EXECUTIVE SUMMARY Financial Decision Making

Financial decision making EXECUTIVE SUMMARY3 PART 13 | | Profit and loss statement 3 1.2 Financial position statement 4 1.3 Cash flow statement6 1.4 Market segment analysis 8 PART-28 2.1.a Management forecast 8 2.1.b Investment appraisal tools 9 2.2 Stakeholders for raising finance11 2.3 Non – financial factors 13 CONCLUSION 13 REFERENCES 14 EXECUTIVE SUMMARY Financial decision making is the process of taking effective and efficient decision regarding company liability and assets to take the useful measure to improve performance in market.

Financial decision making

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
PART 1............................................................................................................................................3
1.1 Profit and loss statement.......................................................................................................3
1.2 Financial position statement..................................................................................................4
1.3 Cash flow statement..............................................................................................................6
1.4 Market segment analysis.......................................................................................................8
PART-2............................................................................................................................................8
2.1.a Management forecast ........................................................................................................8
2.1.b Investment appraisal tools .................................................................................................9
2.2 Sources for raising finance..................................................................................................11
2.3 Non – financial factors........................................................................................................13
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

EXECUTIVE SUMMARY
Financial decision making is the process of taking effective and efficient decision
regarding company liability and assets to take the useful measure to improve performance in
market. It also used to achieve the goal and objective of the company by analysing all relevant
factors. It can be summarised that Expert consultancy worked as a consultant firm in market who
provides it expert knowledge to the different companies to evaluate their financial position and
identify the ways to improve their position in market. It can be concluded that the different
financial statements like cash flow statement, financial statement and profit & loss account
statement etc. reflect the financial position of Easyflight plc company and its growth in the
market. In second part of the report it summarised the evaluation of investment appraisal and the
different challenges faced by company to collect the finance from different sources like bank,
corporate societies etc. The non-financial source like market share, policy, market environment
etc. help the company to expand the airport retail business.
PART 1
1.1 Profit and loss statement
Solvency ratio
Particulars Calculation 2017 2018
Long-term debt 1654 1676
Shareholder's equity 2172 2588
Debt-equity ratio
Long-term debt / shareholders
equity 0.76 0.65
Interpretation : Solvency ratio is used to measure and evaluate the company ability to
fulfil the requirement and meet long term debt. Solvency ratio is different for company to
company (Rauch and Wende, 2015). If the solvency ratio is higher than 20% than it present
sound position of the company. Further, to estimate the solvency of the organisation different
ratio is calculated such as debt equity ratio, debt to asset ratio etc. Here, Easyflight plc company
use the debt equity ratio to measure the solvency of the company.
Debt equity ratio is calculated to compare the company total debt against the total equity.
Higher debt equity ratio indicate that company use higher bank loan or credit finance in compare
to investor finance (Culver, Heitmann and Weiß, 2018). The debt equity ratio in 2017 is .76 and

in 2018 is .65 which indicate that Easyflight Plc company has more stable finance because it is
able to pay the company debt to its equity. It can be interpreted that debt to equity ratio help the
company to estimate its financial position and solvency to pay debt on time.
Profitability ratio :
Particulars Calculation 2017 2018
Gross Profit 3031 3211
Net profit 443 541
Sales revenue 4527 4686
Earnings before interest and tax or
operating profit 583 690
GP ratio Gross profit / sales * 100 67% 69%
NP ratio Net profit / sales * 100 10% 12%
OP ratio Operating profit / sales 100 12.88 14.72
Interpretation : Profitability ratio refers to generate company income or profit against its
expenses of particular accounting period. It helps to evaluate the financial position and result of
the company. Different investors use the profitability ratio to measure company performance and
its position in the market to take the decision of investment (Rabbani and et.al., 2018, June). To
interpret the profitability Easyflight plc use different ratio such as net profit, operating profit and
gross profit ratio.
Gross profit ratio also known as gross profit margin ratio. The GP ratio of Easyflight plc
company in 2017 is 67% and in 2018 is 69% which indicate that company is able to manage the
inventory level and earning higher revenue from its sales which increases the 2% gross profit in
1 year. Operating profit ratio also known as earning before interest and tax. It can be concluded
that operating profit of the company is increasing which means that company is able to deal with
the operating expenses and earn higher profit to meet the company requirement.
Net profit ratio is calculated by dividing the net profit after dealing all the expenses, tax,
dividend etc. to the sales of the particular accounting period (Al Nimer and et.al., 2015). The NP
ratio of Easyflight Plc present the overall profitability after adjusting all the direct and indirect
expenses. The net profit ratio is increase 12.88% to 14.72% which reflect that they are able to
pay the dividend to their shareholders.

