Finance for Business: Analysis, Ratios, and Scenario Analysis

This report provides an analysis of finance for business, including financial ratios, scenario analysis, and net present value. It covers the performance of Domino's Pizza and its key products and services. The report also discusses liquidity and capital structure ratios, non-current asset analysis, and the company's share price and EPS calculation.

Finance for Business

ABSTRACT
The report concise the fundamental concept of finance for business, which means a field
of organisation that is all about a financial fund and resources which is by the business and also
make the effective utilisation of these resources. It is a broad area of business that talking about
the fund collection and allocation for the business. This project report cover the different product
and services of Domino's pizza and financial performance of the organisation. This report is also
covered the trend analysis, operating cash flow, net present value of the particular projects to
make a investment decision, liquidity and capital structure ratio, calculation of the depreciation
and price earning ratio. This project report also comprises about share price of the company and
EPS calculation for the 3 year.

Table of Contents
ABSTRACT.....................................................................................................................................2
INTRODUCTION...........................................................................................................................2
Financial Analysis............................................................................................................................2
Description of one key product or service...................................................................................2
Analysis and Calculation of ratios:..............................................................................................3
Perform a non-current asset analysis...........................................................................................6
Scenario analysis..........................................................................................................................6
Identify and discuss any latest share or bond issuance................................................................9
PE ratios and share price movement............................................................................................9
RECOMMENDATION ................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
1

INTRODUCTION
Finance is the main function of the business that acquire and manage the funds for the
business firm. It includes the planning activities and allocation of money in producing a product
and services. It is based on the strategies planning, budgeting, evaluation of financial data and
control the operational activities. Financial management is all about managing the monetary
resources so a firm can meets its goals and objectives. Business finance is refers to adjust the
requirement of fund when needed in the business (Biehl, Hoepner and Liu, 2012). It contains the
business document like financial statement, income statement, balance sheet, cash flow, ratio
analysis etc. In the report, Domino's pizza enterprises Ltd is selected to ascertain the commercial
enterprise performance by helping the financial statements.
This projects reports covers the various finance analysis like performance ratios, non
current assets analysis, description of key products, trend analysis, scenario analysis as per data
structure of the company, calculation and treatment of the Price earning ratio and movement in
share price have been discussed in this report.
Overview of company:S
Domino's pizza enterprises is founded on 9 December 1960 by tom Monaghan and James
Monaghan and It is the seventh largest fast food restaurant chain in the world and its no. of
location is about 15000. and its headquarter is in Ann Arbor charter township, Michigan, united
states of America. Purpose of the company is to feed the power of the possible and transforming
the value everyday moments in something more special. Customer can come together with
family in order to be pleased, dine, access, experience social activities on special theme and
shop. They deliver the food services with convenience, engagement and recognition. To promote
the better engagement in the order that customer has placed, company invested in GPS tracker
tech to provides the services to customer with better control on online order experience. Today,
company is providing 15 different way to order a pizza from online, voice command, home
devices like google home, social media.
Financial Analysis
Description of one key product or service.
There are a lot of products and services offered by Domino's pizza that are really good in
terms of taste and customer preference. There is certain or specific product and deal that are
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introduced on daily basis to make it more interesting and convenience to its customer. To
accomplish the daily target by the company it deliver new worth deal to its regular customer such
as $ 5.99 deal, Domino's hotspot. These are current deal and product that introduced recently. To
improve daily business operation and profitability it deliver the new product and scheme on
everyday values. In the goods and services of the company includes:
 $5.99 deal: This deal is all about the particular value and services related to this new
deal, it provides the any two combination of medium as, two toppings pizzas, 8 pieces
of chicken, Oven- baked sandwiches, pastas, stuffed cheesy breads in a dish for $ 5.99
each when purchased any two items out of it (Crespí-Cladera and Martí n‐Oliver, 2015).
 CHEESEBURGER pizza: Company has launched recently a new topping of extensive
range pizza. It may be the biggest and best topping ever at every location of domino's
pizza. The pizza gives mouthwatering combination set up with a delightful Domino’s
pizza base of extra cheese, fresh tomato, onions, cucumber, double ground beef and a
secret burger sauce.
Analysis and Calculation of ratios:
In the financial accounting, the method of financial ratio is main concepts to understand
the items that are present in the financial statements for a specific time of period. The ratio
analysis help to know to financial performance in terms of sales and profitability of the business.
