Financial Decision Making

Financial Decision
Making

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
MAIN BODY...................................................................................................................................3
PART 1- Industry Overview ..........................................................................................................3
PART 2 – Business Performance Analysis......................................................................................4
2.1 Statement of Profit & Loss....................................................................................................4
2.2 Statement of Financial Position.............................................................................................6
2.3 Statement of Cash Flow.........................................................................................................8
PART 3 – Investment Appraisal......................................................................................................9
3.1.a Management Forecast.........................................................................................................9
3.1.b Investment Appraisal Technique......................................................................................10
3.2 Sources of Finance...............................................................................................................11
.....................................................................................................................................................12
REFERENCES .............................................................................................................................13

EXECUTIVE SUMMARY
This report study the coffee industry which become most consumer preference goods and
generate the huge revenue that is essential for the economic purpose. This report prepare to
analyse the financial performance of Roast Ltd that required to recommanded that Starbucks
should acquire or not. Company analyse the overall performance with the help of income
statement, balance sheet or cash flow. After evaluating every aspect, they further use the
investment appraisal technique in order make decision that expansion is beneficial for the
company or not. By using these capital budgeting techniques, managers able to make effective
decisions regarding investment.
MAIN BODY
PART 1- Industry Overview
UK's Coffee market is the fifty larger coffee consumer market of Europe and total
consumption of coffee in Britain is around 216,000 tons acco0rding to 2015 report. In the current
scenarios, demand of coffee continuous increases among the customers which generate total $20
billion revenue or 210,325 jobs in UK. Coffee industry get the 20 years sustainable growth and
7.9% in 2018. In the UK, there are around £ 10.1 billion shops open and market size increased
and reached at 25,483 where rate of coffee on average basis is £ 2.66. In the UK's market, there
are some large competitive firms for example: Costa, Nero and Starbucks (UK's Coffee Industry,
2019). According to survey, most favourite products in coffee are LATTE that is forts priory of
individual, on second is CAPPUCCINO and on third number it is AMARICANO.
In the UK market, banded coffee shops increases around 8.7% in 2018 and total stores
are 8,149. With the help of this, economy grow and increase the living standards of the
consumers. Coffee organizations also ensure that, they should have maintain the quality of
products which satisfy the needs as well as desires. In future coffee industry provide various
opportunities as well as challenges which impact the operations as well as revenue of the
business. Such as Brexit negatively affect the coffee industry of UK where role of Britain will
impact the European Union. In addition, government rules & legislation such as free trade or
free movement of labours, trade tariff etc. Due to Allegra, it is indicated that in the Brexit market
49% of industry leaders survived or it further influence the operations as well as revenue where
46% are neutral and 5% reported the positive impact. Along with this, there are some

opportunities as well for the UK's Coffee industry where competitors gets the huge benefits such
as Costa Coffee, Starbucks and Caffè Nero. In the UK, there are total 2655 outlets, 992 and 683
outlet respectively (Baker and Ricciardi, 2014). Forecasting method of Allegra identify that, by
2023 coffee shops will exceed the number of 10000 outlets in the market of UK where they get
annual 5% growth.
PART 2 – Business Performance Analysis
2.1 Statement of Profit & Loss
Profit & loss statement is very essential to produce because it helps in providing better
understanding regarding overall profit as well as loss of the company from their operations. This
statement prepared by the managers for the internal as well as external analysis. External parties
includes investors or shareholder who check the profit of the company or make their decisions
accordingly (Bhayat, Manuguerra and Baldock, 2015). Along with this, managers also evaluate
the profitability of the business which helps in making future strategies or policies to maximise
the productivity as well as profitability.
From the income statement of Roast Ltd, it has been observed that revenue for the period
of 2017 was £ 2022,000 and £ 2534,000 in 2018. Along with this, gross profit of the business
was £ 517,000 to £ 544,000 for the same period. Operating profit from 2017 to 2018 was £
51,000 to £ 127,000 respectively. Profitability of the company is the most important aspect to
make any kind of decisions and further it helps in making successful business policies to achieve
operational goals & objectives.
Gross Profit Ratio: This ratio represent the profitability of the organizations where it
represent the relation between net sales or gross profit. It is also called profitability ratio which
helps in measuring the overall operational performance of the business. External parties used to
analyse in order understand the financial position in terms of revenue generation.
Formula: Gross profit ratio = Gross profit / Revenue * 100
Year 2017 (£ '000) 2018 (£ '000)
Gross profit 517 544
Net sales 2022 2534
Gross profit Margin 25.57% 21.47%