1.2 Financial position statement
Efficiency ratio analysis
Particulars Calculation 2017 2018
Average Inventory 121 154
Turnover or sales revenue 4527 4686
Average total assets 4402 4802
Average fixed assets 3020 4399
Receivables or debtors 200 206
Creditors or payables 523 495
Cost of good sold 1496 1475
Stock turnover ratio (In times) 12.36 9.57
Total assets turnover ratio 1.02 0.97
Fixed assets turnover ratio 1.49 1.06
Receivables or debtors turnover ratio
(in days) (Debtors * 365) / Credit sales
16
days
16
days
Creditors turnover ratio (in days) (Creditors * 365) / COGS
127
days
122
days
Interpretation : Efficiency ratio is used to evaluate that how a company is able to
manage its liability and assets to meet its obligation. It helps the company to measure its
receivable, payment cycle, liability repayment and how to use the equity to meet company
requirement. The inventory turnover ratio is decreasing in 2018 in compare to 2017 because of
the higher inventory level. Easyflight plc has to maintain the inventory level to minimize stock
turnover ratio. They can use the just in time method to control the inventory level.
The fixed asset turnover ratio of the company is 1.49 in 2017 and 1.06 in 2018 which
indicate that Easyflight plc efficiently use the fixed assets to generate the sales of the company.
The decreasing creditor turnover ratio indicate that company pay the debt on time and able to
generate the profit. The debtor turnover ratio is stable which implies that they efficiently collect
the debt from the debtors but they have to regularly monitor the debt collection period to
minimize the debt and increase cash level.

Liquidity ratio analysis
Particulars Calculation 2017 2018
Current assets 1382 403
Current liabilities 576 538
Inventory 121 154
Prepaid expenses
Quick assets 1261 249
Current ratio Current assets / current liabilities 2.39 0.75
Quick ratio
Current assets - (stock + prepaid
expenses) 2.19 0.46
Interpretation : It can be interpreted that liquidity ratio is used to measure the ability of
the company to pay its debt on time without any delay (Sari, Nurlaela and Titisari, 2018). It is
highly used by lenders and borrowers to estimate the position of company in market and take the
decision of investment. A good liquidity ratio indicate that company is able to meet the market
requirement (Acharya and Mora, 2015). Here, Easyflight plc company use the current and quick
ratio to measure the performance.
The ideal current ratio is 2:1 which indicate that the current asset should be double to the
current liability. In 2017 the current ratio is 2.39:1 which implies the sound position of company
while in 2018 it falls down to .75:1. In 2018 the current ratio is reduced because of the less
availability of cash. Company has to maintain the cash level to meet the daily requirement of
cash and also have to manage the current liability.
The ideal quick ratio is 1:1 while the quick ratio of Easyflight plc company in 2017 is
2.19 and 2018 is .46 which indicate that they use the effective strategies and plans to manage
quick ratio. It helps them to improve market position by effectively managing and controlling the
current liabilities and paying the debt on time to minimize debt or credit.
1.3 Cash flow statement
Cash flow ratio analysis
Particulars Calculation 2018
cash flow from operating activities 464