This analysis is done by the financial manager to carried out the financial reports and analysis of
business performance so external stakeholder can easily accesses the financial data to know the
actual result. The detail analysis of the Domino's pizza in relevance with ratio measurement. The
two group of financial ratio are discussed below:
Liquidity ratio: Liquidity ratio is a financial metrics that indicates to the short term
obligation of a company. It is importance ratio that described as whether company meet the short
term obligation by paying it current liabilities or not. It is show the ability to pay off the current
obligation of a company. Basically it covers two ratio such as current and quick ratio. The ratio
of the Domino's pizza are as follows:
Current ratio: It is liquidity ratio that shows that company is able to meet with short
term obligation. It compares the company's current assets with its current liabilities. It indicates
the firm's liquidity. It assistance to the external shareholder in determinant of maximize the
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current assets by pay it liabilities to enhance the value of company (Cumming and Vismara,
2017).
Current ratio = Current Assets / Current liabilities
Current Ratio for the company
Domino's pizza
Year 2016- 17 2017-18 2018-19
Current Assets 0.57 0.58 0.5
Current Liabilities 0.38 0.4 0.4
Current Ratio 1.5 1.45 1.25
Interpretation:
In the year of 2016-17, current ratio is 1.5 whereas the ideal ratio is 2 : 1. so it means
liquidity position is below par. In the year 2018-19, It reduces to 1.25. It represent the
decreasing trends in liquidity ratio for Domino's pizza.
Quick ratio: This is the another liquidity ratio that measures the company's performance
by evaluating the quick assets such as cash and cash equivalent, account receivables all are able
to pay the short term obligations. The main difference in these ratio it does not consider the value
of stock (Storey, 2016).
Quick ratio = Quick assets / current liabilities
Quick assets = (Current Assets – Inventory – Prepaid Expenses) / All Current Liabilities
Year 2016 - 17 2017 - 18 2018 - 19
Quick Assets 0.49 0.52 0.44
Current Liabilities 0.38 0.4 0.4
Quick Ratio 1.29 1.3 1.1
Interpretation:
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In the year of 2016-17, quick ratio is 1.29 whereas the ideal ratio is 1.5 : 1. so it means
liquidity position is below par. In the year 2018-19, It reduces to 1.1. It shows decreasing trends
in liquidity ratio for Domino's pizza.
Capital structure ratios: It shows the financial ability of a company that is related with
its operational activities and sustain the growth by using different sources of the fund. It measure
the the financial stability of the business in the long run. Capital structure ratio shows the
accumulation of monetary funds that are furnish by the business owner and other external items
to enhance the capital of the business (De Reuver, Bouwman and Haaker, 2013). These ratio
consider the perceptive of the company's funding performing and concentrate on the long run
situation of profitability. Some of them are characterized below:
Debt to Equity ratio: It is capital structure ratio that represent the comparative analysis
between external fund and internal fund of a company. This ratio shows the per portion of the
outsider loan with owners capital.
Debt to equity ratio = debts / equity
Debt-Equity Ratio
Debt to Equity Ratio = Debt / Total Equity
Year 2016 - 17 2017 - 19 2018 - 19
Debt 3.5 3.12 2.15
Total Equity -3.04 -2.74 -1.88
Debt to Equity Ratio -1.15 -1.13 -1.14
Interpretation:
In the year of 2016-17, debts to equity ratio is -1.15 so it means capital structure of the
company is talking about there is no owners capital but its have deficit in retained earnings.
Whereas the external fund are huge. In the year 2018-19, It reduces by 0.1. It shows little bit
same trends in this ratio for Domino's pizza.
Debt to total Assets Ratio: This ratio of capital structure shows that proportion of debts
with it total assets. It represent the value about how much debts company have as comparison to
its total assets. It shows the financial leverage (Scholes, 2015).
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Debt to total Assets Ratio = Debts / total assets
Debt to total assets Ratio
Debt to total assets Ratio = debt / Total assets
Year 2016 - 17 2017 - 18 2018 - 19
Debts 3.5 3.12 2.15
Total assets 0.91 0.84 0.72
Debt to total assets Ratio 3.84 3.71 2.98
Interpretation:
In the year of 2016-17, debts to assets ratio is 3.84 so it means company have very less
assets as compare to outsider loan. In the year 2018-19, It reduces by around 1 It shows little bit
good for Domino's pizza.
Perform a non-current asset analysis
In the modern era of business, company are using new technology to provides the
augmented goods and services. In the financial assets, the value of these fix assets are decreasing
year by year due to declines in value over time which is called as depreciation (Iansiti and
Lakhani, 2014). There are various factors that may be reason in deceasing the value like time
factor, market condition, end of life of assets etc. So it is required to adopt a new tech or machine
and capital expenditure that is known as CAPAX. It is monitory fund tool to utilised the business
to upgrade and maintain the fix assets items like furniture, machinery.
