Accounting & Finance for Managers in Asol ltd : Report
Added on 2020-01-15
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Accounting & Financefor managers
TABLE OF CONTENTSIntroduction......................................................................................................................................4Task 1...............................................................................................................................................41. Analyze the performance and financial position andinvestment potential of the two companies.................................................................................42. Chart formation........................................................................................................................73. Recommendations..................................................................................................................114. Limitation of relaying on financial ratios..............................................................................12Task 2.............................................................................................................................................131. Use of Initial Investment Techniques....................................................................................13Payback Period...........................................................................................................................14Net present value........................................................................................................................15Accounting rate of Return..........................................................................................................162. Limitations of Investment Appraisal techniques...................................................................17Conclusion.....................................................................................................................................17References......................................................................................................................................192
Index of TablesTable 1: 10 financial ratios..............................................................................................................4Table 2: SWOT analysis of Next plc...............................................................................................6Table 3: SWOT analysis of H&M...................................................................................................7Table 4: Ratios for Next plc.............................................................................................................8Table 5: Ratios For H&M................................................................................................................8Table 6: Ratios for Next plc............................................................................................................9Table 7: Ratios For H&M..............................................................................................................10Table 8: Depreciation for Project A...............................................................................................13Table 9: Depreciation for Project B...............................................................................................13Table 10: Cumulative Cash Flow..................................................................................................14Table 11: Payback period...............................................................................................................15Table 12: NPV ..............................................................................................................................15Table 13: ARR...............................................................................................................................163
Illustration IndexIllustration 1: Graph for Next plc.....................................................................................................9Illustration 2: Graph for H&M.......................................................................................................10Illustration 3: Graph for Next plc...................................................................................................11Illustration 4: Graph for H&M.......................................................................................................124
INTRODUCTIONFinance is the management of money by the large companies and accounting means theprocess of recording these financial transaction in systematic and comprehensive manner. Themanagers use accounting and finance to check the availability of the money and to allocated theextra money (Anandarajan, Anandarajan and Srinivasan, 2012). The present report is based onthe Asol ltd. which is a large fashion retailer company. The company's CFO (Chief FinancialOfficer) is planning to purchase the share either in Next Plc. or in Hennes & Mauritz( H&M )company. These two are clothing retailer companies who are listed in the London StockExchange.The below mentioned report will help in recommending the CFO about the more vitaloption among the two company where he can invest in. In addition it will help in analysis thefinancial positions of the two companies. The importance and limitations for the investmentpoint of view are discussed below. Furthermore the report will also conclude the use ofinvestment appraisal techniques for making the decision of purchasing shares.TASK 11. Analyze the performance and financial position andinvestment potential of the two companiesOn the basis of ratio analysis, Asol ltd. is comparing two companies Next plc. and H&Mby which company can make decision invest either of these two companies. Table 1: 10 financial ratiosRatios Next plc. (2015)H&M (2014)Current ratio1.822.11Quick ratio1.161.07debt / equity2.610Assets turnover1.812.14Inventory turnover6.623.46Net profit Margin15.87%13.19%Return on equity208.75%41.27%Free cash flow / Share4.140.765
Market cap / Earnings17.3823.13Enterprise value / EBITDA12.7414.41The above table illustrate the 10 financial ratios of Next plc. and H&M over which thecurrent performance are compared. Current ratio: This ratio indicates that the company is able to balance their currentliabilities from the current assets (Droms and Wright, 2015). By analyzing the Next plc.Ratio of previous five year is observed that company's ratio is continuously increasing i.e.in 2011 it was 1.28 which profitable ratio but in 2015 it is 1.82 which is higher ratio.Similarly in H&M the ratio is continuously decreasing as in 2010 it was 2.96 and in 2014,2.11 which is a good sign for current ratio. But while comparing two companies currentratio Next plc.'s ratio is beneficial then H&M as it is lesser then 0.29%. Quick ratio: The ideal quick ratio is 1:1 (Brief and Peasnell, 2013). While comparing theratio of previous years of H&M it is continuously decreasing with some units which isnot a good state as company will be relaying on its assets to meet the short termliabilities. On the contrary, Next plc. is showing increment which depicts that companycan meet it present obligations with quick funds. In comparing two companies ratio's,Next plc. Shows 1.16 which is higher then H&M which is 1.07, therefore Next's ratio isprofitable.Debt/Equity ratio: This ratio indicates that the company finance which comes fromcreditors and investor. Higher ratio shows more creditors and lower ratio shows moreinvestors (Debt to Equity Ratio, 2015). While comparing the ratio of Next and H&M,second company is showing consistency by maintaining the value of 0 where as firstcompany is showing a variation from 2011 till 2015. By analysis it can seen that toinvest in H&M would be more feasible.Asset turnover ratio: The first 3 years of Next plc. shows a constant result and in next 2year it is seen decreasing which indicates the company's inefficiency in maintainingassets and also have management problem. In comparison with H&M which is showing acontinuous increase till now that depicts company is efficiently using their assets forgenerating sales (Gitman, Juchau and Flanagan, 2010). In current comparison also H&Mis showing higher ratio of 2.14.6
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