Financial Decision Making

Financial Decision Making

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................1
PART 1: Industry Review................................................................................................................1
PART 2: Business Performance Analysis........................................................................................2
2.1 Statement of profit or Loss....................................................................................................2
2.2 Statement of Financial Position............................................................................................4
2.3 Statement of cash flow statement..........................................................................................6
Part 3: Investment Appraisal and Sources of Finance.....................................................................8
3.1 Investment Appraisal............................................................................................................8
3.2 Sources of fund:..................................................................................................................10
REFERENCES..............................................................................................................................12

EXECUTIVE SUMMARY
Present report is based upon financial decision making of Roast Ltd which is one of the
famous coffee houses of United Kingdom. It is segregated in two parts first one is based upon the
analysis of performance of the company. For this purpose, all the final accounts including
Statement of profit and loss, financial positions and cash flow are analysed. Different ratios such
as operating, net, and gross profit, current, quick, debt equity etc. along with operating cash cycle
are calculated to determine that Starbucks can acquire it or not. It has been recommended to the
organisation that it should acquire Roast Ltd because its performance in the market is very good.
Second part is based upon an investment option of 400 million pounds. For the purpose of
analysing profitability and efficiency of this alternative different investment appraisal techniques
such as NPV, ARR and payback period are calculated.
PART 1: Industry Review
This section of the report focuses on the coffee house industry which is one of the largest
sectors of UK and it is growing massively due to increasing demand of coffee in the market. In
order to get an insight and overview of the industry following points could be considered:
 According to a study coffee house industry is generating employment in UK and
provided more than 210000 jobs to the individuals and contributed in the growth of
country (Employment generated by coffee house industry, 2019).
 Major players of the industry are Starbucks, Cafe Ritazza, cafe Nero etc. which are
competing with each other and making efforts to become the market leader. All these
organisations are operating business in effective manner within the particular sector.
 The whole sector have contributes around 6.1% in the annual growth of the industry of
UK.
 According to the market research of IBIS coffee house industry of UK has generated
revenues of 6 million pounds in current year as compared to last few years.
 There are total numbers of the organisation that are related with the sector of coffee
house at the place of UK in 16199 that has been enhanced through growth rate due to
compare with the previous year.
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 There are defined different types of possibilities that can be achieved through the
particular enterprise. With the help of these opportunities include with a healthy organic
that can carry out the recent trend of stay healthy (Correia, Dussault and Pontes, 2015).
On the basis of above described points it has been determined that different types of
difficulties are also faced by coffee house industry to grab growth opportunities. All the
challenges are affecting the market trends and scenario that directly leaves impact upon
preferences and choices of customers. There is one more issue that is faced by the particular
sector related with the intense competition and mostly face by the new entrance of this sector.
The main cause of this competition is high profit margin where a business engage in this
industry.
PART 2: Business Performance Analysis
2.1 Statement of profit or Loss
Statement of profit and loss is an account which is used to record all the incomes,
expenses and calculate the profits generated by an organisation in an accounting year. With the
help of it profitability of an enterprise could be determined by top level executives and external
parties such as investors, government and suppliers. From the income statement of Roast Ltd it
has been analysed that revenue of the business are improving as per the total sales transcribed in
the year 2017 and get outcome in the revenue of 2022000 which is increased up to 2534000 in
2018. If revenues are increased by an organisation then it may result in higher incomes and
profits and along with this expenses may increase because the company is required to spend
money to enhance sales. Total operating expenditure of Roast Ltd were 466000 for 2017 which
are increased up to 477000 in 2018 (Gal, Stewart and Hanne, 2013).
All over the analysis it is mainly depended on the ration analysis that present actual
position of the business in present time due to compare with last year activities and show
financial performance of business.
Gross Profit Margin
This ratio is used by the business to measure the profitability that present the ability of a
business to earn income against set value that invested on labour and on material cost. If gross
profit ratio increasing so it presents growth of business that supports to business to consume
money for the future operating expenditure.
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