Financial Analysis of Bitmap Plc

This document provides a financial analysis of Bitmap Plc using ratio analysis. It evaluates the company's profitability, liquidity, gearing, asset utilization, and investor potential ratios. The analysis helps in assessing the financial performance and efficiency of the company.

Running head: FINANCIAL ANALYSIS
Financial Analysis
Name of the Student:
Name of the University:
Author’s Note:

1FINANCIAL ANALYSIS
Table of Contents
Part A...............................................................................................................................................2
Financial Analysis of Bitmap Plc................................................................................................2
Profitability Ratio....................................................................................................................2
Gearing Ratios:........................................................................................................................3
Liquidity Ratio:........................................................................................................................3
Asset Utilization......................................................................................................................4
Investor’s Ratio........................................................................................................................4
Working Capital...........................................................................................................................6
Part B...............................................................................................................................................7
Investment Appraisal Techniques................................................................................................7
Benefits and Limitations of Investment Appraisal Techniques.................................................10
Sources of Funding....................................................................................................................12
Part C.............................................................................................................................................14
Budgeting & demonstrating how budgets, strategic objectives & strategic plans are related...14
Budget Process...........................................................................................................................14
References......................................................................................................................................16

2FINANCIAL ANALYSIS
Part A
Financial Analysis of Bitmap Plc
The financial analysis of the Bitmap Plc. was evaluated thereby assessing the financial
performance of the company with the help of the ratio analysis. The financial performance of the
company was evaluated for the trend period 2016-2017. Various factors were analysed for the
company in respect to the profitability, liquidity, gearing, and asset utilisation and investor
potential ratio for the company. The profitability condition for the company was evaluated by
incorporating various factors like the return generated on the capital employed and the operating
profit margin for the company (Luo et al. 2015). The key profitability ratio has analysed for the
company plays a crucial role in the development and sustainability of the company in the long
term. Liquidity Ratio for the company were analysed in order to see whether the company is able
to meet the current obligations of the company. The efficiency ratio for the company was
evaluated for the company thereby assessing the utilisation and efficiency of resources for the
company. The exposure of debt on the financial statement of the company was evaluated for
assessing the financial risk associated with the company.
Profitability Ratio
Return on Capital Employed: The return on capital employed by the company shows the
profitability generated by Bitmap Company on the total capital employed by the shareholders of
the company. The return on capital employed by the company in the year 2016 was around 27%
and was around 26% in the year 2018. The slight decrease in the return was due to the constant
increase in the equity base of the company in contrast to the profitability of the company.

3FINANCIAL ANALYSIS
Operating Profit Margin: The operating profit margin for the company reflects the efficiency
of the company in earning the revenue of the company with the direct expenses of the company.
The operating profit margin for the company was around 30% in the year, which increased
consistently from the last year figures of 2016 that was around 28%.
Gearing Ratios:
Debt to Equity Ratio: The debt to equity ratio for the company shows the exposure of debt and
the weightage of debt on the capital structure of the company (Petruzzo et al. 2015). The debt to
equity ratio for the company was around 16.67% in the year 2016 and was around 22.21% in the
year 2017. The company has constantly increased the level of debt in the trend period analysed
for the company.
Interest Coverage Ratio: The interest coverage ratio shows the effect of interest on the
operating income of the company. The exposure of debt could be well assessed and the impact
the interest is creating on the profitability of the company. The interest coverage ratio for the
company was around 10.20 times in the year 2016 and was around 6.80times in the year 2017.
The interest weightage in contrast to the operating income for the company increased which
might affect the net profitability of the company.
Liquidity Ratio:
Current Ratio: The current ratio for the company shows the potential for the company in
meeting up the current liability of the company (Erasmus et al. 2016). The current ratio for the
company was around 2.77 times in the year 2016 and was around 4.69 times in the year. The
company has increased the current assets of the company significantly in contrast to the financial
assets of the company. The same can also result in the decrease in the opportunity cost of capital
for the company.

4FINANCIAL ANALYSIS
Quick Ratio: The quick ratio for the company ignores the inventory in the current assets of the
company and just includes the liquid assets of the company such as trade receivables, cash and
short-term investment (Kanapickienė and Grundienė 2015). The quick ratio for the company was
around 1.57 times in the year 2016 and was around 2.55 times in the year 2017 for the company.
The quick ratio for the company also removed in the trend period analysed for the company.
Asset Utilization
Sales to Total Asset Turnover Ratio: The sales to total asset turnover ratio for the company
reflects the potential for the company in utilizing the assets of the company (Caudron et al.
2018). The ratio also shows the efficiency of the company ion managing the resources of the
company. The sales to total asset turnover ratio for the company was around 1.29 times in the
year 2016 and was around 1.19 times in the year 2017. The slight decrease in the ratio could be
well attributed to the fall in revenue of the company that made the company report a lower ratio.
Investor’s Ratio
Earnings Per Share: The earning per share for the company reflects the potential for the
company in generating the value or profitability for the shareholders of the company. The ratio
shows the amount of profitability generated by the company on a per share basis for the
company. The Earning Per Share for Bitmap was around 0.322 cents in the year 2016 which
increased gradually to 0.406 cents in the year 2017.
Bitmap Plc. Company on an overall basis has performed well as evaluated by
incorporating various ratio for the company. The financial performance of the company has
somewhat been stable and growth trend for the company thereby reflecting that the company
might be increasing the performance and efficiency of the company.

