Finance for Managers: Evaluating Financial Performance and Stakeholder Needs

This document provides an overview of finance for managers, focusing on evaluating financial performance and meeting stakeholder needs. It covers topics such as financial documents, ratio analysis, and comparative analysis of financial information. The case study used is Pfizer Inc, an American pharmaceutical corporation.

Finance for Managers

INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
TASK 1............................................................................................................................................1
1. Determined the financial information that needed and assess its validity ..............................1
2. Analyse different financial document and information which helps in formulating
conclusion about financial performance and need of stakeholders ..........................................4
3. Conduct comparative analysis of financial information and data ...........................................5
4. Critically review and question financial data and information..............................................10
TASK 2..........................................................................................................................................11
1. Identify how budget can be produced taking into account financial constraints and
achievement of targets and accounting conventions..................................................................11
2. Be able to assess a budget......................................................................................................12
2. Identify how a budget for a complex organization can support organizational objectives and
targets.........................................................................................................................................13
TASK 3..........................................................................................................................................14
1. Identify criteria by which proposals can be judged ..............................................................14
2. Critically analyse the viability of a proposal for expenditure ...............................................16
3. Identify the strengths and weaknesses of a proposal and give feedback on the financial
proposal .....................................................................................................................................17
4. Analyse the viability of a proposal for expenditure...............................................................17
CONCLUSION..............................................................................................................................18
REFERENCES .............................................................................................................................19

INTRODUCTION
Finance is the management matters about the administration, development, and analysis of
money and assets (Begkos, Llewellyn and Walshe, 2020). Basically, it addresses the issues of
how and why an person, corporation or state receives the funding necessary which is called
capital in the business sense as well as how it spend or start investing to maximise company's
earnings. Mangers of the company required each and every detail of company’s finances to make
effective decisions which helps in improving its operational efficiency as well as effectiveness.
Pfizer Inc Company is selected for better underrating and it is American based Pharmaceutical
Corporation and it does headquarter situated in New York. This assessment covers the several
topics such as evaluate financial information by using financial documents, evaluation method
and how budget prepared by using several financial constraints.
MAIN BODY
TASK 1
1. Determined the financial information that needed and assess its validity
Financial information of a company determined with the help of ratio analysis which help
the managers to evaluate data which allow them to make strategic decisions (Brealey and et.al.,
2018). By using financial information of Pfizer Inc, manager calculates the following ratios
which are as follow:
Profitability Ratio:
Formula:
Gross profit margin = Gross profit / Total revenue * 100
Item 2018 (‘000) 2019 (‘000)
Gross profit 42399 41531
Total revenue 53647 51750
Gross profit margin 79.3 % 80.25 %
Formula:
Net profit margin = Net income /Total revenue * 100
Item 2018 (‘000) 2019 (‘000)
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Net Income 11153 16273
Total revenue 53647 51750
Net profit margin 20.78 % 31.44 %
Efficiency Ratio:
Formula:
Assets turnover ratio = Revenue / Total assets
Item 2018 (‘000) 2019 (‘000)
Revenue 53647 51750
Total assets 159422 167489
Assets turnover ratio 0.33 0.30
Formula:
Inventory turnover ratio = COGS / Inventory
Item 2018 (‘000) 2019 (‘000)
COGS 11248 10219
Inventory 7508 8283
Inventory turnover ratio 1.49 1.23
Liquidity Ratio:
Formula:
Current ratio = Current Assets / Current liabilities
Item 2018 (‘000) 2019 (‘000)
Current assets 49926 32803
Current liabilities 31858 37404
Current Ratio 1.56 0.87
Formula:
Quick Ratio = Quick assets / current liabilities
Item 2018 (‘000) 2019 (‘000)
Quick assets 42418 24520
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Current liabilities 31858 37404
Quick Ratio 1.33 0.65
Stability Ratio:
Formula:
Equity ratio = Shareholder’s total equity / Total assets
Item 2018 (‘000) 2019 (‘000)
Shareholder’s equity 63407 63143
Total assets 159422 167489
0.39 0.37
Formula:
Debt ratio = Debt / Equity
Item 2018 (‘000) 2019 (‘000)
Debt 63806 66738
Equity 63407 63143
Debt ratio 1.006 1.056
Investor Ratio:
Formula:
EPS Ratio = Net income / Number of shares outstanding
Item 2018 (‘000) 2019 (‘000)
Net income 11153 16273
No of outstanding shares 486 485
EPS Ratio 22.94 33.55
Formula:
P/E ratio = Market price per share / EPS
Item 2018 (‘000) 2019 (‘000)
Market price 37.66 42.88
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EPS 22.94 33.55
P/E ratio 1.64 1.27
Cash flow: From the cash flow of the company it has been analysed that at the end of
year 2018 the closing balance of cash was 1225 and for the year 2019 it was 1350. It
demonstrates that the company's financial viability is increased for the year.
