Financial Performance Analysis of Cancer Research UK

This report summarizes the financial performance of Cancer Research UK with the help of ratio analysis and discusses the impact of economic factors on the organization.

Cancer
Research UK

EXECUTIVE SUMMARY
This report has been summarised the financial performance of Cancer Research UK with the
help of ratio analysis. This report also includes the macro or micro economic factors which affect
the organization. With the help of financial performance analysis, investors are able to evaluate
the performance and understand the financial position of the organization.
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EXECUTIVE SUMMARY 1
INTRODUCTION 3
MAIN BODY 3
TASK 1 3
Carryout Analysis of Economic Factors and discuss their impacts on the Business 3
TASK 2 5
Calculate the following ratios for each of the three years 5
TASK 3 9
Explain Accounting Ratios and their importance in Business 9
RECOMMENDATIONS 9
CONCLUSION 10
REFERENCES 11
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INTRODUCTION
There are economic conditions make products more or less costly to manufacture, the whole
curve will change the outcome (Al Breiki and Nobanee, 2019). Everything which raises the cost
of production for example, increased manufacturing prices, higher taxes and higher labour costs
will change the supply curves up and down to a left. This report covers the calculation of
accounting ratios and it affects the organization. In addition, it includes the macro or micro
economic factors which affect the organization.
MAIN BODY
TASK 1
Carryout Analysis of Economic Factors and discuss their impacts on the Business
Macro-Economic Factors: This element is indeed an influential economic, natural or
political phenomenon that has a significant effect on the national or regional economics.
Examples of macroeconomic variables involve economic production, inflation and
unemployment (Macro-Economic Factor, 2020). This factor also includes the public funds
which are used by the Cancer Research UK. Below mentioned graph provide better
understanding of macro-economic factors that is public or government spending on cancer
research. Further discussion is as follow:
Figure 1Macro-Economic Factor, 2020
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This rise in support for cancer research was motivated by a 9% increase in spending for
early detection, diagnosis and prognosis research. Study on Care and Cancer Prevention,
Survival and Outcome Study received less support than in past years.
MICRO Economic Factors: It is an analysis about what is likely to take place (tendency)
as people make decisions in reaction to variations in rewards, costs, resources and/or methods of
production. Person participants are also classified into microeconomic sub-groups, like buyers,
sellers, and entrepreneurs (Micro-Economic Factor, 2020). In relation to Cancer Research UK,
the advantages to patients and family members should not be the only results of their study. A
community which tend to live longer and is happier has the benefit of having a more efficient
workforce that promotes economic growth and tax revenue. Thus, by encouraging patients to
improve and the population to always be healthier, study has an influence on the economy. The
researchers reported that cancer research has resulting in £124 billion in health benefit to the
population through measures such as improved screening, more coordinated healthcare systems
and innovative drug therapies.
Figure 2 Micro-Economic Factor, 2020.
