Finance for Business Assignment

Finance for Business

ABSTRACT
The report summarises the concept of finance for business, that generally means
a filed of finance that how big businesses can generate and maintain a certain
importance by making effective use of all funds. It refers to a broad range of areas
covering both money management and other precious resources. This report mainly
includes detail of crucial services such as In-centre services of Scentre Group Stapled
Securities that help to attain the comparative advantage. Report summarises the trend
analysis with the support of liquidity and capital structure ratio, importance of calculating
depreciation and it effect on operating cash flow, scenario analysis to determine the
NPV sensitivity so that investment decision are taken. The report also summarises
share price movement due to which earning per share is being calculated within 3
years.

Table of Contents
ABSTRACT...................................................................................................................... 2
INTRODUCTION..............................................................................................................2
Financial Analysis.............................................................................................................2
Description of one key product or service....................................................................2
Calculation and analysis.............................................................................................. 3
Perform a non-current asset analysis..........................................................................5
Scenario analysis.........................................................................................................5
Identify and discuss any latest share or bond issuance...............................................8
PE ratios and share price movement...........................................................................9
RECOMMENDATION ................................................................................................... 10
CONCLUSION............................................................................................................... 11
REFERENCES...............................................................................................................12
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INTRODUCTION
In business term, Business finance relates to company cash and credit. Financial
services is the core of company as it requires for number of purposes such as
purchasing assets, products, raw materials and other financial activity that are essential
for business (Burns and Dewhurst, 2016). Business finance can be described as
"providing cash when a company needs requires. This contains information in financial
papers like statement of profit and loss, statement of financial position and cash flow.
This also contains techniques usually used by companies to handle their cash, including
diversifying future instead of current value. In this report, Scentre Group Stapled
Securities is selected in order to determine the financial performance with the help of
valuable statements.
In this report, description of one key product, trend analysis with two groups of
financial ratios, including liquidity
and capital structure, non-current asset analysis, scenario analysis with data provided,
discussion of any latest share or bond issuance and calculation and discussion of the
PE ratios and share price movement have been discussed in this report.
Overview of company
The Scentre Group Stapled Securities has been set up on 30 June 2014 by the
amalgamation of Westfield Retail Trust and the Australian and New Zealand
management businesses of Westfield Group. The purpose of making Scentre Group
Stapled Securities is to manage, control and establish Westfield shopping complexes in
almost every part of Australia and New Zealand. This portfolio of advance shopping
centre keeps on providing the specific features to typical brand of Westfield. The
company have almost 41 shopping centre that are termed as living centres, because
these are consider as the fabulous places as customer can get each and every things at
one place according to their need. Customer can come together in order to be
entertained, dine, access, experience social activities and shop. Scentre Group Stapled
Securities are able to deliver annual revenues so they are able to to produce a product,
business and experience deal that serves the expectations of clients (De Jong, Higgins
and van Driel, 2015).
Financial Analysis
Description of one key product or service.
There are number of services and goods offered by Scentre Group Stapled
Securities that are benefited for customer and this makes to attain desired profit and
gain the competitive advantage in upcoming business situation (Wilson and Popp,
2017). The major area of services offered by company is related with in Centre based
services and retail business resolution to improve daily business operation to improve
profitability. There are many in centre services which includes:
 Concierge Desks: The professional caretaker employees of Westfield can be
benefited to customer and retailer as they are responsible to give correct answer
to direct queries and question.
 Staff Parking: Special staff parking is provided for entire which can be
negotiated.
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 ScentreGrid electricity: ScentreGrid provide Westfield retailers in NSW & VIC
an alternative of electricity which makes them to attain the comparative
advantage.
 Storerooms, Westfield suites & community rooms: There a mixture of suite
or room that are provided in centre services by company that is mainly arranged
to meet the need of retailers.
