Finance for Decision Making

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Finance for Decision Making
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Finance for Decision Making
Contents
Introduction......................................................................................................................................3
Overview of Ratio Analysis.............................................................................................................3
Profitability Ratio........................................................................................................................4
Return on Capital Employed...................................................................................................4
Liquidity Ratio.............................................................................................................................4
Current Ratio...........................................................................................................................5
Asset Efficiency Ratio.................................................................................................................5
Receivable Turnover Ratio......................................................................................................6
Solvency Ratio.............................................................................................................................6
Debt to Equity Ratio................................................................................................................7
Ratio Limitation...........................................................................................................................7
Investment Appraisal.......................................................................................................................8
Net Present Value........................................................................................................................8
Limitation................................................................................................................................8
Internal Rate of Return................................................................................................................8
Limitations...............................................................................................................................9
Investment Analysis.....................................................................................................................9
Sensitivity Analysis...................................................................................................................11
Potential Merger and Acquisition..................................................................................................11
Acquisition Rationale................................................................................................................12
Proposed Deal Value and Finance.............................................................................................13
Synergetic Gains........................................................................................................................13
Risk Assessment and Implication..............................................................................................14
Conclusion.....................................................................................................................................14

Finance for Decision Making
References......................................................................................................................................15

Finance for Decision Making
Introduction
Associated British Food Plc. is a British multinational food processing and retailing organization
that operates its business in diversified food products and Retail Company worldwide. The
company operates its business functions in five segments that are sugar, retail, agriculture,
grocery and ingredients. The company is headquartered in London and its ingredient division is
world’s second largest producer of both sugar and bakery yeast. The public limited company was
founded in 1935 by Willard Garfield Weston, since then the company has been profitable in the
environment. In the previous year, ABF earned revenue of $ 15574 million with 137000 numbers
of employees working with them. The retail division of the company naming Primark has more
than 345 stores in different markets. The company sell its produce to Belgium, Ireland, Austria,
UK, Netherlands, Italy, Portugal, France, Spain, Germany and the US. Around 54.5% shares of
the company are held by Wittington investments (MorningStar 2019).
Further, the purpose of below mentioned report is to enlighten the reader about the company
Associated British Food using the annual reports, data and other information about the company
starting from the year 2014 to 2018 with further elaboration in three sections. The paper is going
to explore the limitation, applicability and the financial ratios to determine the actual financial
performance of the company by applying one financial ratio from each category. Further, the
investment appraisal of £30,000,000 to £40,000,000 with a discounting rate of 15% and ten years
life will be conducted using NPV and IRR techniques which is further followed by the sensitivity
analysis to elaborate the implication and limitations of the analysis. The third aspect presented in
the paper is the expansion of the company through potential acquisition, along with this
synergistic gain and financing have been evaluated in the paper to critically analyse the
expansion decision made along with the implications. Lastly, conclusion is drawn based on these
sections and further provides a viewpoint on the financial steadiness of Associated British Food.
Overview of Ratio Analysis
With the help of information so received from the financial statement, income statement ad cash
flow statement, the ratio analysis can be performed for further evaluation of the business
performance. Ratio analysis refers to a critical quantitative tool that helps in gaining information