Business valuation: By evaluating the performance of the company with the help of
annual report it has been analysed that the value of business or its equities for year 2018 was
63758 which was decreased up to 63447 in 2019. It shows that the figures are not changed very
much that demonstrates that the financial viability is almost same for the year 2019.
Financial stability: From the consolidated statement of comprehensive income of the
company it has been analysed that in year 2018 net comprehensive income of the organisation
was 9198 dollars. For year 2019 it was 15908 which shows that financial viability of the
company is high as the profits for the year are increased in 2019.
Sales: The income statement of the company is reflecting that for year 2018 the value of
sales was 53647 and in year 2019 it was decreased up to 51750. It demonstrates that the revenues
generated by the enterprise during the year were very low as compared to the previous year that
reflects decreased financial viability.
Dividend: The cash flow statement of the enterprise is showing that in year 2018 total
dividend which was pad by the organisation in cash was around 7978 and the value of it was
increased in 2019 up to 8043. It reflects that in year 2019 the profits of the entity were very high
that enhanced the value of dividend that paid to the investors. It also demonstrates that the
viability of the company is very good that results in enhancement of the performance.
Capital structure: The combination of all the assets, liabilities and equities is known as
capital structure. For year 2018 the assets of the organisation were valued at 159422 which were
increased in 2019 up to 167489. Apart from this, liabilities for year 2018 and 2019 were 95664
and 104042 respectively. Additionally the value of equities for 2018 were valued at 63758 and
for 2019 their value was 63447. The capital structure of the company is reflecting that the
business has improved its performance but the value of equities is decreased in 2019 as
compared to the previous year.
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Financial strategy: By evaluating annual report and all the financial statements of the
company it has been analysed that the financial strategy which is followed by the organisation is
resulting in higher performance and long term financial viability. Apart from this, the company is
highly focused with retention of investors for which it is offering good dividend to them.
2. Analyse different financial document and information which helps in formulating conclusion
about financial performance and need of stakeholders
There are generally three different financial documents used to evaluate the financial
information such as profit and loss statement, balance sheet and cash flow statement. By using
such documents, stakeholders able to evaluate financial performance and further they made
strategic decision accordingly.
Income statement: According to the income statement of Pfizer Inc, total revenue of the
company in 2018 was 53647000 and in 2019 it will reduces and remain at 51750000. At the last,
total income for the period of 2018 was 11153000 and in 2019 it was 16273000 which show the
growth of profitability in the organization (Clikeman, 2018). The income statement is
demonstrating that profits for the year were increased.
Balance sheet: In addition, value of total assets and liability of the Pfizer Inc in 2018
financial year was 159422000 and in 2019 it was 167489000. Overall value of assets and liability
of the organization increases in 2019 which help the managers to make sure that, they can meet
their financial obligation effectively.
Cash flow statement: Along with this, cash flow statement used to evaluate the overall
cash inflow or outflow of the company for the specific time period. Cash flow from operating
activities reduces from 15827000 to 12588000 throughout the period of 2018 to 2019. Similarly,
net cash used in investing activity that means cash outflow which decreases from 4525000 to -
3945000 and net cash used in financial activity also reduces from -20440000 to -8486000. At the
last, cash for the period is 1225000 in 2018 and 1350000 in 2019 which shows the growth of
liquidity.