Non Current Assets of company: Amount in USD billion
Particular 2016- 17 2017- 18 2018- 19
Land and building 0.21 0.16 0.15
Property plant and
equipment 0.49 0.41 0.36
Accumulated
depreciation -0.25 -0.24 -0.22
Goodwill 0.01 0.02 0.02
Intangible assets 0.15 0.13 0.11
Accumulated
amortisation -0.09 -0.08 -0.07
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Other assets 0.01 0.01 0.01
Deferred long-term
asset charges - - -
Total Non Current
Assets 0.34 0.26 0.22
Scenario analysis
This concepts is all about is process that measuring future possible projects by
considering the alternative possible results. It computes expected return of particular projects
over a specific time of period (Roberts, 2015). It defines the variation in the portfolio stock
values and crucial aspects such as interest rate. The main objectives behind it, investor can easily
analyse the better option whereas management of company can examine the level of risk
involved in the projects before investing money in it. This analysis discuss the overall picture of
the projects regards its expected issues so management of Domino's pizza can take further step to
resolve it (Kincaid, 2012).
Net present value (NPV): It provides the detail regarding cash in flow and cash outflow
of a investment projects. It is capital budgeting method that analyse the investment planning and
the profitability of the investment projects (Muradoglu and Harvey, 2012). The present cash flow
is depends on the interval of time and cash flow. This is widely used method in accounting and
finance that determine the investment value, safety, capital expenditure, Net income and the
other factor that involve in the cash flow.
Given Information
Selling Price $ 25 Unit
Expected Selling Units 450000 units
Time 4 Years
Investment
Cost of Equipment 2500000
Residual Value 500000
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Working Capital 800000
Depreciation method Straight line
Variable cost per unit $15
Cash fixed costs per year $450 000
Discount rate 12.00%
Tax Rate 30.00%
Net present value in different cases:
In Normal Case:
Year 0 1 2 3 4
Initial Investment -2500000
Annual Sales 11250000 11250000 11250000 11250000
Less: Variable Costs 6750000 6750000 6750000 6750000
Less: Fixed Costs 450000 450000 450000 450000
Less: Depreciation 500000 500000 500000 500000
Net Cash-Flow -2500000 3550000 3550000 3550000 3550000
PV Factor@12% 1
0.892857142
9
0.446428571
4
0.398596938
8
0.355890123
9
PV of Net Cash-Flow -2500000
3169642.857
14286
1584821.428
57143
1415019.132
65306
1263409.939
8688
NPV
4932893.358
23615
In Worst Case:
Selling Price (20% $20
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Decrease)
Expected Selling Units
(20% Decrease) 360000
Variable cost per unit
(20% Increase) $18
Year 0 1 2 3 4
Initial Investment -2500000
Annual Sales 7200000 7200000 7200000 7200000
Less: Variable Costs 6480000 6480000 6480000 6480000
Less: Fixed Costs 450000 550000 650000 750000
Less: Depreciation 500000 500000 500000 500000
Net Cash-Flow -2500000 -230000 -330000 -430000 -530000
PV Factor@12% 1
0.892857142
9
0.446428571
4
0.398596938
8
0.355890123
9
PV of Net Cash-Flow -2500000 -205357.14 -147321.43 -171396.68 -188621.76
NPV -3212697.02
In Best case:
Selling Price (20%
Increase) 30
Expected Selling Units
(20% Increase) 540000
Variable cost per unit
(20% Decrease) 12
Year 0 1 2 3 4
Initial Investment -2500000
Annual Sales 16200000 7200000 7200000 7200000
Less: Variable Costs 6480000 6480000 6480000 6480000
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Less: Fixed Costs 450000 350000 250000 150000
Less: Depreciation 500000 500000 500000 500000
Net Cash-Flow -2500000 8770000 -130000 -30000 70000
PV Factor@12% 1
0.892857142
9
0.446428571
4
0.398596938
8
0.355890123
9
PV of Net Cash-Flow -2500000 7830357.14 -58035.71 -11957.91 24912.31
NPV 5285275.83
NPV’s sensitivity:
Normal Case Worst Case Best Case
NPV 4932893.36 -3212697.02 5285275.83
Percentage Sensitivity - -34.87% 7.14%
As per the above analysis, its is jointed that In the normal case net present value is
4932893.36 whereas in the best case NPV is 5285275.83. But in the worst case it decreased to -
3212697.02 and its sensitivity on percentage at worst case is -34.87% But in the best case it
increase to 7.14% that shows the favourable condition. By measuring the overall scenario of
NPV, it is viable and economical to invest in it.
