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Assignment on Accounting and Finance of Hilltop Ltd

   

Added on  2019-12-04

20 Pages4429 Words130 Views
ACCOUNTING ANDFINANCE FORMANAGERS

Table of ContentsINTRODUCTION......................................................................................................................3TASK 1 COMPARATIVE PERFORMANCE ANALYSIS.....................................................3Financial performance analysis.............................................................................................3Non-Financial performance analysis.....................................................................................5Presentation through column charts......................................................................................6...............................................................................................................................................8Recommendation to H&M....................................................................................................8Drawbacks of uses of ratio analysis method for comparative performance analysis............8TASK 2 INVESTMENT APPRAISAL TECHNIQUES...........................................................9Computation of Net Cash Flow (NCF)..................................................................................9Identification of Pay back period.........................................................................................10Uses of Net Present Value (NPV).......................................................................................11Computation of Accounting rate of return (ARR)...............................................................11Recommendation to Hilltop Ltd, with the justification.......................................................12Limitation of capital budgeting techniques.........................................................................12CONCLUSION........................................................................................................................12REFERENCES.........................................................................................................................14Index of TablesTable 1: NCF of project A ( In £000's)......................................................................................9Table 2: NCF of project B (In £000's)......................................................................................10Table 3: Payback period of project A and B (In £000's)..........................................................10Table 4: Determining NPV of project A and B........................................................................11

INTRODUCTIONLooking at the present era, managers plays an very important role in the organizationas they frame policy, make financial planning and evaluate business performance to takestrategic decisions. Next Plc and Hennes and Mauritz are well known fashionable clothretailer organization who are serving wide range of customers through operating at globallevel. Both the organizations have good corporate image around the world therefore, AsolLtd, is considering to invest in this company. It is a large fashion retailer firm whose certifiedfinancial manager desires to enhance their profits through increasing their return oninvestment. In this report, comprative financial performance will be carry out to identify thatwhich of these company will be more superior for investment purpose. Along with it, HilltopLtd, who is a manufacturing organization intends to purchase a new machinery to enhance itsproduction capacity. Capital budgetings tools analysis will be carry out to assess most viabelproject out of two mutual exclusive projects.TASK 1 COMPARATIVE PERFORMANCE ANALYSISFinancial performance analysisFinancial strength: Balance sheet is a statement that measure financial position of thecompany (Droms and Wright, 2015). Some of the financial strength showing ratios areanalysing here:Current ratio (CR): It identify that firms have enough resources or not to meet out itsdebts over the upcoming one year time period. The ratios has been selected tomeasure that which firm is more able to pay off its current liabilities out of its currentassets available. Next Plc's CR was 1.28 in 2011 decreased to 1.82 nearest to the idleratio of 2:1. Contrary, H&M's ratios goes down to 2.11 which is not good. Growingtrend of Next Plc is more beneficial because it indicates that company increase itscurrent assets to meet out their current obligations. On the contrary, in H&M, it maybe reduced because of high short-term borrowings, spending more cash andamortization of prepaid expenses (Fields, 2016). Current ratioYear Next PLCH &M2010N/A2.9620111.282.7120121.542.6620131.482.2520141.762.1120151.82N/A

Column chart: Bar chart:Quick ratio (QR): QR measure firm's ability to satisfy its all short-term liabilities outof its most liquid assets (Shi, 2015). Inventory is the most liquid assets after cash.Hence, this ratio has been choosed to assess that how much both firms are able tomitigate their short term liabilities with current assets but excluding inventory. InNext Plc, the ratio goes enhanced to 1.16 while in H&M, it has been reduced to 1.07in 2014. Thus, the ratio moved in an unfavourable direction and indicates that H&M'sability to convert its quick assets into cash gone decreased (Kirkham, 2012).20102011201220132014201500.511.522.533.501.281.541.481.761.822.962.712.662.252.11020102011201220132014201500.511.522.533.501.281.541.481.761.822.962.712.662.252.110

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