Ratio analysis: On the basis of the ratio analysis it has been analysed that profitability of
the company is increased in 2019 as compared to 2018 as the percentage of net and gross profit
margin is increased in 2019. Apart from this, the efficiency ratios are reflecting that the
company's ability to operating business in systematic manner is also increased as compared to
the previous year as the asset and inventory turnover ratios are decreased in 2019. It
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demonstrates that in this year the entity will be able to covert the assets and stock in profits or
revenues in less time. Current and quick ratios are decreased in 2019 as compared to 2018 which
has affected liquidity of the company and impacted its ability to make payment of all the short
term obligations. By analysing stability ratios it has been analysed that in 2019 ability of the
company to use debts more than internal funds is increased as an increment in debt ratio is
analysed. On the other hand, the equity ratio is decreased from 0.39 to 0.37 in 2019 that reflects
that stability is not highly impacted in this year as the change was very minor. By analysing
investor ratio it has been analysed that EPS for year 2019 is increased and PE for the same is
decreased. By evaluating all the ratios it has been analysed that financial position of the company
is very good in the market but some of the ratios are affecting stability of the enterprise.
3. Conduct comparative analysis of financial information and data
Ratios of Pfizer for three years:
Item 2017 2018 2019
Gross profit 12305 42399 41531
Total revenue 52546 53647 51750
Gross profit margin 23.42% 79.30% 80.25%
Item 2017 2018 2019
Net Income 21308 11153 16273
Total revenue 52546 53647 51750
Net profit margin 40.55% 20.78% 31.44%
Item 2017 2018 2019
Revenue 52546 53647 51750
Total assets 171797 159422 167489
Assets turnover ratio 0.31 0.33 0.3
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Item 2017 2018 2019
COGS 11240 11248 10219
Inventory 7578 7508 8283
Inventory turnover
ratio 1.48 1.49 1.23
Item 2017 2018 2019
Current assets 41141 49926 32803
Current liabilities 30427 31858 37404
Current Ratio 1.35 1.56 0.87
Item 2017 2018 2019
Quick assets 33563 42418 24520
Current liabilities 30427 31858 37404
Quick Ratio 1.10 1.33 0.65
Item 2017 2018 2019
Shareholder’s equity 71656 63407 63143
Total assets 171797 159422 167489
Equity ratio 0.42 0.39 0.37
Item 2017 2018 2019
Debt 100141 63806 66738
Equity 71656 63407 63143
Debt ratio 1.40 1.006 1.056
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Item 2017 2018 2019
Net income 21308 11153 16273
No of outstanding shares 625 486 485
EPS Ratio 34.09 22.94 33.55
Item 2017 2018 2019
Market price 45.67 37.66 42.88
EPS 34.09 22.94 33.55
P/E ratio 1.34 1.64 1.27
Ratios of Galxo Smith:
Item 2017 2018 2019
Gross profit 19844 20580 21891
Total revenue 31186 30821 33754
Gross profit margin 63.63% 66.77% 64.85%
Item 2017 2018 2019
Net Income 2169 4046 5268
Total revenue 31186 30821 33754
Net profit margin 6.96% 13.13% 15.61%
Item 2017 2018 2019
Revenue 31186 30821 33754
Total assets 56381 58066 79692
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Assets turnover ratio 0.55 0.53 0.42
Item 2017 2018 2019
COGS 10342 10241 11863
Inventory 5557 5476 5947
Inventory turnover ratio 1.86 1.87 1.99
Item 2017 2018 2019
Current assets 15907 16927 19491
Current liabilities 26569 22491 24050
Current Ratio 0.60 0.75 0.81
Item 2017 2018 2019
Quick assets 10350 11451 13544
Current liabilities 26569 22491 24050
Quick Ratio 0.39 0.51 0.56
Item 2017 2018 2019
Shareholder’s equity 3489 3672 18357
Total assets 56381 58066 79692
Equity ratio 0.06 0.06 0.23
Item 2017 2018 2019
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Debt 52892 54394 61335
Equity 3489 3672 18357
Debt ratio 15.16 14.81 3.34
Item 2017 2018 2019
Net income 2169 4046 5268
No of outstanding shares 6016 290 337
EPS Ratio 0.36 13.95 15.63
Item 2017 2018 2019
Market price 1518.6 1361 1562
EPS 0.36 13.95 15.63
P/E ratio 4218.33 97.56 99.94
On the basis of ratio analysis of Pfizer Inc for three consecutive years, it has been analysed
that overall performance of the organization was good. Company’s performance in terms of
profitability increases throughout the period from 2018 to 2019. Gross profit margin increases
from 79.3 % to 80.25 % that is good and help the organization to maximise their profit margin as
well (Babanić, 2018). Fro 2017 the margin 23.42% which was very low. On the other side, net
profit margin also increases that is 20.78% in 2018 and 31.44% in 2019. In 2017 it was 40.55%.