Calculation and analysis
In accounting, the concept of ratio analysis is defined as the comparison of the
main item that are disclose in the financial statements of company during a particular
year (Heaton, Polson and Witte, 2017). This analysis help the stakeholder to take
advance and sensible decision related with accounts of company and also gain the best
understanding about the current financial agenda of company. The below defined is the
detail analysis of Scentre Group Stapled Securities according to the information
collected from current financial statements. The two group of financial ratio are
discussed below:
Liquidity ratio: It is an important financial ratio which includes whether the
current assets of company would easily be able to meet the obligation at the actual time
of payment. In simple term, the total amount of working capital is consider as the
liquidity of company as it will be able to pay debt outstanding without making funds from
external sources. Some of these are discussed below:
Current ratio: It is one of the main liquidity ratio that help to evaluate the overall
company capability to pay off its all short term debt obligation. It support stakeholder to
determine the ways to maximise their current assets on its balance sheet in order to
satisfy current debts and other payables.
Current Ratio
Current Ratio = Current Assets/Current Liabilities
Year 2016 2017 2018
Current Assets 793.1 489 772.6
Current Liabilities 309.27 270.47 221.9
Current Ratio 2.5644259062 1.8079639147 3.4817485354
Quick ratio: This financial ratio is mainly used to measure the company liquidity
that includes the entire sum of cash and its equivalents, market securities, accounts
receivables are able to pay it current liabilities. There is a very specific difference
between current and quick ratio that stock level is not consider as quick ratio.
Quick Ratio
Current Ratio = (Current Assets – Inventory – Prepaid Expenses) / All Current
Liabilities
Year 2016 2017 2018
Quick Assets 601.7 393.2 486.5
Current Liabilities 309.27 270.47 221.9
Quick Ratio 1.9455491965 1.4537656672 2.1924290221
Capital structure ratio: It is also term as leverage ratio that is used to measure
the financial stability of company in long run (Johnson, McLaughlin and Haueter, 2015).
Capital structure ratio shows the combination of monetary funds that are provided by
the business owner or capitalist for a longer period of time. These proportions include
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understanding into the company's funding methods and concentrate on the long-term
situation of profitability. Some are defined below:
Debt to Equity ratio: It is an important financial ratio that compares total debt to
total equity of a company during a specific year. This ratio mainly shows the percentage
of shareholder equity and debts that are required at any time frame to finance the
company assets.
Debt-Equity Ratio
Debt to Equity Ratio = Debt / Total Equity
Year 2016 2017 2018
Debt 11979.2 11888.9 13876.6
Total Equity 19487.2 22533.9 23637.7
Debt to Equity Ratio 0.6147214582 0.5276006373 0.587053732
Total Debt to Equity Ratio: This ratio defines the financial leverage of company
which shows the proportionate of total debts which were financed by creditor. In simple
worlds, it is the entire sum of liabilities of company divided by the company assets.
Total Debt to Equity Ratio
Total Debt to Equity Ratio = Total debt / Total Equity
Year 2016 2017 2018
Total Debts 14230.8 14634.3 17009.2
Total Equity 19487.2 22533.9 23637.7
Debt to Equity Ratio 0.7302639681 0.6494348515 0.7195793161
Perform a non-current asset analysis
In business world machine are continuously used in order to produced signifiant
goods, so due to regular use, wear and tear or devolution, the financial value of an
asset declines over time that is know as depreciation (Lehner, 2016). There can be
number of factors due to which value of asset decreases such as unfavourable market
situations, overutilisation of machine etc. Capital expenditure is usually known as
CAPEX that are the monetary funds which are utilised by business firm in order to
adopt, upgrade and maintain assets like building, property, technology. From the
balance sheet of Scentre Group Stapled Securities it has been determined that non
current assets Land and building are regarded to be the feature of an expenditure and
are therefore viewed to be a mixed asset, the general quality of which is affected by
many variables, the most influential being revenue yield, instead of decreasing the
quality of the construction material owing to time evaluate. The investment properties of
the Community's shopping centre constitute finished centres that include freehold or
leasehold property, houses and improvements to leaseholds.
