Financial Decision Making and Expansion Analysis

This project report provides a detailed analysis of Easy-flight plc company's financial decision making and expansion in France. The report includes an assessment of the company's financial statements, such as profit & loss account, balance sheet, and cash flow statement. Additionally, the market segment analysis reveals that the company is performing well in France. The investment decision section evaluates the payback period, accounting rate of return, and net present value to determine if the company's decision to expand is beneficial. Furthermore, the report concludes with a discussion on non-financial factors such as future legislation, environmental conditions, and competitive analysis that should be considered by the board of directors before making any expansion decisions.

FINANCIAL
DECISION MAKING

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
Task 1. Business performance analysis..........................................................................................3
1.1 Statement of profit and loss account.....................................................................................3
1.2 Statement of change in financial position.............................................................................4
1.3 Statement of cash flows........................................................................................................6
1.4 Market segment analysis.......................................................................................................9
Task 2. Investment appraisal and source of finance........................................................................9
2.1 Investment appraisal..............................................................................................................9
2.2 Source of finance.................................................................................................................11
2.3 Non financial factor.............................................................................................................12
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14

EXECUTIVE SUMMARY
The project report summarise about term financial decision making. In the first part of
project report, given company's financial performance is analysed with help of various kind of
financial statements. In the first part, profit & loss account, statement of cash flow, statement of
financial position and market segment analysis is done for the purpose of analysing the financial
performance. While in the second part of project report, investment appraisal is done with the
help of various kind of techniques such as payback period, accounting rate of return and net
present value. Apart from it, sources of finance and non financial factors are consisted in second
part of project report. The aim of second part of report is to taking decision related to the
investment appraisal. Along with the project report overall abstracts about taking financial
decisions by various kind of financial statements.
Task 1. Business performance analysis.
1.1 Statement of profit and loss account.
The statement of profit and loss account is a kind of statement which contains
information about total profit and loss during a particular time period (Petersen, Kushwaha, and
Kumar, 2015). Basically, the main objective of this statement is to assessing the financial
condition of companies with help of total profits and loss. On the basis of Easy-flight company's
profit and loss statement for year 2017-2018, it can be analysed that in both the years company's
net profit is different. In year 2017, company's seat revenue were of £ 4462 million which
increased by 3.45% and became of £ 4616 million in year 2018. The seat revenue is a kind of
revenue which is generated by multiplying the number of miles which is aeroplane flies with
number of passenger seat available for sale. So the seat revenue of above company raised by
3.45% in year 2018 in compare to 2017. While the non seat revenue was of £65 million in year
2017 that raised by 7.69% in next year and became of £ 70 million in year 2018. In combine of
seat and non seat revenue, the company earned the total revenue of £4527 million in year 2017
which again increased in year 2018 by 3.51% and became of £4686 million in next year.
While the cost which occurred in process of selling services was of £1496 million in year
2017 that decreased in year 2018 by 1.40% and became of £1475 million. It means company
done less expenses on selling process in year 2018. After minimising the cost of sales from total

revenue, the company's gross profit was of £3031 million in year 2017 that increased by 5.93%
and became of £3211. To calculate the operating profit, operating cost is decreased from gross
profits. In year 2017, the operating cost was of £2559 million that decreased by 1.48% and
became of £ 2521 million which means company's cost of operation is decreasing in 2018 in
compare to previous year. Apart from it, the Easy-flight company earned profit on sale of PPE
(property, plant and equipment) in year 2017 which was of £111 million. Though in year 2018,
company did not sale any plant, property and equipment in year 2018. So after deducting the all
the losses and profits from gross profit, the company's operating profit was of £ 583 million in
year 2017 that changed by 18.35% and became of £690 million in year 2018.
The cost of acquiring fund or interest charges were of £9 million that was less then to
year 2018. In 2018, this cost was of £ 11 million. As well as the company's profit before tax was
of £574 million in year 2017 that increased by 18.29% and became of £679 million. Though, in
year 2018, the finance cost was more then to year 2017 this was so because more finance cost
means company acquired huge amount of loan in 2018 that became reason of higher profit. From
this, PBT (Profit before tax) the taxation amount deducted by various percentage. Like in year
2017, the taxation was charged of 22.82% of profit before tax. While in year 2018, the tax rate
was of 20.32 % of profit before tax. So the taxation amount was of £ 131 and 138 million for
year 2017 and 2018 significantly. After deducting the taxation amount from profit before tax, the
net profit was of £443 million in year 2017 which increased in year 2018 and became of £541
million in year 2018.
So as per the above analysis of company's profit and loss account, it can be commented
that company's profitability is increasing in 2018 as compare to previous year. The reason behind
this is that in year 2018, company is performing very well in each part such as their seat revenue
is more as well as their various expenditures are decreasing in year 2018. So overall company's
performance is good except in one area which is finance cost. The company should try to
minimise the cost acquiring fund from sources and that can be done only if they will not relay on
external sources of funds.
1.2 Statement of change in financial position.
The statement of change in financial position is also by balance sheet. This can be
defined as a kind of statement which includes detailed information about total assets and