Basically higher the gross profit generate high net profit margin and in some cases it will decline
as well because of high operational cost. In context of Pfizer Inc, efficiency performance of the
company is not so good and it slightly reduces. Such as assets turnover ratio decreases from 0.33
to 0.30 because of decline in total revenue in 2019. In 2017 the asset turnover ratio was 0.31. In
addition, another aspect of evaluating efficiency ratio also reduces such as inventory turnover
ratio which was reduces from 1.49 to 1.23 and in 2017 it was 1.48.
Liquidity ratio helps the Pfizer Inc to evaluate company’s overall liquidity and how it helps
them to meet their financial obligations. In 2018, current ratio was 1.56 which is nearby idea
ratio but in 2019 it was 0.87 which was very far from the ideal ratio that is 2:1. For 2017 this
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ratio was 1.35. It has been concluded that, liquidity performance of the Pfizer Inc was increased
in 2018 and then decreased in 2019. Stability analysis help the organization to understand that
how much debt company have to support them financial and try to balance debt and equity in the
operations (Green, 2019). There is a slight decline in the equity ratio from 0.42 to 0.39 and then
0.37. It shows that equity ratio is decreasing since 2017. Debt ratio was decreased in 2018 from
1.40 to 1.006 in 2018 and increased up to 1.056 in 2019.
On the basis of investor ratio, stakeholders make their decisions for inventing in particular
company or not. This ratio helps the people to evaluate the company’s earnings which provide
them better understanding regarding their investments. EPS ratio of Pfizer Inc in 2017 was 34.09
and it was decreased in 2018 up to 22.94 and increased in 2019 up to 33.55 and it clearly shows
the growth which encourages investors to invest in this organization. On the other side, P/E ratio
of the company in 2018 was 0.64 and in 2019 it was 1.27 that means it reduces which can affect
the overall stability of the organizations. In 2017 it was 1.34.
Overall comparative analysis of two years of Pfizer Inc company, it has been analysed that
profitability of the company increases but other factors such as liquidity, efficiency, stability and
investors performance was not so good to attract more people to invest in the organization. Pfizer
Inc gain profit but they also need to maintain enough liquidity to meet their short term as well as
long term liability.
Comparison of Pfizer and Galxosmith: By analysing profitability ratios of both the
companies it has been analysed that profitability of Pfizer is very high as compared to
Glaxosmith that enhances sustainability of the company. Apart from this, asset and inventory
ratios of Gloxosmith are higher than Pfizer which shows that the company's ability is low to
covert inventory and asset in revenues. Liquidity ratios are demonstrating that the liquid strength
of Pfizer is good as compared to Glaxosmith because of higher current and quick ratios. In
stability ratio the equity ratio of Pfizer is high but the debt ratio of Glaxosmith is high so it
demonstrates that both the companies are stable in market and operating business in systematic
manner. EPS of first company is higher as compared to the another one which demonstrates that
it is paying higher returns on its shares. PE of Glaxosmith is high which shows that it is earning
good returns on its shares (Annual report of Glaxosmith, 2019).
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4. Critically review and question financial data and information
From the overall financial analysis of data, it has been critically evaluated that Pfizer Inc’s
performance was good, company generate profit and they has enough liquidity to meet its
financial obligation (Hales, 2019). In addition, managers need to formulate strategies to boost
operational performance and maintain the company’s efficiency as well as stability by using debt
and equity in appropriate manner. Company’s manager need to focus on efficiency and liquidity
performance along with the stability of company’s finances because an investor make their
decisions on the basis of financial report or their performances throughout the year. These
documents help in comparing finance and determined that company is growing or not.
By analysing the annual report of the company it has been evaluated that organisation is
complying with all the regulatory requirements because all the final accounts are formulated by it
in systematic manner which are providing information about actual position of company. Apart
from this, the entity is also complying with disclosure policy because each and every element of
final accounts is disclosed properly in the annual report. Annual report of the enterprise is also
providing information regarding proper audit of the entity and there were no objections recorded
in it. By evaluating the annual report of Pfizer it has been analysed that no information regarding
capital gain and corporate social responsibility was mentioned in it.
