Financial Evaluation and Budgeting in Finance

This document provides an analysis of financial evaluation and budgeting in finance. It includes calculations of financial ratios, performance evaluation, and recommendations for improving the financial structure. Suitable for finance students and professionals.

Running head: FINANCE
Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Part 1: Financial Evaluation.......................................................................................................2
Part 2: Budgeting........................................................................................................................5
Part 3: Project Evaluation.........................................................................................................11
Reference and Bibliography:....................................................................................................17

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Part 1: Financial Evaluation
Particulars 2017 2016
Revenue € 7,85,000.00 € 7,22,200.00
Gross profit € 7,16,000.00 € 6,58,720.00
Net profit € 4,36,605.00 € 4,00,862.00
Total assets € 18,94,467.00 € 13,29,377.00
Total liabilities € 11,29,000.00 € 9,58,266.00
Total equity € 7,65,467.00 € 3,71,112.00
Interest € 8,500.00 € 8,000.00
EBIT € 6,80,200.00 € 6,24,710.00
Market value price per
share € 5.50 € 4.75
Number of shares 3,00,000 3,00,000
Profitability
Net profit margin 55.62% 55.51%
Gross profit margin 91.21% 91.21%
Asset Usage
Asset turnover ratio 41.44% 54.33%
Return on assets 23.05% 30.15%
Capital Structure ratio
Debt to equity ratio 1.47 2.58
Debt ratio 0.60 0.72
Interest coverage ratio 80 78
Investment ratio
Price earnings ratio 3.78 3.55
Earnings yield 0.26 0.28
Earnings per share 1.46 1.34
Commenting on the performance of the organisation:
After evaluating the above calculations the overall performance of the organization
can be derived this directly indicates the relevant improvements in their current operational
capability. From the evaluation of the profitability ratio, the net profit margin of the
organization is seen to improve slightly from the levels of 55.51% in 2016 to 55.62% in

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2017. This improvement is relatively due to the high level of net profit that has been achieved
by the company during the first year. Moreover, the calculation of gross profit margin
relatively indicates no certain improvements, as the value has relatively remained same for
both the fiscal years. This directly indicates that the reduction in administrative expenses has
relatively allowed the organization to experience higher profits from its operations (Vogel
2014).
The calculations of asset usage ratio directly indicate the low efficiency of the
management, which has relatively reduced the effective usage of the available assets. The
Asset turnover ratio of the organization has relatively fallen from the levels of 54.33% to
41.44% in 2017. In the similar instance, the overall return on assets of the organization has
also fallen from the levels of 30.15% to 23.05%. This decline in asset usage is relatively due
to the increment in total Assets of the organization in 2017, which was not complemented by
the increment in net profit and revenues.
The capital structure ratio of the organization as a relatively improve over the period
of two fiscal years, where the decline in debt accumulation has allowed the organization to
attend solvency position. The debt to equity ratio of the organization has a relatively declined
to the levels of 1.47 in 2017 from 2.58 in 2016. Moreover, debt ratio of the organization has
also declined from the levels of 0.72 in 2016 to 0.60 in 2017. The decline in both debt to
equity ratio and debt ratio is due to the increment in total equity, which was not
complemented by the increment in total liabilities of the organization. This relevantly helps in
improving the debt structure of the organization and reducing the composition of debt. The
interest coverage ratio of the organization is also increased from the levels of 78 to 80, which
directly indicates the positive attributes of the organization. Kou, Peng and Wang (2014)
stated that capital structure allow the investors to detect the solvency position of the
company, which helps them make investment decisions.

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Investment ratio of the organization has the relatively indicated a positive attribute
where both the price earnings ratio and earning person has relatively improved over the
period of two fiscal years. These improvements in the investment ratio directly indicate a
positive indication to the investors who can increase the returns from investment in the
organization. Moreover, the earnings of the organization have minutely declined during the
fiscal year of 2017. Therefore, from the evaluation of the financial ratio it could be identified
that the performance of the organization has relatively improved during the fiscal year of
2017 (Greco, Figueira and Ehrgott 2016).
Indicating whether GHOV needs a better financial structure:
The financial ratios of capital structure relatively help in detecting the overall
financial structure of the organization. The current deposition of the organization is
considered normal which needs to be improved in future. The debt equity ratio needs to be at
the levels of 1, while the debt ratio needs to be below 0.45 to minimize the negative impacts
of Finance cost. Capital structure of the organization relatively portrays their capability to
support operations and invest in additional projects. Hence, the current capital structure of the
organization needs to be below 0.45 from 0.60 levels, which can only be achieved by
reducing the debt and increase equity capital. The increment in the composition of equity and
reduction in debt would eventually allow the organization to reduce their finance cost, which
wide eventually increases the net profit of the company (Wahlen, Baginski and Bradshaw
2014).

