Financial Decision Making: Industry Review, Business Performance Analysis, Investment Appraisals

FINANCIAL DECISION
MAKING

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
MAIN BODY...................................................................................................................................3
Part 1. Industry review:...............................................................................................................3
Part 2. Business performance analysis:.......................................................................................3
2.1 Analysis of profit and loss account statement:......................................................................3
2.2 Statement of financial position:............................................................................................5
2.3 Statement of cash flows:.......................................................................................................8
Part 3. Investment appraisals:...................................................................................................11
3.1 a Management forecast: Management forecast:..................................................................11
3.1 b Investment appraisal technique:......................................................................................11
3.2 Source of finance:...............................................................................................................12
REFERENCES..............................................................................................................................14

EXECUTIVE SUMMARY
This study summarises the review of cafe industry with aim to effectively analyse
business performance of corporation Roast Ltd. The main aim of performance analysis of Roast
Ltd, is to recommend Starbucks UK in decision of acquisition of Roast Ltd. Here for
performance analysis, Roast Ltd's P&L, Balance sheet and cash flows are analysed critically.
Also several investment appraisal techniques are thoroughly evaluated to provide assistance in
decision-making process.
MAIN BODY
Part 1. Industry review:
 UK coffee-house industry contains all unlicensed enterprise and licensed companies
which are engaged in selling of coffee, beverages, food items and soft drinks.
 The entire UK coffee-shop market is of around £10.1bn and in UK there are around
25,483 shops and outlets.
 The growth in coffee shop sector in the UK has risen 7.9 per cent per annum over two
decades, but turmoil created by Brexit's economic volatility tends to disrupt the industry.
 Branded coffee shops achieved a strong growth of around 8.7 percent to around 8,149
stores during year 2018. Furthermore, during 2019, the resilience of UK market is a
major problem for the sector.
 Coffee shops are ideally positioned to catalyze the increasing preference of customers for
experienced and digitally altered retail models – 45 percent of the industries surveyed
consider facebook and twitter as the best way of advertising.
 During year-2018, coffee-shop industry appeared to be plagued by persistent confusion
with respect to UK's future dealings with EU. During the last Eighteen months political
stalemate has helped increase concern about workload shortages, increasing prices,
expenditure and eroding brand trust (Cafe Industry: UK. 2019).
Part 2. Business performance analysis:
2.1 Analysis of profit and loss account statement:
A corporation's financial statements includes balance sheet, income-statement and cash
flow. Here income-statement or P&L is most vital statement which shows company's

profitability scenario and current level. This statement involves all operating and non operating
expenses to derive actual net profit of company for specific time-period. Analysis of
corporation's income-statement help to assess the how efficient company's operations are to
generate net profits after considering all business expenses (Agarwal and Mazumder, 2013). This
analysis framework is used to evaluate entire cost systems and the efficiency of a business.
During a given period of time, it helps to assess the profitability level.
In this regard, Roast Ltd's income-statement review reveals that the company's revenue
have grown between the years of 2017 and 2018 from 2022,000 to 2534,000 pounds (25.32
percent growth), with production costs increasing between 2017 and 2018 from 1055,000 pounds
to 90 million pounds (32.23 percent growth). Operating revenues of the Corporation were 60,000
in year 2018. Operating costs, on the other hand, rose from £ 466,000 in 2017 to £ 477,000 in
2018. Operating profits of 127000 and 51000 in 2018 and 2017 were published by Roast Ltd.,
showing an upwards trend respectively. In 2018 and 2017, the corporation's net income amount
was 81000 and 36000, reflecting an improvement in total profitability.
Evaluation of distinct ratios will be beneficial in further efficient interpretation of the
corporation's P&L account. Ratio helps to understand the output of the corporation by evaluating
the key ties of various items throughout one or more periods of profits. Two equations for the
study of Roast Ltd's income statement are as follows:
Gross Profit Ratio:
(GBP'000) Year-2017 Year-2018
Gross profit 517 544
Net sales 2022 2534
Gross profit Margin = Gross
profit/ Net sales x 100
25.57% 21.47%
This is key profitability ratio commonly applied by managers to evaluate business's
actual fiscal wellness by exhibiting sum remain out of revenue after providing costs incurred
against goods sold (Kramer and Weber, 2012). Evaluation of the corporation's gross margin
(percentage) revealed that the gross margin business gained in year 2018 is 21.47%, which was
of 25.57% for year-2017. This suggests that the performance of the corporation to generate gross
profits before any operating or non-operating expenses has been decreased over the period.