liabilities (Lusardi, 2012). This statement is prepared at the end of an accounting period with an
objective to assess the exact financial position of company. On the basis of balance sheet of
Easy-flight plc company, it can be find out that their total non current assets were of £3020
million that raised by 45.66% and became of £4399 million in year 2018. This was a huge
positive change in the total non current assets in year 2018. Under, non current assets company
had various kind of assets such as goodwill, property and plant & equipment. In year 2017,
company's value of goodwill was of £365 million that was well maintained by company for
above company in next year. As a result company had goodwill of £365 million, similar to
previous year. The company's total property was of £1792 million in year 2017 that increased by
77.56% and became of £3182 million in 2018. This was a huge increment in the total property
of company. As well as the value of plant and equipment was £863 million in year 2017 that
decreased by 1.27% and became of £852 million. This was not a big difference as compare to
previous year.
In the aspect of current assets, company had a wide range such as stock, trade receivables
and cash. The above company's value of stock was of £121 million in year 2017 that increased
by 27.27% and became of £154 millions which means company purchased stock in year 2018.
Along with the bills receivables of company were of £200 million in year 2017 that raised by
just 3% and became of £206 million in year 2018. The total cash in year 2017 was of £1061
million that decreased in a negative manner in year 2018 and became just of £43 million. The
rate of decreasing in cash was of 96%. This became a main cause of lower current assets in year
2018 because in year 2017 company had total current assets of £1382 but in year 2018, they had
only £403 million current assets. So as addition of both current and non current assets, the total
assets of company were of £ 4402 million in year 2017 and in year 2018, it was of £ 4802
million.
Along with the company had different kind of equities and liabilities such as share
capital, share premium and retained earnings. The share capital of company was of £ 108 million
in year 2017 that remained unchanged in next year and became just of £ 108 million. Same as the
company's share premium was of £ 658 million in year 2017 which did not change in next year
2018 and remain of £ 658 million. Apart from it, the company had retained earnings of £ 1406
million that increased in next year by 29.58% and became of £ 1822 million.

In the context of non current liabilities, the company had long term loan which was of
£1654 million in year 2017 that increased in 2018 by 1.33% and became of £1676 million. This
indicates that company increased the total amount of loan in year 2018 compare to previous year.
Apart from it, in current liabilities company had trade payables, income tax liabilities. In year,
2017 company had total payable amount of bills of £523 million that decreased in year 2017 by
5.35% and became of £495 million. It means company is not making credit transactions. As well
as company's income tax liability was of £53 million that decreased by 18.86% and became of
£43 million in year 2018.
So overall as per the analysis of Easy-flight company's balance sheet, it can be
commented that company's liquidity position is not better in year 2018. Though in year 2017
company's liquidity position was strong because in this year their current assets were of £ 1382
million and their current liabilities were of £ 576 million. In year 2018, this situation was
changed and they had no enough current assets to pay their current liabilities. As well as overall,
the company had £ 4402 and 4802 million assets to pay total liabilities of £ 2230 and 2214
million in year 2017-18 respectively.
1.3 Statement of cash flows.
The term cash flow can be defined as a kind of statement which is related to the including
information related to cash inflow and outflow activities during a particular time period
(WEBSTER, 2014). This statement is useful for getting information about cash incoming and out
going activities. In the aspect of Easy-flight company, their cash flow for year 2018 present
about information related tom cash position. Their cash flow is categorised into three activities
which are operating, financing and investing activities. In the operating activities the company
had cash inflow of £ 464 million which shows that there were more activities for generating the
cash. While in investing activities, company had cash out flow of (£1504) million. This indicates
that company's cash position was weak in investing activities because they purchased properties
and plant & equipment. As well as in financing activities, company again had cash out flow of
(£22) million. So overall above company's cash position is not good in year 2018 because of
more cash outflows from investing and financing activities.
Operating cash cycle (OCC)- The operating cash cycle can be defined as average time
period needed to an organisation for make initial outlay of cash to manufacture and sell of goods

as well as to get cash from selling of goods. Herein, below operating cash cycle of Easy-flight
company is mentioned below for year 2017 and 2018:
Operating cash cycle= Days inventory outstanding+ days sales outstanding- days
payable outstanding.
For year 2017:
Days inventory outstanding= 365/ inventory turn over
= 365/ 12.36
= 29 days
Days sale outstanding= 365/ receivable turn over
= 365/ 22.31
= 16 days
Days payable outstanding= 365/ payable turn over
= 365/ 2.86
= 127 days
So operating cash cycle= (29+16-127) days
= (82 days)
Working Note:
Inventory turn over= cost of sales/ average inventory
1496/121= 12.36
Receivable turn over= net sales/ account receivable
4462/ 200= 22.31
Payable turn over= cost of sales/ account payable
1496/ 523= 2.86