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Part 2: Budgeting
Revenue and expense data 2016 2017 2018 Change 2019
Operating revenues
Special government budget allocation - - 15,000.00 3.50% 15,525.00
Ancillary outpatient revenue 650.00 663.00 682.89 5.00% 717.03
Clinical service 355.00 356.60 358.20 4.50% 374.32
Non-core revenues 1,005.00 1,019.60 16,041.09 3.59% 16,616.97
Main government budget allocation 200,000.00 210,000.00 250,000.00 0.00% 250,000.00
Total revenue 201,005.00 211,019.60 266,041.09 0.22% 266,626.38
Operating expenses
Consultant's salaries 15,000.00 15,375.00 15,759.38 2.50% 16,153.36
General practioners salaries 12,500.00 12,656.25 12,814.45 1.25% 12,974.63
Nursing salaries 10,250.00 10,378.13 10,507.85 1.25% 10,639.20
Receptionists 56.00 56.14 56.28 0.25% 56.42
Pharmacists salaries 11,750.00 11,896.88 12,045.59 1.25% 12,196.16
Emergency room service 15,000.00 15,075.00 15,150.38 0.50% 15,226.13
IT Staff 8,750.00 8,968.75 9,192.97 2.50% 9,422.79
Finance
Administrative salaries 875.00 896.88 919.30 2.50% 942.28
Imdemnity insurance 125.00 128.00 131.00 2.50% 134.28
Total operating expenses 74,306.00 75,431.14 76,577.51 1.53% 77,749.15
Supplies
Office and administration 275.00 309.60 348.54 12.58% 392.39
Operation rooms 8,750.00 8,748.97 8,974.70 2.58% 9,206.25

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X-ray equipment 5,500.00 5,498.97 5,640.85 2.58% 5,786.38
Pharmacy and medicines 15,000.00 15,387.00 16,002.48 2.58% 16,415.34
cleaning and linen 1,500.00 1,538.70 1,578.40 2.58% 1,619.12
write off of material 875.00 897.58 920.73 2.58% 944.48
central salaries 758.00 777.56 797.62 2.58% 818.20
Utilities-electricity and communication 72,000.00 73,857.60 75,763.13 2.58% 77,717.82
Total supplies expenses 104,658.00 107,015.97 110,026.44 2.61% 112,898.13
Financing
Loan interest 1,250.00 1,250.00 1,250.00 0.00% 1,250.00
overdraft interest 21.25 21.25 21.25 0.00% 21.25
Total finance expense 1,271.25 1,271.25 1,271.25 0.00% 1,271.25
Total expenses 180,235.25 183,718.36 187,875.20 191,918.53
Surplus/Deficit 20,769.75 27,301.23 78,165.89 74,707.85
Balance Brought forward 19,244.75
-
63,510.02 14,651.87
Financial resources available 20,769.75 46,545.98 14,655.87 89,359.72
Capital budgetary available
Infrastructural requirements 110,000.00 125,000.00
Equipment
X-ray machine 1,500.00
New operating theatre equipment
Ambulances 25.00 56.00 4.00
Financial requirements 19,244.75 -63,510.02 14,651.87 -35,640.28

