Evaluation of Financial Performance and Future Investment Appraisals

Finance of decision making

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
1. INTRODUCTION.......................................................................................................................1
1.1 Rationale................................................................................................................................1
1.2 Background of the company..................................................................................................1
1.3 Main Findings........................................................................................................................1
1.4 Structure of the report............................................................................................................1
2. Evaluation of the current financial performance of the company. (2015 -2019)........................1
2.1 Profitability............................................................................................................................2
2.2 Liquidity................................................................................................................................4
2.3 Evaluation of ratio analysis...................................................................................................6
2.4 Limitation of the ratio analysis..............................................................................................6
3 Future investment appraisals........................................................................................................7
3.1 Evaluation of NPV techniques...............................................................................................7
3.2 Evaluation of IRR techniques................................................................................................7
3.3 Investment appraisal results...................................................................................................8
3.4 Potential implication of investment.....................................................................................10
4. Potential acquisition of Leather Goods factory.........................................................................10
4.1 Rationale for choosing the target company.........................................................................10
4.2 Synergistic gain on acquisition............................................................................................11
4.3 Evaluation of the financing of acquisition...........................................................................12
4.4 Risks and uncertainties........................................................................................................12
4.5 Potential implication over the performance of the firm.......................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

1. INTRODUCTION
1.1 Rationale
Burberry group plc is big luxury brand fashion company that is headquartered in
England, London. Company is doing well in the market from last many years. The company is
planning to expand its business by the investments or acquisition. This will help the company to
increase its growth by the acquisition. Report has summarised the current financial position and
performance of the company for the last five year’s data.
1.2 Background of the company
Burberry Group Plc is the fashion house which focusses on distributing ready to wear
clothes and outer wear. It also provides fashion accessories, beauty care products and sunglasses.
The company has been using varied technology for providing ever lasting customer experience.
Currently, it is suing AR tool which allows customers to experience company’s product in tehri
surrounding. Its total revenue in 2019 was £2,720m, along with net cash of £837m. in the year
2017, it has set a strategy to establish as the luxury fashion firm and delivering long-term
sustainable value to its shareholders.
1.3 Main Findings
Burberry Plc is doing the good and is growth at high rate over the last 5 years. By looking at its
revenue, it can eb said that the company is having enough amount for carrying out its further
investment plan and also acquiring another company while maintaining the performance of the
business.
1.4 Structure of the report
Section 2 analysis the financial performance of Burberry Plc.
Section 3 covers the evaluation of the NPV and IRR techniques of investment in relation to
investment.
Section 4 provides a description about the potential acquisition of Leather Goods factory.
Section 5 covers the overall conclusion of the report.
2. Evaluation of the current financial performance of the company. (2015 -
2019)
2019 2018 2017 2016 2015
1

Employed
Capital
(Total Assets -
Current Liabili-
ties) 1692100 1670100 1848300 1775300 n/a
Net profit 339300 293500 286800 309500 n/a
Return on
capital em-
ployed
Net operating
profit/Employed
Capital 20.05% 17.57% 15.52% 17.43% n/a
n/a
Net Income 339300 293500 286800 309500 n/a
Shareholder's
Equity 1455000 1420500 1692500 1565000 n/a
Return on
Equity
Net Income /
Shareholder's
Equity 23.32% 20.66% 16.95% 19.78% n/a
2019 2018 2017 2016 2015
Cost of Sales 859400 835400 832900 752000 757700
Sales 2720200 2732800 2766000 2514700 2523200
Gross Margin 68.41% 69.43% 69.89% 70.10% 69.97%
Net profit 339300 293500 286800 309500 336300
Sales 2720200 2732800 2766000 2514700 2523200
Net profit ra-
tio 12.47% 10.74% 10.37% 12.31% 13.33%
From the above tables it could be seen that there is a fluctuating trend with growth the
period of 5 years. Company has achieved expansion by maintaining the constant growth rate and
market performance (Kirchler, Lindner and Weitzel, 2019). Current performance of the company
has shown significant growth with strong financial position.
2.1 Profitability
It is the most important ration that is required to be assessed by the decision makers before
planning to invest or acquire.
2