For year 2018:
Days inventory outstanding= 365/ inventory turn over
= 365/ 9.57
= 38 days
Days sale outstanding= 365/ receivable turn over
= 365/ 22.40
= 16 days
Days payable outstanding= 365/ payable turn over
= 365/ 2.97
= 122 days
So operating cash cycle= (38+16-122) days
= (68 days)
Working Note:
Inventory turn over= Cost of sales/ average inventory
1475/154= 9.57
Receivable turn over= Net sales/ account receivable
4616/206= 22.40
Payable turn over= Cost of sales/ account payable
1475/495= 2.97
So as per the operating cash cycle of above company, it can be analysed that in year 2017 and
2018 their operating cash cycle showing negative result. This is so because they are taking a long
time period for paying the creditors which is of 127 and 122 days. For better result they should
focus on minimising the time of paying the creditors.

Dividend policy of Easy-flight company- The term dividend policy can be defined as a kind of
structure in which shareholders are paid their return from total generated profits. In year 2018,
the company paid £ 125 million dividend to their shareholders. As well as their net profit in this
year was of £541 million. This shows that their dividend policy is quite well because they have
enough profit to pay their shareholders. They paid 23.10% dividend to their shareholders from
their total net profit.
1.4 Market segment analysis.
The Easy-flight company expanded their services into different locations such as
England, France and Scotland. As per the information of year 2018, the company had earned
total revenue of £ 3452 million in England which was the highest from rest of other countries.
Such as in France, their total profit was of £ 115 million as well as in Scotland, it was of £ 1119
million. Along with total revenue was of £ 4686 million in year 2018.
Apart from it, the company's gross profit was of £ 2181, 78 and 952 million in England,
France and Scotland for year 2018. Additionally, the operating cost was higher in England which
was of £ 1803 million and £ 678 million in Scotland. While the lowest operating cost was
occurred in France of £ 40 million. As per previous pattern, again the operating profit was
highest in England of £ 378 million and lowest was in France of £ 38 million.
In addition, the gross margin of company was of 85.08% in Scotland that was highest and
lowest was in England of 63.18%. While in the aspect of net margin, company had highest
33.04% in France as well as lowest was in England of 10.45% in England.
So this was the segmental analysis of above company in which company's performance is
difference in all three segments. As per above analysis, it can be recommend to the board of
company that they should focus on those segment wherein, cost is high. Such as in the England,
the cost of sales is high so they should focus on applying effective pricing strategy to minimise
the expense related to sale. As well as their operating cost is also high in England in compare to
other segments. So as per the findings they should focus in England wherein cost is higher as
compare to other location. Along with, higher net margin is in France so it can be recommend to
board that they should apply similar pricing and costing strategies in rest of other locations.

Task 2. Investment appraisal and source of finance.
2.1 Investment appraisal.
The investment appraisal can be defined as a combination of various techniques that are
used to evaluate the effectiveness of an investment (Nga and Ken Yien, 2013).
(a) Management forecast- As per the available information, company is going to make an initial
investment in France of £ 3000 million. From this investment, it is forecasted that company will
get return of £ 4715 million in upcoming ten years. The time duration of this ten years is from
2017 to 2026.
(b) Investment appraisal technique- There are various kind of technique of appraisal some of
them are mentioned below such as:
 Payback period- This can be defined as a kind of method that is being used to assess the
time to get back invested money in any particular project (Boyle, 2013). Such as in the
context of Easy-flight plc company, under this technique it is estimated that their invested
amount of £ 3000 million will be returned in 7 years 11 months. While estimated time
period is of 10 years. This technique has below mentioned advantages and disadvantages
such as:
Advantage- This method is simple to use as well as it plays an important role in the
context of uncertainty.
Disadvantage- The drawback of this method is that it neglects the return on investment as
well as it ignores time value of money.
 Accounting rate of return- This is the percentage rate of return which is expected on any
investment as compare to initial investment. Under it, average revenue earned on an
investment is divided by initial investment. As per this technique, in the aspect of Easy-
flight plc company, their average annual profit is of £ 172 million per year. As well as
average rate of return is 11.4% per annum which means company will get return by
11.4% in 10 years of total £ 4715 million. It has some advantages and disadvantages such
as:
Advantage- Its main advantage is that this helps in providing clear picture of profitability.
Along with it assess the current performance of company.