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Revenue and
expense data
Janu
ary
Febr
uary March April May June July August
Septem
ber
Octobe
r
Novem
ber
Decemb
er
Operating
revenues
Special government
budget allocation
1,29
3.75
1,29
3.75
1,293.7
5
1,293.7
5
1,293.7
5
1,293.7
5
1,293.7
5
1,293.7
5
1,293.7
5
1,293.7
5
1,293.7
5 1,293.75
Ancillary
outpatient revenue
59.7
5
59.7
5 59.75 59.75 59.75 59.75 59.75 59.75 59.75 59.75 59.75 59.75
Clinical service
31.1
9
31.1
9 31.19 31.19 31.19 31.19 31.19 31.19 31.19 31.19 31.19 31.19
Non core revenues
1,38
4.75
1,38
4.75
1,384.7
5
1,384.7
5
1,384.7
5
1,384.7
5
1,384.7
5
1,384.7
5
1,384.7
5
1,384.7
5
1,384.7
5 1,384.75
Main government
budget allocation
20,8
33.3
3
20,8
33.3
3
20,833.
33
20,833.
33
20,833.
33
20,833.
33
20,833.
33
20,833.
33
20,833.
33
20,833.
33
20,833.
33
20,833.3
3
Total revenue
22,2
18.8
7
22,2
18.8
7
22,218.
87
22,218.
87
22,218.
87
22,218.
87
22,218.
87
22,218.
87
22,218.
87
22,218.
87
22,218.
87
22,218.8
7
Operating
expenses
Consultant's
salaries
1,34
6.11
1,34
6.11
1,346.1
1
1,346.1
1
1,346.1
1
1,346.1
1
1,346.1
1
1,346.1
1
1,346.1
1
1,346.1
1
1,346.1
1 1,346.11
General practioners
salaries 1,08 1,08 1,081.2 1,081.2 1,081.2 1,081.2 1,081.2 1,081.2 1,081.2 1,081.2 1,081.2 1,081.22

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1.22 1.22 2 2 2 2 2 2 2 2 2
Nursing salaries
886.
60
886.
60 886.60 886.60 886.60 886.60 886.60 886.60 886.60 886.60 886.60 886.60
Receptionists 4.70 4.70 4.70 4.70 4.70 4.70 4.70 4.70 4.70 4.70 4.70 4.70
Pharmacists
salaries
1,01
6.35
1,01
6.35
1,016.3
5
1,016.3
5
1,016.3
5
1,016.3
5
1,016.3
5
1,016.3
5
1,016.3
5
1,016.3
5
1,016.3
5 1,016.35
Emergency room
service
1,26
8.84
1,26
8.84
1,268.8
4
1,268.8
4
1,268.8
4
1,268.8
4
1,268.8
4
1,268.8
4
1,268.8
4
1,268.8
4
1,268.8
4 1,268.84
IT Staff
785.
23
785.
23 785.23 785.23 785.23 785.23 785.23 785.23 785.23 785.23 785.23 785.23
Finance
Administrative
salaries
78.5
2
78.5
2 78.52 78.52 78.52 78.52 78.52 78.52 78.52 78.52 78.52 78.52
Imdemnity
insurance
11.1
9
11.1
9 11.19 11.19 11.19 11.19 11.19 11.19 11.19 11.19 11.19 11.19
Total operating
expenses
6,47
9.10
6,47
9.10
6,479.1
0
6,479.1
0
6,479.1
0
6,479.1
0
6,479.1
0
6,479.1
0
6,479.1
0
6,479.1
0
6,479.1
0 6,479.10
Supplies
Office and
administration
32.7
0
32.7
0 32.70 32.70 32.70 32.70 32.70 32.70 32.70 32.70 32.70 32.70
Operation rooms

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9
767.
19
767.
19 767.19 767.19 767.19 767.19 767.19 767.19 767.19 767.19 767.19 767.19
X-ray equipment
482.
20
482.
20 482.20 482.20 482.20 482.20 482.20 482.20 482.20 482.20 482.20 482.20
Pharmacy and
medicines
1,36
7.95
1,36
7.95
1,367.9
5
1,367.9
5
1,367.9
5
1,367.9
5
1,367.9
5
1,367.9
5
1,367.9
5
1,367.9
5
1,367.9
5 1,367.95
cleaning and linen
134.
93
134.
93 134.93 134.93 134.93 134.93 134.93 134.93 134.93 134.93 134.93 134.93
write off of
material
78.7
1
78.7
1 78.71 78.71 78.71 78.71 78.71 78.71 78.71 78.71 78.71 78.71
central salaries
68.1
8
68.1
8 68.18 68.18 68.18 68.18 68.18 68.18 68.18 68.18 68.18 68.18
Utilities-electricity
and communication
6,47
6.48
6,47
6.48
6,476.4
8
6,476.4
8
6,476.4
8
6,476.4
8
6,476.4
8
6,476.4
8
6,476.4
8
6,476.4
8
6,476.4
8 6,476.48
Total supplies
expenses
9,40
8.18
9,40
8.18
9,408.1
8
9,408.1
8
9,408.1
8
9,408.1
8
9,408.1
8
9,408.1
8
9,408.1
8
9,408.1
8
9,408.1
8 9,408.18
Financing
Loan interest
104.
17
104.
17 104.17 104.17 104.17 104.17 104.17 104.17 104.17 104.17 104.17 104.17
overdraft interest 1.77 1.77 1.77 1.77 1.77 1.77 1.77 1.77 1.77 1.77 1.77 1.77
Total finance