TASK 2
1. Identify how budget can be produced taking into account financial constraints and
achievement of targets and accounting conventions
How to formulate budget: The method for planning a monthly budget of the company
involves gathering details and taking certain basic steps. Next, list recording of all types of
monthly income or sales that could be generated from different sources. This would include
revenue and income from savings. When the company doesn't get paid instantly by use cash or
credit-debit cards then they subtract a portion of their projected profit for late-payments and anti-
payments from consumers. Identify all their requisite, monthly expenses, such as mortgage
payment, utility costs, and phone charges. Those were expenses must end up making every
month, that much if they have less revenue than anticipated. If their fixed costs are too close to
their expected income, people may have difficulty making their payments. There are various
types of financial constraints that are focused while formulating budget. These are liquidity risk,
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time horizon, taxes etc. By paying attention towards all of them the entity formulates budget and
try to keep funds for all types of uncertainties that may take place in future.
Consider if Pfizer Inc can cut back on the necessary costs or convert them into flexible
expenses (Hussain, Salia and Karim, 2018). Dynamic costs are non-recurrent costs which are
related to revenue. For example: if they have fewer clients, they might need less phone or
travelling expenses. Usually involve expenses to attract potential clients in this category,
including promotional expenses. Build columns for true and budgeted revenue and expenditures,
and manager can see how the forecast plays out in real-time. When organizations are measuring
income and expenditure than projected income should set low and expenses high. In other words,
be defeatist about revenue and expenditure.
While preparing cash budget of Pfizer Inc, manager also identify financial constraint which
can affect the overall financial information and it restrict the quality of investment options. There
are several financial constraints such as liquidity risk management, overspending etc. It will
affect the overall operational performance and make sure that budget will helps in achieving
company’s objective and meet the goals & targets. Managers of the company prepare budget
which include the each and every expenses and estimated income recorded and make sure that
organization will follow it and it helps in achieving business goals & objectives.
2. Be able to assess a budget
A budget is an accounting framework used to forecast and schedule projected revenue and
expenditures. Following the basic concepts, you can build a budget for your company. The
budget planning process must be carried out through persons or by businesses to determine how
the entity or organization will afford to work with its estimated profits and expenditures. There
are various types of budgets that are formulated by businesses these are cash, capital and master
budget. All of them are as follows:
Cash budget: This budget covers detailed information of all the cash receipts and
payments for the year so that efficiency of the company to meet all the expenses could be
determined. An example of it is as follows:
Particulars
2020
(Actual)
2021
(Budgeted)
2022
(Forecasted)
Cash receipts (A)
Sales 50000 50000 50000
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Bank loan 70000
Total Cash receipts (A) 120000 50000 50000
Cash payments (B)
Purchases 6000 6000 6000
Machinery purchase 200000
Investment 150000
Repayment of loan 1500 1500
Purchase of cleaning equipments 2000
Long lasting products 1500 1500
Rent 6000 6000 6000
Housekeeping staff salary 800 800 800
Supervisor salary 1500 1500 1500
Withdraw 3000
Total Cash payments (B) 370800 15800 17300
Net cash (A-B) -250800 34200 32700
Above mention budget help the Pfizer Inc Company to estimate net cash through
anticipating expenses and revenue for each year. From the above mentioned budget, manager of
the company build their strategies and make sure that all task should be completed in assigned
funds (Li And et.al., 2019). In 2020, company has to face loss where expenses are more than the
income which provide negative cash balance that is -250800. In addition, further years it also get
fluctuated net cash balance and at the end of 2022 for Pfizer Inc will be 32700. Only in 2020, net
cash balance is negative but in the remaining months they get positive value which means their
estimation is quite well, so managers need to follow it strictly and make sure to minimise its
expenses in order to increase profit margin.
Reasons for variance in cash budget: By analysing the cash budget it has been
evaluated that there is huge difference in the closing balance of cash during 2020, 2021 and
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2022. The main reasons for the variance are purchase of machinery and investment of a huge
amount. It is resulting in the variation in the cash balance.
Master budget: It is a type of budget which is the combination of all the small budgets
which helps the organisations to evaluate the organisation's ability to carry out all the operations
in systematic manner. All the revenues and expenses are recorded in it so that all the profitability
could be determined.
Capital budget: In businesses it is used for the purpose of making arrangements of funds
for all the future projects so that the main goals and objectives of the companies could be
achieved. With the help of it, the entity can make sure that the project in which investment will
be made will be profitable for the firm or not.