5FINANCIAL ANALYSIS
Bitmap Plc. Ratio Analysis
Particulars 2017 2016
Gearing/Capital Structure Ratio
Debt 3,500 2,000
Equity 15,760 12,000
Workings =(B4/B5) =(C4/C5)
Debt to Equity Ratio 22.21% 16.67%
Earnings Before Interest and Tax 6800 5,100
Interest 1000 500
Workings =B8/B9 =C8/C9
Interest Coverage Ratio 6.80 10.20
Profitability Ratio
Net Profit 4,060 3,220
Capital Employed 15760 12000
Workings =B14/B15 =C14/C15
Return on capital employed 26% 27%
Operating Profit 6800 5100
Sales/Revenue 23000 18000
Workings =B18/B19 =C18/C19
Operating Profit Margin 30% 28%
Liquidity Ratio
Current Assets 5,160 4,150
Current Liabilities 1,100 1,500
Workings =B24/B25 =C24/C25
Current Ratio 4.69 2.77
Trade Receivables 2300 1600
Cash 500 750
Current Liabilities 1100 1500
Workings =(B28+B29)/B30 =(C28+C29)/C30
Quick Ratio 2.55 1.57
Asset Utilization Ratio
Sales 23000 18000
Total Assets 19,260 14,000
Workings =B35/B36 =C35/C36
Total Asset Turnover Ratio 1.19 1.29
Investor's Ratio
Net Profit 4,060 3,220
Total Number of Ordinary Shares 10,000 10,000
Workings =B41/B42 =C41/C42
Earnings Per Share 0.406 0.322

6FINANCIAL ANALYSIS
Working Capital
The working capital cycle in days for the Bitmap plc is evaluated for the year 2016 and
2017. The working capital shows the net amount balance available for the company for
conducting the various operations of the company. The working capital cycle for the company
was evaluated for the company by applying the formula:
Working Capital Cycle in Days: Inventory Days+ Receivable Days- Payable Days.
The working capital cycle in days for the company was around 45 days in the year 2016
and was around 79 days in the year 2017. The working capital cycle for the company has
consistently increased for the company thereby reflecting the efficiency of the management in
utilisation of resources of the company.
Working Capital Cycle in Days
Particulars 2017 2016
Inventory Days 80 74
Receivable Days 37 32
Payable Day 37 62
Working Capital in Days 79 45
Inventory Days Receivable Days Payable Day
0
10
20
30
40
50
60
70
80
90
Working Capital Cycle in Days
2017 2016

7FINANCIAL ANALYSIS
Part B
Investment Appraisal Techniques
Toyland Ltd Company is expanding the operations of the company by expanding into the
business by purchasing assets and machinery for the company. The company is significantly
increasing the expansion of the company by purchasing assets for the company in the form of
capital expenditure for the company. The company currently has two machines in which the
company can invest in Machine A and Machine B and the economic feasibility of the project was
assessed by applying various investment assessment tools. The required rate of return was
around 10% for the company, which was applied for assessing the economic feasibility and
viability of the project.
a) Payback Period: The payback period for the investments shows the amount that will be
recovered by the company in the due course of investment schedule for the company
(Zolfani, Yazdani and Zavadskas 2018). The payback period for Machine A was
evaluated by the time taken by the company in generating the cash inflows of the
company equal to the cash outflows of the company. The payback period for Machine A
was around 1.455 years, which shows that the company will be able to receive the initial
investment in 1.45 years. The payback period for the Machine B was around 4.32 years
that was quite longer than Machine B in returning the total cash outflows of the company.