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expense
105.
94
105.
94 105.94 105.94 105.94 105.94 105.94 105.94 105.94 105.94 105.94 105.94
Total expenses
15,9
93.2
1
15,9
93.2
1
15,993.
21
15,993.
21
15,993.
21
15,993.
21
15,993.
21
15,993.
21
15,993.
21
15,993.
21
15,993.
21
15,993.2
1
Surplus/Deficit
6,22
5.65
6,22
5.65
6,225.6
5
6,225.6
5
6,225.6
5
6,225.6
5
6,225.6
5
6,225.6
5
6,225.6
5
6,225.6
5
6,225.6
5 6,225.65
Balance Brought
forward
14,6
51.8
7
20,8
77.5
2
27,103.
18
2,078.8
3
8,304.4
9
14,530.
14
-
10,494.
20
-
4,268.5
5
1,957.1
1
-
23,067.
24
-
16,841.
58
-
10,615.9
3
Financial resources
available
20,8
77.5
2
27,1
03.1
8
33,328.
83
8,304.4
9
14,530.
14
20,755.
80
-
4,268.5
5
1,957.1
1
8,182.7
6
-
16,841.
58
-
10,615.
93
-
4,390.28
Capital budgetary
available
Infrastructural
requirements 0
31,250.
00
31,250.
00
31,250.
00
31,250.0
0
Financial
requirements
20,8
77.5
2
27,1
03.1
8
2,078.8
3
8,304.4
9
14,530.
14
-
10,494.
20
-
4,268.5
5
1,957.1
1
-
23,067.
24
-
16,841.
58
-
10,615.
93
-
35,640.2
8

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Part 3: Project Evaluation
Project A
Year
0 Year 1 Year 2 Year 3 Year 4 Year 5
Aggregate
outlay
Capital outlay -5,000,000 -5,000,000 -10,000,000
Government financing 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 15,000,000
Income from foreign
clients 850,000 890,000 1,000,000 1,000,000 870,000 4,610,000
wages and salaries -450,000 -480,000 -500,000 -525,000 -535,000 -2,490,000
Licensing fees -250,000 -250,000 -250,000 -250,000 -250,000 -1,250,000
Interest payments -6,500 -6,500 -6,500 -6,500 -6,500 -32,500
Repairs and
maintenance -125,000 -125,000 -125,000 -125,000 -125,000 -625,000
General overheads -25,000 -25,000 -25,000 -25,000 25,000 -75,000
0 -2,006,500 -1,996,500 3,093,500 3,068,500 2,978,500 5,137,500
NPV Discount Rate 2% 0.980392157 0.961168781
0.94232233
5
0.92384542
6 0.90573081
NPV -
-
1,967,156.86
-
1,918,973.47
2,915,074.1
4
2,834,819.6
9
2,697,719.2
2 4,561,483
IRR Discount Rate 41% 0.710834608 0.505285841
0.35917466
3
0.25531378
1
0.18148587
1
0
-
1,426,289.64
-
1,008,803.18
1,111,106.8
2 783,430.34 540,555.67 0

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IRR 41%
Year 1 2 3 4 5
Cumulative cash
flow -2,006,500 -4,003,000 -909,500 2,159,000 5,137,500
Payback period 3.30 years
Accounting Rate of
Return 17.78%
Year 1 2 3 4 5
cashflow -2,006,500 -1,996,500 3,093,500 3,068,500 2,978,500
Depreciation 750,000 750,000 750,000 750,000 750,000
(1,256,500) (1,246,500) 3,843,500 3,818,500 3,728,500 1,777,500
17.78%
Project B
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Aggregate
outlay
Capital outlay -2,500,000 -7,500,000 -10,000,000
Government financing 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000 15,000,000
Income from foreign
clients 1,250,000 1,000,000 1,050,000 850,000 500,000 4,650,000
wages and salaries -750,000 -750,000 -750,000 -750,000 -750,000 -3,750,000
Licensing fees -250,000 -250,000 -250,000 -250,000 -250,000 -1,250,000