2. Identify how a budget for a complex organization can support organizational objectives and
targets
Budgetary management is the mechanism through which financial regulation is exerted
within an organization. Budgets for earnings / income and spending are planned in advance but
instead contrasted with real results to determine any differences (Musthaq, 2020). Management
is responsible for operating expenses throughout their budgets and are supposed to take proactive
action unless the unfavourable variances occur and they are deemed unreasonable. There are also
management applications for budgets. For example, budgets are being used to manage revenue
and spending (the conventional use), create goals and set expectations in monetary form, provide
guidance, coordination and control, so that corporate strategies can be transformed into tangible
practice.
Define goals to finance department (managers) and allocate funds to communicate
expectations between management to staff, inspire employees, increase productivity and track
performance. There are several applications of budgets, number of core values for effective
financial management in a sector. In a budget management system, managerial objectives are
clearly described in specific the ability to respond to their expenditures, individual budgets fall
asleep a course of action, measures are in place against budget, action can be taken if results vary
markedly from the spending plan.
Organisational objective: The main objective of Pfizer Inc is to generate higher profits
by fulfilling all the requirements of clients. For the purpose of attaining all the objectives the
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organisation is paying attention towards formulation of budgets. Some of the key budgets are as
follows:
Cash budget: It is mainly used to analyse the cash incomes and expenses that are made
by the organisation during an accounting year. With the help of this budget the organisation can
attain its objective as it will help the management of Pfizer Inc to analyse that is it able to keep
funding for meeting all the long term objectives. By making arrangements of funds all the future
objectives and targets could be achieved by the entity.
Capital budget: While planning to invest in a big project this budget is analysed as it
helps to evaluate that the company is having sufficient funds or not. While planning to buy a new
machine and achieve the objective of increased production and profits it can help to formulate
effective decision.
There are various other financial constraints which are used in complex organisations to
meet all their objectives and targets. These are capital, cost, revenue, profit, capital structure etc.
for example, if the managers in Pfizer Inc willing to increase production then they will evaluate
all these constraints. First thing which will be focused by them will be the options available for
the same. For this purpose, investment in a new machine could be made that can boost up the
production and profitability. Apart from this, capital required for the same project will also be
required to be evaluated. Cost and ability to generate profit and revenues for the project are also
analysed so that the complex organisation like Pfizer Inc can meet its targets and objectives.
TASK 3
1. Identify criteria by which proposals can be judged
Pfizer Inc is a pharmaceutical company which wanted to increase their production, so
management decided to purchase new machinery to increase production which further helps in
fulfilling customer’s demand (Statman, 2018). Before spending money into this proposal,
managers need to evaluate that this proposal is financially viable or not. All the proposal
information mentioned below:
Initial investment = 110,000
Life of machinery = 5
Depreciation = Investment / life of project
= 110000 / 5
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= 22,000
Year Cash
inflow
PV factor DCF
0 -110000 1 -110000
1 30000 0.909091 24793.39
2 30000 0.826446 24793.39
3 40000 0.751315 30052.59
4 35000 0.683013 23905.47
5 30000 0.620921 18627.64
NPV 12172.48
IRR 4%
Net profit:
Year Cash inflow Depreciation Net cash flow
1 30000 22000 8000
2 30000 22000 8000
3 40000 22000 18000
4 35000 22000 13000
5 30000 22000 8000
55000
ROI = Net profit / Initial investment * 100
= 55000 / 110000 * 100
= 50 %
Payback Period:
Year Cash inflow CCF
1 30000 30000
2 30000 60000
3 40000 100000
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4 35000 135000
5 30000 165000
Payback period = Year before cost recovered + amount to be recover / next year cash flow
= 3 + 10000 / 35000
= 3 + 0.28
= 3.28 years
All the criteria of proposal mentioned above and by using evaluation several method such
as return on investment (ROI), NPV, Payback period and IRR used that investment is profitable
or not (Steffen, 2018). There are several risk identified while thinking of investing money into
this proposal such as price or machinery can raise, inflation rate can be changes which can vary
the returns, demand of market can be reduces which can minimise the cash inflows and
eventually purchasing of new machinery will not further beneficial for the Pfizer Inc.
