Business Decision Making: Analyzing Profitability and Investment Decisions

This report explores the concept of business decision making and its importance in analyzing profitability and investment decisions. It discusses the methods of payback period and net present value to assess the profitability of investment decisions. It also examines the role of financial and non-financial factors in influencing investment decisions. The report is based on a case study of XYZ PLC Company in the United Kingdom and Europe.

business decision making
Table of Contents

INTRODUCTION.................................................................................................................................3
MAIN BODY........................................................................................................................................3
Business decision making..................................................................................................................3
CONCLUSION.....................................................................................................................................6
REFERENCES......................................................................................................................................7
INTRODUCTION
Business decision making is defined as analysing the profitability from the business
practices (Ramanujam and Leela, 2016). This report is based on the case study of XYZ PLC

Company is respect to its investment decision making. The organisation is currently
operating in United Kingdom and also in some part of the Europe. Currently company is
outsourcing some of its sources due to lack of resources. This report will analysis the
investment decision of the company in respect to investment in software or a laundrette
project.
MAIN BODY
Business decision making
Business decision making is a process that involve assessing the profitability of the
decision making. Investment decisions involve financial outcomes of the organisation. In
order to assess the profitability of such investment decisions of organisation following tools
are used by companies.
Payback period method
Payback period method is a method used to assess the investment decision of
company. This method involves expected cash inflow from the investment to assess about the
profitability of the investment decision making. Payback period is denoted the expected time
which is required to recover the total investment made by the company in improving its
service quality. This can be stated as the estimated time needed to recover the total
investment amount. The cash inflow use in this method to calculate the total payback period
is more expected in nature (Arp and Keen, 2019). On the basis of needs, demands and market
situation company anticipate about its future cash inflow from the project. Currently XYZ plc
is confused between the software project and laundrette project. On the basis of the Payback
period method company will analyse its investment decision as to which investment method
company should choose based on the expected returns from both the investments. It is stated
that the project which serves the lesser payback period is more profitable for company.
Project A= Software project payback period
Total investments = £ 100000
Cash inflow
Year Cash Inflow (£) Total cash inflow (£)
1 28000 28000

2 32000 60000 (28000 + 32000)
3 35000 95000 (28000 + 32000 +
35000)
4 55000 150000 (28000 + 32000 +
35000 + 55000)
Payback period = 3 + 1.09 (5000/ 55000 * 12) [ 100000 – 28000 – 32000 - 35000]
= 3 year and 1 month
Project B – Laundrette Project
Total investment = £ 120000
Cash inflow
Year Cash Inflow (£) Total cash inflow (£)
1 31000 31000
2 38000 69000 (31000 + 38000)
3 43000 112000 (31000 + 38000 +
43000)
4 64000 174000 (31000 + 38000 +
43000 + 64000)
Payback period = 3 year + 1.5 (8000 / 64000 * 12) [£ 120000 – £ 31000 – £ 38000 - £
43000]
= 3 year and 1.5 month
Justification
On the basis of the payback period method it can be stated that as the total payback
period of investment is less in case of project A as compare to project B so the investment
decision in software project is more beneficial as compare to investment in Laundrette
project.
Net present value method

Net present value method is also a investment decision making method that analysis
about the investment decision of company. This method involves total investment amount
and per year expected cash inflow from the project in order to assess the investment decision
making (Lefley, 2018). This method also includes time value of money in order to calculate
the actual present cash inflow. It is stated that based on the economic laws value of money
will not be as similar to the current value of money. Due to inflation in economy it is further
stated that the value of money will reduce in future which will also influences the future cash
inflow. In this method total investment is reduced with future expected cash inflow
influenced with time value of money in future.
Project A- Software project
Year Cash inflow (£) Time value of
money
Actual future cash
inflow (£)
1 28000 .900 25200
2 32000 .811 25952
3 35000 .731 25585
4 55000 .659 36245
5 78000 .593 46254
Total cash inflow (£) = 159236 (25200 + 25952 + 25585 + 36245 + 46254)
Net present value (£) = Total future cash inflow – Total Investment
= 59236 (159236 – 100000)
Project B – Laundrette Project
Year Cash inflow (£) Time value of
money
Actual future cash
inflow (£)
1 31000 .900 27900
2 38000 .811 30818
3 43000 .731 31433
4 64000 .659 42176
5 89000 .593 52777

Total cash inflow (£) = 185104 (2700 + 30818 + 31433 + 42176 + 52777)
Net present value (£) = Total expected future cash inflow – Total investment
= 65104 (185104 - 120000)
Justification
On the basis of the concept of the Net Present Value method it can be stated that the
investment in Laundrette Project is more beneficial for the company as it resulted into better
net present value as compare to project A.
Financial Factor: Financial factors are defined as profits, total cost of investment, interest
rate, per capita income, GDP growth rate and other key factors. All the factors involved in
financial decision making are a part of the financial factors. Investment decisions are made
on the basis of these factors (Li, Ma and Yang, 2018). Company also use different statistics to
assess the investment decisions. Methods like Net present value and payback period method
involves financial factors to analyse about the investment decision making of project.
Non financial factor: Non financial factor involve in investment decision are indicated as
social factors such as demands and supply, trends, needs of society, customers segments and
other non statistical factors that influences the company’s sales in market (Lowies, Hall and
Cloete, 2016). All such factors put huge impacts over company’s sales in market. Non
financial factors include all such factors that can influences the demands of company’s
products in market.
CONCLUSION
This report has concluded different factors that contribute in making investment
decision for company. Factors like payback period method which involves total investment
and cash inflows. Net present value method involves time value of money to calculate the
profitability of the investment decision making for company. Financial factors include all
statistical factors that attract profitability for investment.

REFERENCES
Books and Journals
Arp, A. and Keen, S., 2019. Factoring External Costs into Policy and Investment Decision
Making. Southern African Transport Conference.
Lefley, F., 2018. An exploratory study of team conflict in the capital investment decision-
making process. International Journal of Managing Projects in Business.
Li, S., Ma, X. and Yang, C., 2018. A combined thermal power plant investment decision-
making model based on intelligent fuzzy grey model and ito stochastic process and
its application. Energy. 159. pp.1102-1117.
Lowies, G. A., Hall, J. H. and Cloete, C. E., 2016. Heuristic-driven bias in property
investment decision-making in South Africa. Journal of Property Investment &
Finance.

Ramanujam, V. and Leela, L., 2016. A study on investment literacy towards investment
decision making behavior of working women. International Journal in Management
& Social Science. 4(5). pp.28-34.