Evaluate the performance of Cancer Research UK: The lack of even more current
survival data is indeed an especially significant gap throughout the attempt to assess the success
of cancer strategy, which sets out specific goals for cancer survival. While latest evidence
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becomes available, they will become much adequately equipped to determine the effect of the
cancer approach on cancer survival in England (Allayarov, 2020). It is important that required
data be made accessible as quickly as possible in order to properly prepare the Government and
the NHS to assess progress against goals set out from the cancer strategy and to enhance
organizational where preventive action should be taken. NHS Digital, Public Health England and
everyone else should explore how to enhance the punctuality of data and review. There are,
however, a range of indicators in the cancer policy for which they have more recent figures and
for that they can also tentatively determine how effective the cancer strategy is to date in such
areas. There are the following measures:
 Normal cancer waiting periods
 Prevalence of adult smoking
 The percentage of cancers diagnosed by emergency appearance
 Screening of uptake
TASK 2
Calculate the following ratios for each of the three years
Ratio Formula 2017 (£’m) 2018 (£’m) 2019 (£’m)
Return on Capital
employed
= Operating profit / Total
assets – Current Liabilities
* 100
= 679.2 / (739.4 –
331.0) * 100
= 679.2 / 408.4 *
100
= 166.30%
= 634.3 / (778.2
– 360.7) * 100
= 634.3 / 417.5
* 100
= 151.92%
= 671.9 / 395.2
* 100
= 170.01%
Net Profit Margin = Net Profit / Net Sales *
100
= 545.0 / 437.3 *
100
= 124.3%
= 530.3 / 433.2
* 100
= 122.41%
= 111.1 / 671.9
* 100
= 16.5%
Current Ratio = Current Assets / Current
Liabilities
= 310.2 / 331.0
= 0.93
= 307.4 / 360.7
= 0.85
= 331.7 / 436.4
= 0.76
Debtors
Collection Period
= Receivables / Sales *
365
= 242.5 / 545.0 *
365
= 162.40 days
= 251.6 / 530.3
* 365
= 173.17 days
= 262.2 / 671.9
* 365
= 142.4 days
Creditors = Payables / Purchases * = 331.0 / 665.6 * = 360.7 / 652.2 = 331.7 / 783 *
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Payment Period 365 365
= 181.51 days
*365
= 201.89 days
365
= 154.62 days
Efficiency ratio = Noninterest Expenses/
(Operating Income – Loss
Loan Provision) * 100
= 665.6 / (679.2 –
0.8) * 100
= 665.6 / 678.7 *
100
= 98.06%
= 652.2 / (634.3
– 0.7) * 100
= 652.2 / 633.6
* 100
= 102.9 &
= 783 / (671.9
– 0.8) * 100
= 783 / 671.1 *
100
= 116.67%
Return on capital employed: The return on capital employed (ROCE) is a financial ratio
which could be used to determine the profitability and productivity of the business. In other
words, this ratio will help to explain how effectively a business produces income from its money.
The return on capital employed is a significant ratio since it helps investors to evaluate a variety
of businesses. If they are an investor, they can use ROCE to see whether the business out of
many uses its resources most effectively to produce income.
From the above calculation of ROCE ratio, it has been observed that performance of the
Cancer Research UK was decreases from the period of 2017 to 2018 and in 2019 they again
achieve the growth (Blakyta and Ganushchak, 2018). ROCE in 2017 was 166.30 % which
reduces in 2018 with 151.92 % and in 2019 it was increases with 170.01%. Higher the ROCE is
beneficial and it indicated that how efficiency an organization to generate revenue from it.
Overall performance of this organization is good and it attracts more investors towards it.
Net profit margin: It is equivalent with how much total income is produced as a
percentage of sales. Net profit margin lets investors determine whether company's management
earns sufficient profit from its revenue or whether operating costs and overhead costs are
included. This ratio demonstrates how often net profits a business produces for overall revenue
achieved. A high net profit margin shows that company is more effective in turning revenue to
real profit. Lower the ratio suggests that the company is unable to achieve adequate profitability.
On the basis of above calculation, it has been interpreted that net profit margin of Cancer
Research UK that is charitable organization in 2017 was 124.3 %, 122.41 % in 2018 and in 2019
it was 16.5%. In 2019, net profit margin drastically decreases because of low net profit generated
by the organization (Al Muhairi and Nobanee, 2019). In addition, due to COVID-19 situation in
the end of 2019 fiscal year affect the organization which causes its overall revenue which can
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further affect the investors decisions as well. High the net profit ratio is beneficial or low ratio
indicates that organization is unable to perform or achieve their operational goals & objectives.
Current Ratio: It is the liquidity ratio which is used to calculate the ability of a firm to
pay their short-term obligations as well as those due within 1 year. It shows investors and traders
how a business should increase its current assets in order to meet its short term debt and other
liabilities. It is among the most useful ratios throughout the financial analysis because it allows
assessing the liquidity position of company. Simply put, it illustrates the willingness of a
corporation to turn its assets into cash in required to finance off its short-term obligations.