Criteria to judge the project: In order to judge the project Tucker's five question model
could be used which can help evaluate the project on different criteria. The five questions of it
are as follows:
Questions Responses
Is the new project profitable? Yes, because it will increase the profits for the company by
increasing the production.
Is the new project legal? Yes, because the company will take permission from legal
authorities of the country for establishing new machine.
Is the new project fair? Yes, it is fair because it will be increasing profits of the
company in future.
Is the new project right? Yes, as the project will help the organisation to capture large
market share.
Is the new project sustainable
or environmentally sound?
Yes, the project is sustainable as it will be focused with the
latest technology which will not leave any negative impact
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upon environment.
2. Critically analyse the viability of a proposal for expenditure
As per the above evaluation, it has been observed that Pfizer Inc can spend their money
into this proposal because of its positive NPV, IRR is quite low, ROI is 50% which is very high
and encourage the managers to invest in this project or maximise the overall production as well
as profit margin. Initial investment of this proposal is 110,000 Pfizer Inc can recover their
amount within 3.5 years, so it is recommended to invest because of financial viability (Annual
report of Pfizer Ltd., 2019). On the other side, it has some negative aspect as well which
managers need to evaluate such as these evaluation methods are fail to consider the time of value
cash flow and quite difficult to determine the cost of capital which can vary the returns of any
project. The cost of whole project will be around 110000 and if the investment will be made in it
then overall production of the organisation will be increased which will provide economic
benefits to the entity. Additionally, by selecting this project the enterprise can also generate
higher profits because it will increased the manufactured units. Apart from this, with the help of
it large market share could also be captured by the organisation because increment in the
production will increase the number of customers. From the business point of view the technical
viability of the project is also very high as it will be focused with a new technique which will
speed-up production.
3. Identify the strengths and weaknesses of a proposal and give feedback on the financial
proposal
Purchase of new machinery help the Pfizer Inc to increase their production level because
company receive huge demand for their products but they unable to supply because of limited
resources. Strengths of this proposal are to improve the operational capability, ownership,
improve safety, time saver, build professional image etc (Zhao and Huchzermeier, 2018).
Weaknesses are cost of machinery which can affect the overall budget; managers need to provide
essential trainings to the staff members regarding how to operate it and it will also generate cost
for the company. In addition, it is suggested that Pfizer Inc should invest in this proposal because
it will be beneficial and helps in recovering all the expenses within 3.5 years.
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4. Analyse the viability of a proposal for expenditure
In order to improve the overall production of the company, Pfizer Inc should spend money
on this proposal where they purchase new machinery for more production and supply more
quantity in the market to fulfil customer’s demand. Initial investment of this machinery
recovered within 3.5 years after that company generate profit which provide growth to the
organization and able to expand their reach into market.
Economic: If the proposal of buying the new machine will be selected by the
organisation then it will result in increased production of the entity. Apart from this, it will also
result in enhancement of contribution in the GDP by the company which reflects that the
proposal is viable for the company.
Financial: The proposal of buying a new machine will require the investment of 110000
and the returns of it will be very high. It demonstrates that by making investment in it the entity
will be able to enhance profitability and execute all the operations in systematic manner.
Market: By making investment in the new project the company will be able to capture
large market share which will also result in increased profitability as well as higher productivity.
With the increased production the number of customers will also be increased for the company.
Technical viability: The new machine which will be bought by the entity in the proposal
will be focused with latest production technology and it will help the organisation to meet all its
long as well as short term objectives.
CONCLUSION
From the overall analysis it has been observed that, with the help of financial analysis which
were done by calculating ratio of the particular company. Ratio analysis helps the managers to
evaluate company’s performance in terms of profitability, efficiency, liquidity etc. Management
and stakeholders are able to make strategic decisions on the basis of financial information and
the company’s overall performance. In addition, evaluation methods are used to determine the
proposal and further it is beneficial for the organization or not. On the basis of it, managers make
financial decisions which maximise the production as well as profitability.
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REFERENCES
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Online
Annual report of Pfizer Ltd. 2019. [Online]. Available thjrough:
<https://s21.q4cdn.com/317678438/files/doc_financials/2018/ar/Pfizer-2019-Financial-
Report.pdf>
Annual report of Glaxosmith. 2019. [Online]. Available thjrough:
<https://www.gsk.com/media/5894/annual-report.pdf>
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