8FINANCIAL ANALYSIS
Payback Period
Particulars
Machine
A
Payback Period Machine
B
Payback Period
Years Cash
flow
Amt.
Recovered
Year Cash
flow
Amt.
Recovered
Year
0 -500,000 -500,000
1 300,000 300,000 1 20,000 20,000 1
2 250,000 550,000 0.45 50,000 70,000 2
3 200,000 750,000 150,000 220,000 3
4 150,000 900,000 200,000 420,000 4
5 50,000 950,000 250,000 670,000 0.32
6 70,000 1,020,000 350,000 1,020,000
Payback Period in Years 1.455 Payback Period in Years 4.32
b) Discounted Payback Period: The discounted payback period for the company shows the
amount recovered by the company while incorporating the discount factor for the
company. The discounted payback period for the company incorporated the 10% discount
factor for discounting the net cash inflows of the company. The discounted payback
period for Machine A was around 1.522 Years and for Machine B it was around 4.32
years. Machine A on an overall basis will be generating the cash flows at a much greater
rate than Machine B as evaluated in the table below.
Particulars Machine A Payback Period
Years Cash flow Discount Factor Amt. Recovered Year
0 -500,000
1 300,000 0.91 272,727 1
2 250,000 0.83 479,339 0.52
3 200,000 0.75 629,602
4 150,000 0.68 732,054
5 50,000 0.62 763,100
6 70,000 0.56 802,613
Discounted Payback Period in Years 1.522

9FINANCIAL ANALYSIS
Machine B Payback Period
Cash flow Discount Factor Amt. Recovered Year
-500,000
20,000 0.91 18,182 1
50,000 0.83 59,504 2
150,000 0.75 172,201 3
200,000 0.68 308,804 4
250,000 0.62 464,034 0.32
350,000 0.56 661,600
Discounted Payback Period in Years 4.32
c) Accounting Rate of Return: The accounting rate of return for the company shows the
net return generated by the investment asset of the company. The accounting rate of
return for Machine A was around 17.33% and the accounting return for the machine B
was also 17.33% for the trend period evaluated for the assets.
Accounting Rate of Return Method
Particulars Machine A Machine B
Years Cash flow Cash flow
0 -500,000 -500,000
1 300,000 20,000
2 250,000 50,000
3 200,000 150,000
4 150,000 200,000
5 50,000 250,000
6 70,000 350,000
Net Return 520,000 520,000
Avg. Net Profit 86,666.67 86,666.67
Accounting Return 17.33% 17.33%
d) Net Present Value: The investment appraisal tools applied by the company assessed the
economic feasibility of the project (Dehnavi et al. 2015). The net present value of the

10FINANCIAL ANALYSIS
company was around $302,613 for Machine A and was $161,600 for Machine B. The
value generated by the Machine A, which shows that the cash inflows expected from
machine A is much more consistent than Machine B. If Toyland Ltd invests in Machine
A it will create much higher value for the shareholders of the company as the profitability
is greater from the same.
e) Internal Rate of Return: The internal rate of return for Machine A was around 36% and
was around 17% for Machine B. Machine A can provide a higher rate of return on the
total investment that will be done by the company.
Particulars Machine A Machine B
Years Cash flow Cash flow
0 -500,000 -500,000
1 300,000 20,000
2 250,000 50,000
3 200,000 150,000
4 150,000 200,000
5 50,000 250,000
6 70,000 350,000
Cost of Capital 10%
Net Present Value 302,613 161,600
Internal Rate of Return 36.12% 17.24%
Benefits and Limitations of Investment Appraisal Techniques
The key limitation of the invest appraisal techniques that are evaluated for the company
was take into consideration.
Net Present Value: The net present value shows the amount of profitability generated by the
company in terms of dollar value. The key benefit of the net present value of the company is that
it incorporates the various aspects of cash flows that will flow from the project by taking into

11FINANCIAL ANALYSIS
account the time when the same will be received by the company in the due course of the
investment (Booksmythe et al. 2017). The key limitation of the net present value for the
company is that the net present value of the company is not quantifiable which can be compared
with the required return for accepting or rejecting a project. The amount of wealth created by the
investment project is solely dependent on the required return which is an important factor. The
investment appraisal method is commonly used by organisations for the purpose of investment
appraisal.
Internal Rate of Return: The internal rate of return shows the return of the project in terms of
the percentage, which helps the investor in assessing and benchmarking the performing of the
company (Sarker, Sultana and Prodhan 2017). The internal rate of return shows the return
generated by the project in percentage term which is helpful for the investor in assessment of the
financial information’s of the company (Barman and Sengupta 2017). The key disadvantage of
the internal rate of return is that the same does not consider various important factors like
duration of the project, future cost associated with the company and the size of the project. The
tool is applied by various organisations for evaluating the viability of the investment project.
Payback Period: The key advantage of the payback period is that the tool is simple and clear
and shows the management of the company the time taken by the investment project in returning
the initial capital inflow of the company (Trivedi et al. 2016). The key disadvantage of the
discounted payback period is that the same ignores the concept of time value of money for
assessment of the project which is a crucial part.
Discounted Payback Period: The discounted payback period for the investment project strength
is that the same allows application of time value of money. The discounted payback period may
at times be complex for the investment project manager for assessing the financial information