net sales 4686
average total liabilities
current year liability + previous year
liability / 2 3337
net sales 4586
Current liabilities 538
operating cash flow ratio 0.86
cash flow margin ratio 10.12
cash flow from operation/average total
liabilities 13.90
Interpretation : It is used to measure the ability of company to meet short term liquidity.
Easyflight plc company use the operating cash flow ratio to measure that how effectively
company pay the current liability by using the cash flow from operational activities (Ni, Huang,
Chiang and Liao, 2019). The operating cash flow ratio in 2018 is 0.86 which is lower that 1
which indicate that Easyflight has to increase the cash flow and maintain the liability of the
company.
The cash flow margin ratio estimate the generation of operating profit by its sales ( Xu
and et.al., 2016). The higher cash flow ratio indicates the greater position of company. The cash
flow margin ratio in 2018 is 10.12 which indicate the sound position of Easyflight plc company
and they are able to convert their earnings into the actual cash.
Operating cash cycle
Particulars Calculation 2017 2018
Inventory turnover ratio 9.76 11.99
account receivable turnover ratio 6.86 16.05
Operating cycle ratio
(365/Inventory turnover ratio) +
(365 / account receivable turnover
ratio)
90
days
53
days
Interpretation : Operating cash cycle also known as cash converting cycle. It refers to
the total time required by the company to convert the tied up money in sale and production
activity into the cash. It helps to evaluate the performance of the company to manage the

operation activity (What's the Difference Between Operating Cycle and Cash Cycle?, 2019). The
operating cash cycle of Easyflight plc company is 90 days in 2017 and 53 days in 2018. The
reducing operating cycle of the company indicate that they introduce new policy and strategies to
minimize the period of conversion of cash. It also explains that the current policy of the company
is beneficial and help them to convert the tied amount in sales and production activity into cash.
Dividend policy refers to take the decision of paying the dividend to the stakeholders out
of the generated profit (Labhane and Mahakud, 2016). In 2017 Easyflight plc pay £100 million
dividend to the shareholder's out of the £443 million profit which was 22.57% of actual profit. In
2018 company generate higher profit in compare to the last year and pay 23.10% dividend to the
shareholder's. The decision of Easyflight company to pay dividend to its shareholder's is correct
because it helps them to motivate shareholder's to invest in Easyflight plc capital. Company
increase the dividend ratio in compare to the last year to satisfy the customer with their decisions
and encourage them to invest more to get more profit and share in the company financial
position.
1.4 Market segment analysis
Easyflight operate its business in different country like England, France, Scotland etc. In
England it generates £2181 million profit in compare to the France business but the cost of sale
is also high. They have to maintain the cost of sale to improve the gross profit. They can use
skimming pricing strategy to maintain the cost of sale by setting higher price at initial period and
then decrease the price as per the market requirement (How to price your product: 5 common
strategies, 2019). The gross profit of France in 2018 is £78 million but the cost of sale is also
low which indicate that they are able to manage the cost of sale. They have to use the penetration
and competitive pricing strategies to generate higher profit. Penetration pricing strategy help
them increase the price to generate higher profit and competitive pricing strategy help them to
increase the price of the product and services by analysing the competitors' performance in the
market. Easyflight Scotland is able to manage the cost of sales and generate £952 million gross
profit in 2018. They have to use the value based and penetration pricing strategies to generate
higher profit.
The operating cost of Easyflight England is £1803 million which is quite higher in
compare to the other country performance and the profit margin is also low. While the other
country like Scotland and France profit margin is high because they are effectively controlled the

