15622051 Strategic financial
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Strategic financial (15622051)
Added on 2020-04-21
15622051 Strategic financial
Strategic financial (15622051)
Added on 2020-04-21
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Running head: STRATEGIC FINANCIAL ANALYSISStrategic Financial AnalysisName of the StudentName of the UniversityAuthors NoteCourse ID
STRATEGIC FINANCIAL ANALYSIS1Table of ContentsIntroduction:...............................................................................................................................2Critical review of Traditional Methods of Financial Analysis:.................................................2Horizontal Analysis:...................................................................................................................2Vertical analysis:........................................................................................................................4Traditional Ratio analysis:.........................................................................................................4Contemporary methods of financial analysis:............................................................................6Capital asset Pricing Model:......................................................................................................6Dividend Growth Model:...........................................................................................................7Effective market hypothesis:......................................................................................................9Conclusion:..............................................................................................................................11Reference List:.........................................................................................................................12Appendix:.................................................................................................................................15Horizontal Analysis..................................................................................................................15Wolseley:..................................................................................................................................15Income Statement:....................................................................................................................15Balance Sheet:..........................................................................................................................15Cash Flow Statement:..............................................................................................................17Rexam:.....................................................................................................................................18Income Statement:....................................................................................................................18Balance Sheet:..........................................................................................................................19
STRATEGIC FINANCIAL ANALYSIS2Cash Flow Statement:..............................................................................................................20Vertical Analysis:.....................................................................................................................21Wolseley...................................................................................................................................21Income Statement:....................................................................................................................21Balance Sheet:..........................................................................................................................21Cash Flow Statement:..............................................................................................................23Rexam:.....................................................................................................................................23Income Statement:....................................................................................................................23Balance Sheet:..........................................................................................................................24Cash Flow Statements:.............................................................................................................25
STRATEGIC FINANCIAL ANALYSIS3Introduction: The current report is based on the critical analysis of the different tradition andmodern methods involved in the determining the financial and operating position of anorganization. Several financial analysis tools has been proposed and examined by theresearchers from the last decades. Most notably and widely acknowledged is the vertical andhorizontal method of analysis the financial position of the organization. Following thevertical and horizontal mode of analysis the financial position of an organization there is alsoanother tool of analysing the financial position of the organizations is the ratio analysis(Grant 2016). Ratio analysis is regarded as the core of the financial analysis because of itsability of covering large range of financial aspects of the company by addressing the rotatingfinancial and operating activities of the organization. The current report will be critically analysing the financial position of the Wolseleyand Rexam by employing the financial analysis tools of vertical horizontal and ratio analysisto measure the operating performance of the organization. On the other hand, other methodssuch as Capital asset pricing model, dividend growth model and effective market hypothesiswill be performed as well. The analysis will cover the description of the models and willaddress the limitations surrounding the model. Finally, a comprehensive conclusion will bepresented stating the best available tool of analysing the financial performance oforganizations. Critical review of Traditional Methods of Financial Analysis: Horizontal Analysis:The most commonly used methods of analysis is the horizontal analysis. These are thestatements, which shows the profitability and the financial position of the organization for adifferent period under the comparative form in order to give an idea regarding the financial
STRATEGIC FINANCIAL ANALYSIS4position of two or more periods. It is generally applicable to two most important financialstatements particularly the balance sheet and the statement of profit and loss in a comparativemethod (Wahlen, Baginski and Bradshaw 2014). The financial data will be comparativeunder the circumstances when the identical principles of accounting is used in preparing thestatements. If this is not the situation, changes in the use of the methods of accountingprinciples must be mentioned in the footnotes.As derived from the financial computation a somewhat tumultuous trends is found byhaving an in depth analysis for the Wolseley with the falling trend in the sales as thecompany suffered a falling trend of sales in the financial year of 2012 and 2013. However, inthe following years of 2015 and 2016 the sales revenue increased for the Wolseley. On theother hand Rexam reported a blend in their trend of sales as reported by the company duringthe financial year. The revenue reported by the company experienced a rising trend of 1.89%during the year 2011-12 however in the following years of 2012-13 since the revenuedeclined by 8.56% which further declined in the subsequent years of 2014-15 by 2.82%. Thetrend represented a declining terms of the revenue derivation, which slightly aided in the yearof 2015 with a slight increase of 2.43 for Rexam. Therefore, horizontal analysis is beneficialfor the readers since it provides them with the benefits of examining and comparing theposition of the organization over the years. However, horizontal analysis suffers from criticism since it suffers from theshortcoming that the aggregate of the information that is stated in the financial statementsmay be changed over the period (Weygandt, Kimmel and Kieso 2015). This is because of theongoing changes in the accounts might shift amid different accounts and therefore it causesvariances at the time of comparing the balance of the accounts from one period to anotherperiod of accounting.
STRATEGIC FINANCIAL ANALYSIS5Vertical analysis:There are certain statements that reflects the association of different items on thefinancial statement with common items by stating each item as the percentage of the commonitem. Vertical analysis can be defined as the proportional analysis of the financial statementswhere each line of items of the financial statements is recorded as the percentage of the otheritem (Carmona 2014). Typically, this represents that the each line of the item in the incomestatement is the percentage of gross sale while every line of item of on the balance sheet isstated as the percentage of the total sales (Vogel 2014). Considering the horizontal analysisperformed for the companies it can be stated that Rexam reported a profit from the businessoperations of 8.88% and 5.58% respectively for the financial year of 2011-2012 respectively.A declining trend in the profit was noticed in the subsequent year of 2013 with Rexamreporting a profit of 2.38%. On the other hand the profit reported by the Wolseley for the year2013-14 stood 2.25% and 4.11% respectively. However in the following year of 2015 and2016 the profit attributed to the shareholder stood 1.60% and 4.57% respectively. While considering the other side of analysis Vertical analysis is entitled to the certainlimitations. According to Edmonds et al. (2013), criticizes the technique since it does notaddresses the significant changes in the degree of inflationary effect. Therefore, the results ofthe inputs can be misleading because the information is largely reliant on the historical cost.Additionally the analysis does not considers the qualitative aspects at the time of evaluatingthe performance such as quality of the work, relation with stakeholders etc. Additionally, it isrestricted to liquidity aspects of the analysis and ignores the current ratio and debt ratio,which holds the entitlement of computing the liquidity and solvency. Traditional Ratio analysis: Ratio analysis is considered as the most widely used and appreciated method ofcomparing in respect of the financial and operating performance. In the words of Valickova,
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