Who are Argent Electric Motors Ltd (AEM Ltd)?
This year’s scenario will serve as the last one ever on the AQ2016 syllabus (excluding apprentices) and is focused on a company we generally refer to as AEM, a business who sells both new and used electric vehicles to the public, in this article we will delve a little deeper into the pre-release material to better contextualise the company and emphasise points which MAY be relevant in your exam.
So, what might come up in the assessment?
AEM is a relatively new company, established just three years ago. An interesting observation about AEM is that the founders (shareholders) of the business are actively involved in the day-to-day running of the business, generally the AAT have previously made a clear distinction between the directors and shareholders in other scenarios, keep this in mind when considering the roles and responsibilities of parties.
Just as in real life, there is an increasing demand for electric vehicles, which is further boosted by government legislation phasing out petrol/diesel vehicles. This will be very relevant in the company’s future plans to continue expanding. At this stage an important observation to also be made is to recognise AEM is a seller of EVs, NOT a producer of them. This will play an important part in exam questions as much of the Budgeting/Decision and Control units focus on production aspects, it is reasonable to assume you will not be asked production-based questions for a company that does not produce anything themselves!
The company currently has 15 showrooms across the country, these may play into questions surrounding different topics, each centre could be measured as its own profit centre, or perhaps performance indicators will be used to assess one showroom against another, alternatively plans for another showroom may be brought up but be wary of the comment under perspective 4 which states “there is some concern that the business might be developing too quickly for its capital base”. It is possible your ratio work may highlight some of these issues.
Sustainability will undoubtedly play a role within the assessment, and AEM certainly ticks a few boxes in terms of the industry they operate in and the environmental impact of providing electric vehicles as opposed to traditional ones. Equal to this there is a company objective to minimise energy consumption in each showroom and to ensure suppliers are also practicing sustainability principles. Such things tie very much in with the “triple bottom line” and such factors may very well be something you discuss in this exam.
So far, we have focused on largely positive aspects of AEM, but as always in such scenarios there are observations to be made which could cause concern and be relevant in the exam. The first of which is overtrading as mentioned already, rapid expansion sounds great at face value, but the risk of growing beyond operational capabilities is a present risk, ratios can be a good alarm to such things, be on the lookout for deteriorating ratios such as gearing, interest cover and receivables collection periods.
Customer perspectives also raise a couple of concerns, AEM is aware of the importance of positive customer relations but at present aftercare services are lacking in comparison to the initial purchasing of a vehicle, service plans are a core part of the product offered with 3-year plans offered, consider the threats if this is not addressed and opportunities to improve the process. Employees are also noted to feel as “the culture within the business is that they are not promoted or encouraged”. Such comments can be useful when considering the balanced scorecard which, conveniently, AEM have now started using to appraise the performance of the company.
Finally it is worth pointing out a couple of potential threats/weaknesses in the company’s internal operations. Operational costs must be kept as allow as possible to allow AEM to price match against competitors as per its policy, this links in with the showroom managers who must maintain solid inventory management and meet certain targets, should they fail to do so the knock-on effect could be a real problem.
This covers some key observations, but is not a substitute for reading the full pre-release yourself which is highly recommended. And it is worth reiterating, these may or may not be factors relevant to your exam!