Non Current Assets of company:
2018 2017 2016
Long-term
investments 3158500 2867600 2825500
Property plant and
equipment 36089400 33526900 29748500
Goodwill - - -
Intangible assets - - -
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Accumulated
amortisation - - -
Other assets 854500 532100 618100
Deferred long-term
asset charges 54800 51100 65500
Total Non Current
Assets
40157200 36977700 33257600
Scenario analysis
The concept of scenario analysis is defined as the method of calculating the
expected return of a portfolio during a specified time period, suggesting that there are
particular variations in portfolio inventory values or important variables, like interest rate
modifications (Zherlitsyn and Kravchenko, 2016). The main purpose of adopting
scenario analysis is that it enables investors and company executives can decide their
level of danger before investing money or beginning a fresh enterprise. The major
importance of scenario analysis is that it is a organised approach that ease in thinking
about the long term. This enables to recognize prospective future issues, manager of
Scentre Group Stapled Securities can bring the required steps to remove the issues or
decrease the effect of these issues.
Net present value (NPV): It is consider to be the value of total upcoming cash
inflows that can be negative or positive as regarded to the overall life of an investment
discounted to the current situation (Martin and Pollard, 2017). This is an evaluation is an
inherent type of valuation which is used widely throughout accounting and finance to
determine the company's value, investment safety, investment project, fresh venture,
capital expenditure system but anything involving cash flow.
Provided Information
Selling Price $ 25 Unit
Expected Selling Units 450000 units
Period 4 Years
Investment
Equipment 2500000
Residual Value 500000
Working Capital 800000
Depreciation method: straight line
Variable cost per unit: $15
Cash fixed costs per year $450 000
Discount rate: 12%
Tax Rate: 30%
Normal Case:
Year 0 1 2 3 4
Initial Investment -2500000
Annual Sales 11250000 11250000 11250000 11250000
Less: Variable Costs 6750000 6750000 6750000 6750000
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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 0.89285714
29
0.44642857
14
0.39859693
88
0.35589012
39
PV of Net Cash-Flow -2500000 3169642.85
714286
1584821.42
857143
1415019.13
265306
1263409.93
98688
NPV 4932893.35
823615
Worst Case:
Selling Price (20%
Decrease) $20
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
0.89285714
29
0.44642857
14
0.39859693
88
0.35589012
39
PV of Net Cash-Flow -2500000 -205357.14 -147321.43 -171396.68 -188621.76
NPV
-
3212697.02
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
Less: Fixed Costs 450000 350000 250000 150000
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Less: Depreciation 500000 500000 500000 500000
Net Cash-Flow -2500000 8770000 -130000 -30000 70000
PV Factor@12% 1
0.89285714
29
0.44642857
14
0.39859693
88
0.35589012
39
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%
From above conducted scenario analysis it has been articulated that in Best
case's NPV is 5285275.83 where as worst case's NPV is -3212697.02. In normal case
NPV is 4932893.36 so if someone consider worst case than fall in NPV would be
approx 34.87% while in Best Case with favourable circumstances NPV would increase
by approx 7.14%. Overall analysis of NPV's sensitivity indicating that project is viable.
Identify and discuss any latest share or bond issuance
In business term, the unit of possession that demonstrate incomparable
percentage of a company capital is known as share. It help the holder to get an equal
claim of the company profit and equal obligation for the outstanding debts and losses
(Roberts, 2015). There are majorly two type of share like ordinary share which means
that the owner might look forward to share the company's income whenever is happen
and decide at the annual general conferences of the firm and other formal meeting. On
the other side the preference share are those share which entitles the share owner to
get fixed income on company profit but do not have the right at the time of general
meeting. Throughout the entire life of a company management use to issue share in
order to raise funds from potential investors those are intended to invest their money.
Many-time company also buyback their share in order to pay amount to share owner
according to the market value. From the annual report of Scentre Group Stapled
Securities it has been determine from the statements of change in equity that the
opening balance of at the beginning of the accounting period 2017 is 10,495.2 $ million.
The balance of equity reduces up to 10, 465.1 $ million, because company in the middle
of year buy back and cancel some of its securities that is approx (30.1) $ million. There
are countless factors which are related to the repurchase of its shares such as
ownership restructuring, undervaluation, as well as the strengthening of its main
financial ratios, may be useful to a business.