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Interest payments -6,500 -6,500 -6,500 -6,500 -6,500 -32,500
Repairs and
maintenance -125,000 -125,000 -125,000 -125,000 -125,000 -625,000
General overheads -25,000 -25,000 -25,000 -25,000 -25,000 -125,000
-2,500,000 -4,406,500 2,843,500 2,893,500 2,693,500 2,343,500 3,867,500
NPV Discount Rate 2%
0.98039215
7
0.9611687
81
0.9423223
35
0.9238454
26
0.9057308
1
NPV
-
2,500,000.0
0
-
4,320,098.0
4
2,733,083.
43
2,726,609.
68
2,488,377.
66
2,122,580.
15 3,250,553
IRR Discount Rate 18% 0.84836258
0.7197190
67
0.6105827
24
0.5179955
35
0.4394480
29
-2,500,000
-
3,738,309.7
1
2,046,521.
17
1,766,721.
11
1,395,220.
97
1,029,846.
45 0
IRR 18%
Year 1 2 3 4 5
Cumulative cash
flow -2500000 -6,906,500 -4,063,000 -1,169,500 1,524,000 3,867,500
Payback period 3.43 years
Accounting Rate of
Return 21.74%
Year 0 1 2 3 4 5

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cashflow -4,406,500 2,843,500 2,893,500 2,693,500 2,343,500
Depreciation 900,000 900,000 900,000 900,000 900,000
(3,506,500) 3,743,500 3,793,500 3,593,500 3,243,500 2,173,500
21.74%
Indicating which of the project will be chosen:
From the evaluation of the above table, financial viability of both Project A and Project B can be analyzed, which relatively help in
increasing the income of the organization in future. The calculations of the investment appraisal techniques directly help in detecting that Project
A is considered to be the most viable investment options for the organization. The detection of the Investment appraisal techniques such as net
present value, Internal rate of return, payback period and accounting rate of return is used for identifying the most viable projects for the
organization. Project A relatively has the NPV of 4,561,483, while the NPV of Project B is 3,250,553, which directly indicates that Project A is
more viable for the organization. The Other components of investment appraisal techniques such as internal rate of return is relatively act 41%,
payback period is at 3.3 years and accounting rate of return is valued at 17.78%. Project B only has a higher Accounting rate of return than
Project A, which is at the levels of 21.74%. Therefore, investment in Project A would be beneficial for the organization as it will generate higher
returns in the long run. Harris (2017) indicated that investment appraisal techniques are relatively used by the organization for detecting the most
viable investment option which can eventually help in increasing the firm value in the long run.

15
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Indicating most reliable method for investment:
From the overall evaluation of the investment appraisal techniques it could be identified that net present value is considered to be the
most reliable method, which is used by organizations to detect adequate investment options. The net present value method relatively utilizes the
time value of money, which helps in detecting of negative impact of the inflation rate that can eventually nullify the gains made in in future. The
net present value relatively discounts the overall cash flows of the project, which will be generated in future, use to the current year. This would
eventually allow the organization to understand the level of income that could be generated in future after investing and adequate amount in the
present year the net present value needs to be higher in number, as a negative value directly in the case the loss of income due to time value of
money. The other forms of investment appraisal technique do not rely on contemplating or utilizing the Time value of money, which relatively
does not provide the adequate decision for the organization. However, investment appraisal techniques can complement the net present value and
allow the organization to select an adequate investment option. Hoesli and MacGregor (2014) argued that investment appraisal techniques
relatively lose their significance if adequate assumptions are not made while calculating the future income of the project.
Stating the appropriate method for evaluation in similar situations:
Under similar instances, if the same situation arises where net present value of the projects are relatively identical, then different
investment appraisal techniques are relatively used. Investment appraisal techniques such as internal rate of return, payback period, and
accounting rate of return can be used by the organization for selecting the adequate investment option. In situations for net present value of both
the projects on similar than managers relatively utilizes internal rate of return to determine the project that provides the highest returns from

16
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investment. In similar instance, the accounting rate of return can also be used by the organization for detecting the viable investment option,
which can detect the average returns that can be generated from a project (Li and Trutnevyte 2017).
.

17
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