cost of sales and operating cost. England has to control the operating cost by regulating cost on
time and use the budgetary control tool to manage the cost. They also have to focus on the
unnecessary advertising and promotional techniques to minimize their operating cost. It helps
them to control the activities and monitor the performance in market to establish their business
more effectively and increase the market share by expanding airport retail business.
PART-2
2.1.a Management forecast
Managers of Easylight Plc has made forecasting by applying the investment appraisal
tools in respect of the revenue, costs and contribution that will be ascertained over the life of the
project. The forecast table shows that the amount of the revenue and contribution will be
increasing from one period to another with proper management of the variable cost. This reflects
that the project is viable and will attain profits in the future period. This expansion project that
has been started by an enterprise into France will be counted as viable and desirable for the
organization.
2.1.b Investment appraisal tools
Payback period- It refers to the method which states the information regarding the no. of
years needed for recovering initial investment of the budgeting project. As per this technique the
project is said to be desirable in case the period of the payback resulted as equating to or less
than the maximum feasible payback period of an organization (Alkaraan, 2015). The decision
rule under this method indicates that the shorter is the payback period of the proposal, more
viable is the project.
Benefits Limitations
Easylight Plc focuses on selecting those
projects whose payback period is shorter which
in turn helps the firm in enhancing its liquidity.
Through the use of this method the risk
involved in the project could be assessed.
It is counted as the easiest and simplest method
in calculating the desirable proposal.
It does not take into account the time value of
the money. This in turn doesn't provide for a
clear determination of which project is to be
selected.
Ignores the cash flow that is been received
after an end of the payback period (Awojobi
and Jenkins, 2016). Such project is having the
higher returns on the investment and is been

It provides more and more importance to
speedy recovery of an investment in the capital
assets.
preferred for the projects that is having the
shorter payback period.
It neglects the aspect relating to the
profitability of the project as it only states the
time period that the project will take and it
does not mean that the proposal with shorter
payback will result higher profitability.
It does not consider the rate of return that the
project will be generating.
Accounting rate of return- It is an investment appraisal method that reflects the
profitability that will be gained from a particular investment or the project based on the
information gathered from financial reports instead of the cash flows (Kafuku, and et.al., 2015).
It is also known as the Average rate of return.
Benefits Limitations
ARR is the most suitable capital budgeting
technique that could be understood very easily.
It helps Easylight Plc in measuring profitability
of an entire project as it counts cash flows for
whole life of proposal.
This method is applied on the basis of the
accounting information that is readily available
and is been easily understood by an enterprise.
This technique is based on accounting
information and do not consider the actual cash
flows which is a big limitation because cash
flow is more important than the accounting
approach.
It does not consider the approach relating to
time value of money which is an essential
factor in selecting the profitable project.
Differentiation becomes inadequate under this
method from the various projects based on the
amounts that are been needed for the
investment (Higham, Fortune and Boothman,
2016). It happens in the case where different

proposals are resulting the same ARR.
Net present value – It is referred as the value of the future cash flows whether negative or
positive over the useful life of the investment that has been discounted to present (Carbo‐
Valverde, Rodriguez‐Fernandez and Udell, 2016). It is been computed by subtracting the initial
cash outlay from the total discounted cash inflows. Positive NPV states that the project is
profitable and on the other state negative NPV reflects the proposal will be generating net loss.
Benefits Limitations
The main advantage of this method is that it
gives much importance to the concept called as
time value of money.
Risk and the profitability of proposal is been
given the highest priority which act as the main
component for making the project more
successful.
It enables Easylight Plc in maximizing the
value of its business.
NPV is considered as the most difficult method
because it includes complex calculations which
requires highly skilled managers.
It does not provide for accurate decision-
making wherein the investment amount of the
proposals are not of an equal value.
Under this method it becomes difficult for the
analyst in computing the discount rate as
without the discounted cash inflows figures,
NPV cannot be evaluated.
In case the life of the project is unequal then
NPV is not counted as the suitable method in
order to make correct decisions.
2.2 Sources for raising finance
Equity financing- It is the process through which the capital is raised by selling of the
shares. Easylight Plc can use this method for raising the funds for making the further investment