It has been evaluated that current ratio of Cancer Research UK in 2017 was 0.93 which is
lower than the ideal ratio (Morozko and Didenko, 2018). Similarly, in 2018 it was 0.85 and in
2019 it was 0.76, all year’s current ratio did not meet with idea ratios. This ratio helps the
organization to meet their short term obligations with current liability but it was also observed
that current ratio continuously decreases from 2017 to 2019. Management has to take some
effective steps to improve their efficient to pay of their short term debt and other liabilities.
Current assets should be twice in comparison to current liability because organization has to pay
their obligations and it can be occur any time.
Debtors Collection Period: It is also the average number of days it requires for a
company to collect the money it owes to some of its clients. The earlier debtors pay the company
the stronger, the shorter the debtor's recovery duration is a successful one. In other words, a
reduction in period is an indication of increased efficiency. It allows the organisation to equate
the actual accounts receivable with the provided / conceptual credit period. The less time it takes
to recover these debts, the more successful the company tends to be. Longer periods suggest
troublesome commercial debtors or even less overall performance.
On the basis of above ratio’s calculation, in 2017 debtor collection period was 163 days
which is lower than 2018 and this year organization were taking 174 days to recover their
money. On the other side, in 2019 Cancer Research UK was taking 143 days to collect money
from their debtors. It is the shortest recovery period of Cancer Research UK which increases the
overall efficiency of the organization. Reduction in debtor’s collection period over the years
shows the growth of organization in terms of improving their operational efficiency. Longer
period can cause the trouble for the business, so they need to implement effective strategies to
minimise their recovery period or improve overall performance.
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Creditors Payment Period: It calculates the average period of a company which takes to
resolve its debts with commercial suppliers. This ratio is a useful metric when it comes to
determining the liquidity ability of the firm (Mosteanu and Faccia, 2020). This figure will help
investors better understand if the company has taken maximum advantage of a commercial credit
available, as well as recognise any possible cash flow issues. In other words, the ratio calculates
the rate where a business pays its suppliers. Creditors may be using the ratio is used to measure
to either expand the line of credit to a business.
From the above calculation of creditor’s collection period, it has been analysed that in 2017
year, account payable days was 182 and in 2018 it was 202 day and in 2019 it was 155 days.
Higher the period is beneficial and the best productive year in terms of creditor’s collection
period is 202 day in 2018 and in 2019 it reduces, management has to formulate some effective
strategies because these figures will helpful for the investors to understand the company’s
efficiency regarding it. With the help of this ratio, creditors of Cancer Research UK evaluate that
they can either expand their credit terms or not.
Efficiency ratio: It contrasts just what company that owns with its revenue or profit results,
and tells investors about potential of a business of using what someone has to produce as much
money as possible for stakeholders and investors (Seetanah and et.al., 2019). The efficiency ratio
of 50 percent or less is assumed to be optimum. Unless the efficiency ratio rises, it means that the
costs of the bank are rising or that its profits are declining. These equations calculate how
effectively a business uses its assets to produce profits and maintain those assets. This ratio is
being used to equate the net sales of a business with its total average assets.
On the basis of above calculation, it has been observed that Cancer Research UK identify
the efficiency ratio of three year and all are more than 50 % which means the cost increases that
automatically reduces the profitability of the organization. Management of the organization
should ensure to maintain optimum level of efficiency ratio that is less than or equals to 50 %. In
2017, efficiency ratio of Cancer Research UK was 98.06 %, in 2018 it was 102.9 % and 116.67
% in 2019 (Aljandali and Tatahi, 2018). Management has to take effective steps to maintain
optimum level of efficiency in an organization to improve productivity as well as profitability.
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TASK 3
Explain Accounting Ratios and their importance in Business
Accounting ratios is an essential subset of accounting analysis; it is a category of metrics
that used calculate the performance and profitability of a business derived from the financial
results. They could provide platform to release the relation among one financial data point and
another which are the basis for the study of a ratio (Shapiro and Hanouna, 2019). Such ratios can
also be used to measure the fundamentals of a business as well as provide statistics on company's
results throughout the last half or fiscal year. Popular financial metrics also include debt-to -
equity ratio, the quick ratio, dividend pay-out ratio, gross margin and operating margin.
