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Financial Analysis and Strategy of Duran Ltd the $20M Australian Assignment
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Assignment Task
Case Study
Duran Ltd is a manufacturing company based in Australia. They manufacture and sell clean engine technologies for unmanned aerial vehicles.
Duran has been operating for 5 years and has recently listed on the stock exchange with shares trading at $1.2 each.
The company provides both the design of engines as well as the manufacture and sale.
Duran has been approached by the Australian Defence Force with a contract of $20 million to design and manufacture engines for their unmanned drone program. Duran made only a small profit in the 2022 financial year and are concerned about their ability to meet the conditions of the contract.
You have been hired as a Management Consultant to analyse the current financial position of Duran and help them develop a budget and recommendations in order to fulfil the contract proposed by the Australian Defence force. This contract would nearly double Duran’s revenue stream and is an extremely important contract for them to win.
As such you will be reporting directly to the board and will be asked to provide a report that meets their requirements.
Strategic plan
Duran’s strategy is to invest $8 million in capital expenditure to setup the resources necessary to fulfil the Australian Defence Force contract. This will be financed as a long-term loan at 4% interest rate.
The company has lost 15% of revenue since 2021 due to losing contracts with some smaller customers. Duran Board believes their strategy should be to ignore the smaller contracts and just invest the majority of resources into the Australian Defence Force contracts.
Based on the financial position, Duran’s board would like you to review their proposed strategy and make recommendations based on your specific financial analysis.
Information for Financial Analysis
The following information was provided by the Duran Ltd Accounts department. It provides you with all of the information necessary to complete the Analysis of the Financial Health of the company. It consists of the Balance Sheet, Income Statement and information for the break-even analysis.
Note the financial reporting period is from January – December 2022.
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Duran Ltd Balance Sheet 2022 |
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All numbers in millions |
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2022 |
2021 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
$7.49 |
$7.49 |
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Marketable securities |
$0.59 |
$0.59 |
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Accounts Receivable |
$4.83 |
$4.65 |
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Inventory |
$9.40 |
$6.70 |
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Total Current Assets |
$22.31 |
$19.43 |
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Non-current Assets |
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Property and equipment |
$23.11 |
$24.94 |
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Accumulated depreciation |
($16.91) |
($16.43) |
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Intangible assets |
$0.90 |
$0.92 |
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Total Non-Current Assets |
$7.10 |
$9.43 |
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Total Assets |
$29.41 |
$28.86 |
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Liabilities |
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Current liabilities |
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Short-term debt |
$3.76 |
$0 |
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Accounts Payable |
$4.28 |
$3.87 |
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Deferred revenue |
$1.32 |
$2.91 |
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Total Current Liabilities |
$9.36 |
$6.78 |
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Non-current liabilities |
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Long-term debt |
$4.85 |
$8.28 |
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Total Non-Current Liabilities |
$4.85 |
$8.28 |
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Total Liabilities |
$14.21 |
$15.06 |
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Shareholders' Equity |
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Common stock |
$31.22 |
$31.17 |
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Retained earnings |
($16.02) |
($17.37) |
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Total equity |
$15.20 |
$13.80 |
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Total liabilities and equity |
$29.41 |
$28.86 |
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Duran Ltd 2022 Income Statement
All values in millions |
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2022 |
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Total Revenue |
$33.78 |
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Cost of Goods Sold |
($14.70) |
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Gross Profit |
$19.08 |
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Expenses |
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Wages |
$7.30 |
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Rent |
$1.20 |
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Utilities |
$0.80 |
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Administrative expenses |
$0.48 |
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Marketing and sales expenses |
$6.27 |
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Depreciation expense |
$0.48 |
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Total Operating Expenses |
$16.53 |
Financial Information for the break-even analysis for 2023
In calculating the break-even point, the board would like to know the break-even point, not taking into account the contract with the Australian Defence Force. All the information for the break-even analysis is provided below and in the Income Statement for Duran.
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Information for break-even analysis |
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Average revenue per unit sold |
$250,000 |
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Variable costs per unit sold |
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Raw materials |
80,000 |
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Direct labour |
30,000 |
The forecast total sales for 2023 is expected to be 7% greater than 2022, not taking into account the Australian Defence Force deal.
The forecast Cost of Goods sold for 2023 is the same percentage of total revenue as in 2022.
The expenses for the break-even analysis should be taken from the 2022 profit and loss report. The expenses section constitutes the fixed costs for the break-even analysis. The expenses should be adjusted based on the same table from the cash flow budget section:
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