Identify and discuss any latest share or bond issuance
In the business organisation, issue of share and bond may increase the owners capital.
And it help to the stakeholder in claiming the dividend and share in the outstanding capital.
Company domino's pizza has issued 7500 fully paid ordinary shares at the issue price of $ 40.95
on the date of 30 August 2019 for the purpose of the exercise under domino's pizza executive
share and option plan. And the dividend policy about these shares are as determined by the board
time to time. There is no other kind of expenses on issuance of share like floating cost. It will
increase the capital structure of the company as enhancing the owners fund (Lehner, 2016).
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PE ratios and share price movement
Price-Earnings Ratio or PE ratio: This is the ratio that used by the management of
organisation to know the earnings on the share price. This method measure the current share
price with its earning per share. By the help of it investors can ascertain the real value of the
company as well the share value. It is calculated as:
PE ratio = MPS / EPS
here, the earning per share of domino's pizza for last three year:
Year 2016-17 2017-18 2018-19
Price earning 39.91 36.06 31.79
Share price movement: It is also knowns as stock analysis that is defined as evaluation of the
trading tools in the stock market that help in the reckoning the future profit and investment in the
stock and shares (Martin and Pollard, 2017). This price movement shows the positive and
negative changes in the value of share and stock that is depended on the market and economic
terms as supply and demand for a time period. In the case of Domino's pizza, Investor are happy
to buy the share of the company as they know it can be grow in the future. And in similar they
can sell the share with high price of the share. The share price movement of Domino's is as
follows:
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From the above chart of stock price movement it is identified that in the year of 2016 the value
of share price is around 53. but in the mid of this year it reached at highest point 76. as company
is gaining huge profit margin by making investment to open branch at another location and other
activities that generated fund by issuing share. It represent positive impact on the investor after it
reduce to 43 in the mid of 2017. Due to uncertain market condition price of share are around 40
in 2018 and current year.
RECOMMENDATION
As per the various evaluation of the financing activities of Domino's pizza, it is recommanded
that investment in the project is beneficial for the organisation to increase the operating profit of
the company. Analysis of ratio is the crucial part to know the sales and profitability of the
business for financial aspects. Current and quick ratio show the good liquidity position of the
company. PE ratio shows the earning of the company that is low as compare to previous year.
Share price movement shows company is in stable position to invest in it. Overall financial
position of the Domino's pizza is good after analysing the ratio, performance, share price and
future sustainability of organisation.
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CONCLUSION
As per this report of finance, it is concluded that finance for the business is very
important to provides the fund and resources to operate the activities. It support to all of the unit
of the business in helping to provide the money. It covers financial planning, performance,
liquidity management and ascertain the risk in the future projects. Financial ratio shows the
detail analysis of sales and profitability of the business. In addition to, NPV of the capital
investment in the report is viable to invest in it. PE ratio help in understand the market price and
earning of the company that is also in stable condition.
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REFERENCES
Books and Journals:
Biehl, C. F., Hoepner, A. G. and Liu, J., 2012. Social, Environmental, and Trust Issues in
Business and Finance. Socially responsible finance and investing, pp.111-142.
Crespí-Cladera, R. and Martí n‐Oliver, A., 2015. Do family firms have better access to external
finance during crises?. Corporate Governance: An International Review. 23(3).
pp.249-265.
Cumming, D. J. and Vismara, S., 2017. De-segmenting research in entrepreneurial
finance. Venture Capital, 19(1-2), pp.17-27.
De Reuver, M., Bouwman, H. and Haaker, T., 2013. Business model roadmapping: A practical
approach to come from an existing to a desired business model. International Journal of
Innovation Management. 17(01). p.1340006.
Iansiti, M. and Lakhani, K.R., 2014. Digital ubiquity: How connections, sensors, and data are
revolutionizing business.
Kincaid, J., 2012. The constitutional frameworks of state and local government finance. In The
Oxford handbook of state and local government finance.
Lehner, O. M., 2016. Routledge handbook of social and sustainable finance. Routledge.
Martin, R. and Pollard, J. eds., 2017. Handbook on the Geographies of Money and Finance.
Edward Elgar Publishing.
Muradoglu, G. and Harvey, N., 2012. Behavioural finance: the role of psychological factors in
financial decisions. Review of Behavioural Finance. 4(2). pp.68-80.
Roberts, R., 2015. Finance for small and entrepreneurial business. Routledge.
Scholes, M. S., 2015. Taxes and business strategy. Prentice Hall.
Storey, D. J., 2016. Understanding the small business sector. Routledge.
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