Financial Analysis & Management

Financial Analysis &
Management

Table of Contents
1. INTRODUCTION.......................................................................................................................1
2. SD Ltd – A Small Company........................................................................................................1
3. Investment And Concept of Wealth Maximisation.....................................................................1
4. Capital Investment Appraisal Methods........................................................................................2
Accounting Rate of return......................................................................................................2
Pay back period......................................................................................................................4
Internal Rate of Return...........................................................................................................6
Net present values...................................................................................................................8
Profitability Index.................................................................................................................11
Risk and risk management in Investment appraisal.............................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

1. INTRODUCTION
The term of capital investment is a sum of money provided to a business to further its
business objectives. It is mainly related with the fixed assets that required to achieve the mission
and vision of business (Altman and et.al., 2017). It is defined as money invested into project to
analysis the profitability and money will be used to buy fixed assets in order to cover day to day
operating expenses of business. To conduct decision in context of company apply 5 famous
method of capital investment and take decision on basis of G120 and Z 125. In this report
consist of financial and non financial factors to take effective decision.
2. SD Ltd – A Small Company
SD limited wants to invest amount in a new machinery in which consist of automate
production and save the company a significant amount of money. At this stage a small
organisation can face challenges in regard of investment such as: Limited capital: It is not easy to moving a small business with limited capital because it
is the single largest factor which is analysing how much company can, can't to do meet
the requirements of the customer. Having limited fund create problem in investment and
according to that can decision for business.
 Cost of capital: The cost of capital of money utilise by business for financing procedure.
The small business SD Ltd use only current liabilities like supplier credit, long term debt
to finance and many others.
3. Investment And Concept of Wealth Maximisation
Concept of shareholder wealth maximization: This concept apply by the business for
maximum return to shareholders is and ought to be the objective of all corporate activity. As per
the financial management perspective require to enhance price of a firm's common stock. The
shareholder wealth maximization can set a particular criteria in which a business only focus on
the decisions that increase the market value of the share as well as wealth of shareholders
(Ashmarina, Zotova and Smolina, 2016).
Value of shareholders: The value of shareholders based on the reputation of an
organisation and according to that they are generating money. It is most important for the
management system due to have interest of shareholders in mine due to make effective decision.
The higher value of shareholders is better for the company as well as management. The value of
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Shareholders mainly depended on the strategic decision that taken by the board of management
where consist of capability of investment and generate a healthy return on invested capital.
4. Capital Investment Appraisal Methods
To invest into different project an organisation apply different types of capital investment
techniques with challenges, justification and application of theories.
Accounting Rate of return
Explanation: The accounting rate of return is defined that average of net income is
expected to generate by company that is classified into its average capital cost, presented an
annual percentage. In this method does not focus on the time value of money or cash flows
which is internal part of maintaining a business. It is important method of investment appraisal
techniques. The formula used for this method to make decision in regard of capital budgeting and
according to that select right project which is more beneficial for the company (Chen, Ong and
Hsu, 2016). These mainly consist of particular situation in which company decide to invest into
machine or not that is based on the future earning as compare with the capital cost. In the
context of SD Ltd apply this method to select one machine in order to invest and take effective
decision.
Illustration: To better understand of this method take a example
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