PE ratios and share price movement
Price-to-Earnings Ratio or PE ratio: It is a ratio that is used by management of
company in order to assess the total value of business considering its actual share price
in context to its earning per share (Scholes, 2015). The PE is also defined as the
earning multiple that are mainly used by investors so that they can easily ascertain the
real value of business as compared for its own historical records or other companies
operating in same industry. Below discussed is the earning per share of Scentre Group
Stapled Securities during last three year:
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PE Ratio
PE Ratio = MPS / EPS
Year 2016 2017 2018
MPS 4.9784 5.4273 2.0941
EPS 0.56 0.79 0.43
PE Ratio 8.89 6.87 4.87
EPS % 2012 2013 2014 2015 2016 2017 2018
Year over Year -15.33 -5.1 545.6 -69.34 10.45 41.04 -45.73
3-Year Average — — 73.11 23.39 29.79 -21.83 -5.45
5-Year Average — — — — 11.93 23.95 10.84
10-Year Average — — — — — — —
2016 2017 2018
0
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PE Ratio
Share price movement: It is also termed as stock analysis that is defined as the
authentic evaluation of trading instrument in current market which support to figure out
the future profitability on any share, instrument etc. There are positive and negative
movement in share price as it is depended on supply and demand within specific time
frame (Storey, 2016). In case if larger number of investor are ready to buy stock of
Scentre Group Stapled Securities than share price will moves up and there is more
possibility to raise funds. Similarly, If several investors were willing to sold a share than
Scentre Group Stapled Securities must purchase it, as there would be more supply than
demand due to which price would definitely fall.
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From the above graph it has been identified that from 2016 financial year the
price of share decline by little percentage and at the end of year it increase up to 10.13.
After that the price of share shows a positive movement and in the year 2018 it was
11.70 because company is gaining huge profit by making investment in other activities
from the funds generated by issuing share. Due to uneven market condition price of
share again decrease at in quarter of 2019 it is approx 4.95.
RECOMMENDATION
From the different analyses in context of Scentre Group Stapled Securities, it has
been suggested that making a investment can be beneficial for an individual in future
time. Ratio analysis is an important part for extracting profitability of business, thus it
shows that each ratio of company shows a positive results. Such as current ratio and
quick ratio increase in each year, Debt to Equity ratio and Total Debt to Equity Ratio
shows a little change which means that making investment would deliver better results.
As the result from Price-to-Earnings Ratio are not favourable and its keeps on
decreasing from last three year, earning per share of company also reduces to the
recession in market. From the share price movement it has been determined that there
are more favourable chances of increase in share price in nearby future as the same
situation company faces in 2015 and the prices rises in 2016.
CONCLUSION
In the end of finance for business report it has been concluded that almost every
company decision, finance is important, from designing and financial planning to
liquidity management to the financial performance and also it describe the manner to
regulate risk and expenses. The process of assessing business operation, budgets and
other related activities that help to ascertain the suitability and performance of company.
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The different ratio helps to figure out the profitability of company throughout the three
year. With the help of NPV sensitivity it has been determined that NPV is case
4932893.36, thus if is consider worst case than fall in NPV around 34.87%. It is
observed that entire analysis of NPV's sensitivity indicating that project is viable. The PE
ratio helps to give detail sense to investor about the value of company such as it has
been identified that the earning per share of company have reduced due to which share
price of have also reduced in respective years.
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REFERENCES
Books and Journals:
Burns, P. and Dewhurst, J. eds., 2016. Small business and entrepreneurship. Macmillan
International Higher Education.
De Jong, A., Higgins, D. M. and van Driel, H., 2015. Towards a new business
history?. Business History. 57(1). pp.5-29.
Heaton, J. B., Polson, N. G. and Witte, J. H., 2017. Deep learning for finance: deep
portfolios. Applied Stochastic Models in Business and Industry. 33(1). pp.3-12.
Johnson, C. J., McLaughlin, J. and Haueter, E. S., 2015. Corporate finance and the
securities laws. Wolters Kluwer Law & Business.
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.
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.
Wilson, J. F. and Popp, A., 2017. Industrial clusters and regional business networks in
England, 1750-1970. Routledge.
Zherlitsyn, D. and Kravchenko, V., 2016. Supply Chain Resilience Through Operations
and Finance Management. Scientific Letters of Academic Society of Michal Baludansky.
4(1).
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APPENDIX
Income statements
Balance sheet
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