Business Decision Making: Analysis of Investment Projects for S&P Plc

This report analyses the investment projects of S&P Plc by calculating net cash flow and discussing aids of business decision making such as payback period, NPV, financial and non-financial factors. It explains the importance of business decisions for growth, increasing profit, risk management and other reasons. The report also highlights the different types of business decisions and methods used for analysis and making decisions.

Business decision
Making

Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY ..................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business decisions are series a activity that allows professionals to solve problem by
analysing factors affecting profitability of the organisation. Critical analysis and taking important
decisions are part of operations of the business entity (Gai, and et al., 2022). In this report
business project decisions of S&P plc are to be taken by calculating net cash flow from the
project. Deep analysis of aids of business decision making such as payback period, NPV, also
financial and non- financial factors are to be discussed.
MAIN BODY
S&P Plc is a bag manufacturing company, operating in the UK and various areas of
Europe. Its has two projects project A (synthetic leather bags) is £185,000 and for project B
(clothes bags) is £182,000.
calculation of net cash flow is as follows when the discounting rate 11%:
Year Discounting
rate (11%)
Project A
(Synthetic
Leather Bags)
Discounted
cash inflow of
project A
Project B
(Clothes Bags)
Discounted
cash inflow of
project B
0 1 -185000 -185000 -182000 -182000
1 0.9 60,000 54060 65,000 58565
2 0.81 68,000 55216 69,000 56028
3 0.73 82,000 59942 77,000 56287
4 0.66 109000 71831 105,000 69195
5 0.59 155000 91915 145,000 85985
Net cash flow 147964 144060
From the above calculation it can be concluded that both the projects A and B have different
investing amount (Ivanova, Tuguzova and Khalgaeva, 2018). The investment amount of project
A is more as compared to Project B. hence cash flow generated from project A is higher than
project B.
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Business decisions are taken for growth, increasing profit, risk management and other
reasons. There are three types of business decisions strategic, tactical and operational. Strategic
decisions are complex and depended upon the discretion of senior management. While the
tactical decisions are not basic but not too complex so they are made by middle managers. The
operational decisions are daily routine decisions that are to be made by junior managers
(Jiménez-Castillo, and et al., 2020).
The “pay back period” is the method of calculating the time length required for a project/
investment to recover the amount invested. Shorter the time period more desirable the projects is.
In order to ascertain the payback period, invested amount is divided by the annual cash flow
generated from the investment. This is considered as the easiest and basic method to calculated
weather a project is worth investment or not. It emphasises on cash inflows and cash outflows of
the investment But it has its own set backs, this method does not considers the time value of
money in the calculation. Therefore it fails to delivers more accurate decisions. Hence this
method is not alone enough for analysis and making a decisions. This method is used for
financial and capital budgeting, this method is applicable in other industries too.
The Net Present Value (NPV) is tool which is implemented in finance and business to find out if
the project is worthy of investment or not. It is quantitative technique that takes into
consideration projects inflows and outflows by adjusting the time value of money. It is ideal
measure for calculating the profitability of a project or projected investment. It helps in making
decision more wisely and accurately. Time value of money is the concept which takes the future
value of the money available presently. The business takes discounted cash flow estimation for
the project and accordingly check the potential of the investment. Net present value method is
calculated by taking the discounted cash flow of the project minus the initial investment made by
the business organisation. The net cash flow is then used for taking the decision weather to
pursue it or not (Ren and et al., 2019).
The Financial method for making business decisions are method of analysing the financial
reports, records and statements prepared by the organisation. Understanding the requirement of
organisation by studying the balance sheet of the organisation. Cash flow statement also plays a
vital role in understanding the positions of the company and project the investment being made
into. There are various ratio calculation which takes into consideration various factors and
determinants that is helpful in more deep analysis and accurate results. Such calculation of return
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on investment of projects gives an estimation how project can be profitable for an organisation.
Conducting a cost benefit analysis of the project is also helpful in determining the cost approach
analysis of the investment. This is also helpful in comparison between two or more projects
options available with the company. It provides profitability of the available options which
makes business decisions more reliable (Xu and Tan, 2020).
The Non financial factors that aids the business decision process includes checking whether the
investments meets the requirement of current and future needs. That it accomplishes industries
standards and follows ethical methods. Improves the human resource's morale and productivity.
Maintains a healthy relation between the suppliers and customers of the organisation. Takes the
business reputation higher in the market and improves the overall brand image in the market. The
investment made contributes to the organisational growth and development. Gives a good
experience to the company for upliftment of the stakeholders. Attracts more investors and
financier. Investment that avoids future threats and have manageable and calculated risk. This
factors brings balance in the organisation and contributes to sustainable development of the
organisation (Yang, 2020).
CONCLUSION
From the above report it can be said that, business decision are taken to accomplish goals
of the organisation. Business decisions are taken by top level management of the organisation.
The decision taking authority is decided by the nature of the decision that need to be made. It can
be strategic, tactical and operational. In S&P plc, project A and project B both are competent
investment. Higher cash flow generating project requires more investment, so in order to take
better decision other factors like Payback period, NPV analysis, financial and non financial
methods are considered.
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REFERENCES
Books and Journals
Gai, L. and et al., 2022. Total Site Hydrogen Integration with fresh hydrogen of multiple quality
and waste hydrogen recovery in refineries. International Journal of Hydrogen
Energy, 47(24). pp.12159-12178.
Ivanova, I.Y., Tuguzova, T.F. and Khalgaeva, N.A., 2018, October. Comparative analysis of
approaches to consider rationale of use of solar panel plants for power supply of off-grid
consumers. In 2018 International Ural Conference on Green Energy (UralCon) (pp. 75-
79). IEEE.
Jiménez-Castillo, G. and et al., 2020. A new approach based on economic profitability to sizing
the photovoltaic generator in self-consumption systems without storage. Renewable
Energy, 148.pp.1017-1033.
Ren, A.H. And et al., 2019. Diagnostic performance of MR for hepatocellular carcinoma based
on LI‐RADS v2018, compared with v2017. Journal of Magnetic Resonance
Imaging, 50(3). pp.746-755.
Xu, L. and Tan, J., 2020. Financial development, industrial structure and natural resource
utilization efficiency in China. Resources Policy,66.p.101642.
Yang, B., 2020. Construction of logistics financial security risk ontology model based on risk
association and machine learning. Safety Science,123.p.104437.
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