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BUSINESS PERFORMANCE ANALYSIS AND DECISION-MAKING INTRODUCTION

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Added on  2019-12-04

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ACCOUNTING AND DECISION-MAKING INTRODUCTION 4 PART 1 BUSINESS PERFORMANCE ANALYSIS4 Interpretation of profit or loss fulfilled account 4 Statement of cash flows (SOCF) 6 PART 2 Investment appraisal 7 Management forecast 7 Pay back period 7 Accounting rate of return8 Net present value8 Sources of internal finance 9 PART 3 Professional report 9 CONCLUSION 10 References 11 INTRODUCTION Financial accounting is the process of recording, classifying, summarizing and interpreting the financial business information. Thus, Bertie Plc needs to maintain

BUSINESS PERFORMANCE ANALYSIS AND DECISION-MAKING INTRODUCTION

   Added on 2019-12-04

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ACCOUNTING ANDDECISION-MAKING1
BUSINESS PERFORMANCE ANALYSIS AND DECISION-MAKING INTRODUCTION_1
Table of ContentsINTRODUCTION ...............................................................................................................................4PART 1 BUSINESS PERFORMANCE ANALYSIS ..........................................................................4Interpretation of profit or loss account............................................................................................4Statement of cash flows (SOCF).....................................................................................................6PART 2 Investment appraisal ..............................................................................................................7Management forecast.......................................................................................................................7Pay back period................................................................................................................................7Accounting rate of return.................................................................................................................8Net present value.............................................................................................................................8Sources of internal finance..............................................................................................................9PART 3 Professional report .................................................................................................................9CONCLUSION .............................................................................................................................10References...........................................................................................................................................112
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INTRODUCTION Financial accounting is the process of recording, classifying, summarizing and interpretingthe financial business information. It mainly aims at identifying business performance in terms ofprofitability, liquidity, efficiency, solvency and cash generating capacity. Bertie Plc is a Food andgrocery company established in the year 1945 in United Kingdom. It sale wide range of household,food and cloth products through its retail stores and online deliveries in Europe, Asia and US.Present project report will helps to analyse firm's overall financial performance in differentsegments. It will make an in-depth evaluation of its operational as well as financial performance.Moreover, cash flow statement will be analyse to determine the respective changes in cash balanceat two different balance sheet dates. Along with this, capital budgeting tools will be used to assessthe viability of the capital project for Bertie Plc and take effective decision.PART 1 BUSINESS PERFORMANCE ANALYSIS Interpretation of profit or loss accountProfitability ratios:Gross margin: GM has been declined by 2.13% as it has been moved from 8.44% to 6.31%in 2015. It is a adverse sign of Bertie Plc's operational performance. The reason behind suchdecrease is its GP has been reduced from £5397 to £4089 by 31.98% while revenues has beenslightly increased from £63916 to £64826. Lower increase in revenues compare to cost increased isthe reason behind lower GM. It may be because of political instability, economic fluctuations,weather conditions, perishable products, fierce competition, price volatility and high fuel costs. Net margin: It has been reduced from 6.75% to 4.08% by 2.67%, is sign of worstoperational performance. High administrative overheads and lower sales increase are the mostsignificant reasons behind this lower profitability. ROCE: It has been reduced from 14.81% to 7.06% almost half of the previous period. Highoperating expense, finance costs and lower revenues growth are the reasons for this adverse ROCE. Efficiency ratios:Net assets turnover ratios: In the accounting year 2014, net asset turnover ratio of BertiePlc is 2.19:1. In comparison to this year, net asset turnover ratio of the firm decreased in 2015 inwhich it is 1.73:1. On the basis of this ratio it has been assessed that company fails to make properutilization of current assets in 2015. Thus, business organization needs to encourage their workforceto make effective use of assets in order to generate high level of sales revenue. For this Payable payment period:On the basis of this ratio payable payment period of the firm3
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increased which means that creditors take more time to make payment to the company. This is notpositive for the company because it negatively affects the working capital of the firm. Thus,company needs to make modification in their credit policy (Hoskin, Fizzell and Cherry, 2014). Liquidity ratios:Current ratios: This ratio of Bertie Plc reflects that firm does not enough amount of currentassets to meet the financial obligations. In 2014, current ratio of the firm is .46:1 whereas it is .39:1in the year of 2015. This aspect clearly shows decreasing trend which is not good sign for thebusiness organization. Thus, company needs to make control over the expenses and need to makefocus on the maintenance of cash. Current ratio of Bertie Plc is very far from ideal ratio whichis .5:1. Therefore, company needs to make competent strategies and policies which makecontribution in the attainment of organizational goals and objectives (Financial ratio analysis,2016). Quick ratios:This ratio represents the current assets which can be easily converted into cash.Quick ratio of Bertie Plc decreased in the year of 2015 as compared to 2014. Quick ratio of thefirm is .18 in the year of 2015. It reflects that company fails to maintain sufficient amount of quickcurrent assets which affects the financial capability of the firm. Thus, Bertie Plc needs to makeassessment of the areas of high expenses. Thus, by exerting control over the expenses company isable to maintain the ideal quick ratio which is .5:1. On the basis of the above mentioned analysis it has been identifying that liquidity aspect ofBertie Plc is not sound. Thus, company needs to undertake effectual measures to improve theirliquidity position. Solvency ratios:Gearing ratios: This ratio provides deeper insight about the extent to which company hasfulfilled its financial need from debt and equity sources. The given ratios represent that Bertie Plchad raised its fund by issuing equity rather than debt instrument. In 2015, gearing ratio of the firm is47.80%, whereas it is 37.11%. This ratio shows that company is highly solvent because it hasfulfilled its financial needs from debt sources rather than equity. Interest cover: Company's ability in relation to making interest payment decreased in 2015with the very high pace as compared to 2014. In 2014 interest cover ratio of Bertie Plc is 15.47. Onthe contrary to this, it is 3.85 in the year of 2015. Due to the less profitability and liquidity companyis unable to make payment of interest on time. Thus, company needs to enhance its financialcapability which helps them in meeting the interest expenses on time. Market segment Analysis 4
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