Accounting ratios have been used by both the organisation itself to boost or track progress and
by stakeholders to assess the best investment choice.
RECOMMENDATIONS
 The Government must avoid the reduction to Public Health Grant and provide the
Councils with the money they want to provide crucial resources to help further smokers
quit. The Government also should agree to a timetable to reduce cigarette consumption to
just 5 % of population and ensuring that every socio-economic category is approached to
reach this goal.
 The Government should also finance the more investment to make it profitable for
workers beyond 2021 that will be estimated in phase two of a plan, expected to be
released in the summer.
 NICE and NHS England must collaborate with investors to build purpose-built
frameworks that deliver the best value and efficiency in accessing medications in the
future, through frameworks such as output-based pricing (Valaskova, Kliestik and
Kovacova, 2018). CRUK is designing a research study to investigate the possibilities for
results-based prices over the next several years.
 In order to guarantee that patients benefit from of the advances in drug discovery and to
provide sufficient funding for access to healthcare trials in the field of targeted therapy,
NHS England should confirm that arrangements are placed in place to carry out panel
studies for cancer molecule diagnostic tests.
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 A detailed support package, which encourages the exchange of best practise, networking
and friendships between the Partnerships, should be offered by the NHS England
working with both the NHS Improvement. The Government of UK and the National
Health Service of England should aim to ensure long-term, reliable funding for Cancer
Alliances
CONCLUSION
From the above discussion it has been concluded that economic and financial management is
very essential to manage their operational activities. There are several accounting ratios which
are used to evaluate the three years performance of charitable organization and ensure that, is
they perform well or not and what steps they required to take to improve their efficiency as well
as performance.
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REFERENCES
Books & Journals
Al Breiki, M. and Nobanee, H., 2019. The role of financial management in promoting
sustainable business practices and development. Available at SSRN 3472404.
Al Muhairi, M. and Nobanee, H., 2019. Sustainable financial management. Available at SSRN
3472417.
Aljandali, A. and Tatahi, M., 2018. Economic and Financial Modelling with EViews: A Guide
for Students and Professionals. Springer.
Allayarov, S. A., 2020. Combination of fiscal and stimulating functions of the tax system to
ensure financial and economic security. American Journal of Economics and Business
Management, 3(1), pp.64-69.
Blakyta, G. and Ganushchak, T., 2018. Enterprise financial security as a component of the
economic security of the state. Investment management and financial
innovations, 15(2), pp.248-256.
Morozko, N. and Didenko, V., 2018. Financial management of small organizations based on a
cognitive approach.
Mosteanu, N. R. and Faccia, A., 2020. Digital Systems and New Challenges of Financial
Management-FinTech, XBRL, Blockchain and Cryptocurrencies. Quality-Access to
Success, 21(174).
Seetanah, B. and et.al., 2019. Impact of economic and financial development on environmental
degradation: evidence from small island developing states (SIDS). Emerging Markets
Finance and Trade, 55(2), pp.308-322.
Shapiro, A. C. and Hanouna, P., 2019. Multinational financial management. John Wiley & Sons.
Valaskova, K., Kliestik, T. and Kovacova, M., 2018. Management of financial risks in Slovak
enterprises using regression analysis. Oeconomia Copernicana, 9(1), pp.105-121.
Online
Annual report of 2017-19. [Online]. Available Through:
<https://www.cancerresearchuk.org/sites/default/files/cruk_annual_report_2017_18_fin
al.pdf >
Annual report of 2019. [Online]. Available Through:
< https://www.cancerresearchuk.org/sites/default/files/cruk_ar20_interactive.pdf >
Macro-Economic Factor, 2020 [Online]. Available Through:
< https://www.ncri.org.uk/ncri-blog/increase-in-cancer-research-funding/>
Micro-Economic Factor, 2020. [Online]. Available Through:
<https://scienceblog.cancerresearchuk.org/2014/06/16/cancer-research-benefiting-
patients-and-the-economy/>
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