in additional infrastructure such as equipment ()
for online learning or additional computer labs on campus.
 Additional equity was not issued in 2022. The increase in equity was due to
the profit that was generated, however, Universo Ltd did not pay a
dividend to shareholders in 2022. ()
 Any other relevant point. ()

(MAX = 5)

QUESTION 2 [25 marks]

Refer to Blackboard

Total = 50