in the retail business within the airport line (Balaban, Župljanin and Ivanović, 2016). An
organization by raising the money through equity financing might having the short term needs in
paying the bills and may have the long term goals in order to achieve growing success with high
growth.
Advantages Disadvantages
This source helps the firm in eliminating the
cost relating to overhead as it does not include
the payment of the interest. Thus, does not
result in creating any kind of the financial
burdens.
Equity financing helps the organization in
shaping their partnership and also the large
enterprise with more and more skilled and the
experienced people.
In case of no profits, the company doesn't have
any obligation in relation to distributing the
dividend to its shareholders.
Profits that are been earned by the firm is to be
distributed or shared with institutions and the
shareholders in proportion of their holding.
The control of the ownership also required to
be shared which in turn results in the dilution
of the control and the power of decision-
making.
Equity financing is counted as the tedious
method of raising the funds as it needs a huge
number of legal compliance and has to follow
all the statutory laws for the raising the money
by sales of the shares.
Sharing of the ownership might creates clashes
in ideas, administration style, growth and the
business operations (Fraser, Bhaumik and
Wright, 2015). This is considered as the big
issue and can leave an entity in frustration if
they do not look over disadvantages.
Bank loan- It is the kind of financing that refers to the most suitable method of raising
the finance for the business. It facilitates for both medium and the long term finance. It is good
for the purpose of financing for making the investment in fixed assets like plant, machinery and
equipment etc.
Advantages Disadvantages

Easylight Plc can borrow the money through
bank loan without any dilution of the control or
the ownership.
Company could get the funds at better rate of
interest which resulted as cheaper in
comparison to the other financing mechanism
(Awojobi and Jenkins, 2016).
It provides flexibility to the organization in
terms of selecting the duration and the amount
of loan with negotiable rate of interest.
Interest amount that is been provided on the
bank loan are considered as tax-deductible and
is a form of the tax savings.
Additional burden is been increased regarding
the interest obligations and the repayment
liability.
In order to raise finance through bank loans,
proper collateral security and an appropriate
credit score is required.
Bank prescribes for strict schedule in relation
to the repayments of the principal amount with
fulfilling the interest payments on a timely
basis. This creates pressure on the company.
Banks charges processing fees that is to be paid
by the company in addition to the cost of the
loan (Higham, Fortune and Boothman, 2016).
This results in increased overheads of an entity.
2.3 Non – financial factors
To expand the business into airport retail and provide the useful foods and services to
their customer Easyflight plc company have to monitor all financial and non financial factor
(Chakraborty, Ganguly and Natarajan, 2019). The consideration of non financial factor help the
company to improves its image and position in market. The non financial factor such as market
share, industry rivalry, market environment, policy etc. Easyflight plc company have to focus on
the company image and use different advertising strategies to build good market position and
attract the travellers toward the airport retail.
The concentration of Easyflight plc company towards the environment safety product
help them to get the attention of customer and expand their business (Naser and Hassan, 2016).
The non financial factor help the company to focus on the other factors also which affect the
performance in market. Easyflight plc company has to evaluate the competitors position and their
strategies in the market to expand their business with the higher market share.

CONCLUSION
The above report summarizes that financial decision-making plays a critical role in
making suitable decisions that leads in maximizing the value of the shareholders. It directly
relates in achieving the long term success in with an efficient use of the resources for the purpose
of achieving operational efficiency. It helps Easylight Plc in achieving growing success with
stability and sustainability. Financial analysis of the final report is also crucial as it tells about the
financial performance and the position of an organization and also for reporting the results to the
internal and the external users in order to help them in making decisions. For selecting the most
viable projects among the alternatives it is important for Easylight Plc to evaluate the time
involved and the profitability that each project will be generating by applying appropriate capital
budgeting techniques. Choosing the best source for raising the finance also plays a vital role
because it provides for gaining higher profitability with lower cost and minimum financial
burden.

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Online
What's the Difference Between Operating Cycle and Cash Cycle? 2019. [Online]. Available
through: <https://www.fool.com/knowledge-center/whats-the-difference-between-operating-
cycle-and-c.aspx>
How to price your product: 5 common strategies. 2019. [Online]. Available through :
<https://www.bdc.ca/en/articles-tools/marketing-sales-export/marketing/pages/pricing-5-
common-strategies.aspx>