Disadvantage- One of the key drawback of this method is that it ignores time factor. As
well as an accurate rate can not be determined under it.
 Net present value- This technique can be defined as variation between present value of
cash inflow and outflow during a particular time period. Such as in the context of Easy-
flight plc company, their net present value of investment is of 28% while the expected
value is of 26%. It states that company's investment is going to be success in future.
Below this technique's advantages and disadvantages are mentioned:
Advantages- This method, consider time value of money as well as it is useful for
increasing the value of firm.
Disadvantage- This method is difficult to use. Along with in this method, it is tough to
compute the discount rate.
So overall the company's decision will be right to invest £ 3000 million to expand
business at France. This is so because as per each technique of investment appraisal it is
analysed that they will get good return.
2.2 Source of finance.
There are various kind of source of finance by which companies can get fund for their
various purposes. Such as in the context of Easy-flight plc company they need £ 2000 million for
retail business in an airport. For this purpose below some source of finance are mentioned below
which are as follows:
 Banks- The banks are most common source of finance. This is why because under it
companies can get fund at lower interest rate that results as effective finance cost. In this
source of fund companies can get fund as per their credit score and reputation. The banks
provide both long and short term fund to companies. In the aspect of Easy-flight
company, they can acquire £ 2000 million by bank only if credit score is higher. This
source of fund has some limitations and benefits which are mentioned below such as:
Benefits- Its benefit is that there are no responsibilities of a lender if loan has been paid.
As well as in this source, banks do not take any ownership position in companies.
Limitations- Apart from the benefits, this source have some limitations too such as
difficult process of getting loan. This is so because before granting loan, banks track the
previous record of business.

 Business angels- This can be defined as a kind of source of fund for companies in which
wealthy individuals make investment in business ventures. These individuals not only
provide financial assistance to the companies but also act as guider for companies. Such
as the above Easy-flight company can get fund from this source that can be helpful for
them. Below advantages and disadvantages of this source are mentioned such as:
Advantages- Its benefit is that in this companies can get fund without any interest rate
because individuals make invest as per their willing.
Disadvantage- Sometimes it becomes difficult for companies to find out a wealthy angel
investor. As well as it leads to time consuming for organisations.
So these are the main source of fund for above Easy-flight plc company. Between these
two, they should gather fund from bank because it is safe and secure. As well as in this
companies can get huge amount of fund as per their credit score.
2.3 Non financial factor.
The Easy-flight company is expanding their business so it is important for them to
consider non financial factors. Herein, below some non financial factors are mentioned below
such as:
 Future legislation- This is important for companies to follow all rules and legislation as
per determined by government. Such as for Easy-flight company, it is essential for them
to consider future legislation before expanding the business. They should keep in mind
about rules, regulations and legislation of France.
 Environmental condition- Along with above legislation, organisations should analyse the
environmental condition before making expansion at any location. For example the Easy-
flight plc company should assess the environmental situation of France such as their
weather & climate condition etc.
 Competitive analysis- It is also an another important non financial factor which must be
consider before expanding the business (Baker and Ricciardi, 2014). This is related to the
analysis of available competitors in the market as well as their plans and policies. Same
as in the Easy-flight plc company, their board of director should assess the competitive
situation of location in France wherein they are going to expand.

So these are the main factor which should be consider by board of director of above Easy-flight
plc company.
CONCLUSION
On the basis of above project report it has been concluded that financial decision-making
is based on the analysis of various kind of financial statements. In project report, given
company's profit & loss account, balance sheet, cash flow etc. are analysed to evaluate the
financial position and their financial performance is good of above company. Apart from it,
market segment analysis is done for above company and they are performing well in France. In
addition, the second part of project report concludes about investment decision of company with
the help of payback period, accounting rate of return and net present value. The company's
decision to expand the business will be beneficial. Along with source of funds such as bank,
angel broking are concluded and in the end of project report non financial factors are concluded.

REFERENCES
Books and journals:
Petersen, J. A., Kushwaha, T. and Kumar, V., 2015. Marketing communication strategies and
consumer financial decision making: The role of national culture. Journal of Marketing.
79(1). pp.44-63.
Lusardi, A., 2012. Financial literacy and financial decision-making in older adults. Generations.
36(2). pp.25-32.
WEBSTER, A., 2014. Financial decision making under uncertainty. Academic Press.
Nga, J. K. and Ken Yien, L., 2013. The influence of personality trait and demographics on
financial decision making among Generation Y. Young Consumers. 14(3). pp.230-243.
Boyle, G., 2013. ‘She's usually quicker than the calculator’: financial management and decision‐
making in couples living with dementia. Health & Social Care in the Community. 21(5).
pp.554-562.
Baker, H. K. and Ricciardi, V., 2014. Investor behavior: The psychology of financial planning
and investing. John Wiley & Sons.