12FINANCIAL ANALYSIS
and financial viability and visibility of the investment project. However discounted payback
period is considered to be more superior as the same incorporates the discount factor for the
valuation of the financial viability and assessment of the project (Tsai et al. 2016). The
application of discounted payback period is more frequent and reliable source for many
organisation assessing the same as investment appraisal tool.
Accounting Rate of Return: The accounting rate of return shows the simple return of the
investment project from the accounting perspective. The accounting return is easier to calculate
and is much simpler as it considers the profit or the cash flows for the entire life of the project.
The accounting rate of return considers the concept of net earnings of the company. The key
disadvantage of the accounting rate of return is that does not consider the impact of time value of
money and is based on simple average profit earned from the project (Sharma and Mehra 2017).
The rate is not widely used by the accounting managers an organisation widely in the
industry. The rate is widely used from the investment perspective by various organisations from
an accounting perspective. The accounting rate of return takes other key factor into account such
as depreciation, tax rate and various other factors for determining the average net profit of the
investment project.
Sources of Funding
There are various sources of funding that the company can apply in the context of
financing of the key assets of the company and the same should be evaluated on a cost to benefit
ratio for the company (Luther and Pan 2015). Debt financing and equity financing are the two
common source of financing which the company can apply for the purpose of investment
(Penman 2015). Each of the financing source has its own merits and demerits and the same
should be applied after evaluating and analysing the same from the view point of the company.

13FINANCIAL ANALYSIS
Debt financing can be a useful source of financing for the company due to the low interest rate or
the cost of financing associated with the same. The debt financing on the other hand also
provides the company and organisation with the tax benefit as the interest paid by the company is
tax deductible, which ultimately lowers down the effective tax rate for the company (Rodrigues
and Rodrigues 2018). The key demerit associated with the company which hampers the usage
and application of excess weightage of the same is the financial risk associated with the same.
The debt financing usually creates a charge on the assets of the company which ultimately
increase the financial risk associated with the company. Equity financing on the other hand is
generally financed with the help of the shareholders of the company where the investment can be
the best for financing for expansion or purchasing of the key assets of company. Equity financing
is considered safer than debt financing as the same does not create a charge o the assets of the
company or the profitability of the company (Almamy, Aston and Ngwa 2016). The equity
shareholders are only entitled for a payoff when the company earns profit from any kind of
investment. Equity financing has a higher required return at the same time which is in contrast to
the higher risk taken by the equity shareholders of the company.
In context of the above key financing ratio discussed it is important for the company to
analyse the various source of financing that are applicable for the company and apply them
according to the financial viability and visibility of the same. Both the financing source has its
own merit and demerits however deciding the optimal capital structure and the weightage of each
source of financing are also relevant for the company (Afonso, Baxa and Slavík 2018). The
weightage of debt and equity in financing the asset of the company should be such that it benefits
the company in effective way. The key motive for the organisation on a long term basis should
be viability and financial stability of the company. Hence it is important that the company

14FINANCIAL ANALYSIS
evaluates and identify the crucial factor which can significantly affect the operations of the
company.
Part C
Budgeting & demonstrating how budgets, strategic objectives & strategic plans are
related.
Budgeting is a key planning tool which is applied by the company in the context of the
planning the organisation goals and objective in the way of allocation of resources of the
company (Shah 2015). Forecasting and planning plays a key role in managing the goals and
objectives of the organisation. Budgeting helps the organisation in achieving the strategic
objectives of the company by guiding the company in the context of allocation of resources and
planning the operations and organisation goals so that the company can achieve the same through
proper planning (Goldmann 2017). Planning and applying the principles of budgeting helps the
company in guiding the management of the company for the various activities and operations it
would undertake. Optimum utilisation and efficient utilisation of the key financial resources is
the primary aim and benefit for budgeting as planning the goals and achieving the objectives of
the company is related in the same context.
Budget Process
The budgeting process involves various aspect in which the organisation write down the
key objective of the organisation by deciding upon he fact that should be involved and when and
taking relevant actions and planning in the same field. The budgeting process also involves
timely review of the planned activities of the company so that the workings of the organisation is

15FINANCIAL ANALYSIS
related. Allocation and distribution of the ley resources as per the planed objectives and role is
the last step in the budgeting process.
The various types of budgeting process that are involved within a business are the master
budget, operational budget, cash flow budget, financial budget and static budget. The various
forms of budget process are linked to the business as they guide the operations of company in
evaluating the budget of the company. The aim of the various budgeting process helps the
company in terms of spending and developing key effective strategies so that the revenue of the
company increases by efficient and optimum planning of the various aspects of the company.

16FINANCIAL ANALYSIS
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