Financial Decision Making- PDF

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FINANCIALDECISION MAKING
Table of ContentsEXECUTIVE SUMMARY.............................................................................................................3Task 1. Business performance analysis..........................................................................................31.1 Statement of profit and loss account.....................................................................................31.2 Statement of change in financial position.............................................................................41.3 Statement of cash flows........................................................................................................61.4 Market segment analysis.......................................................................................................9Task 2. Investment appraisal and source of finance........................................................................92.1 Investment appraisal..............................................................................................................92.2 Source of finance.................................................................................................................112.3 Non financial factor.............................................................................................................12CONCLUSION..............................................................................................................................12REFERENCES..............................................................................................................................14
EXECUTIVE SUMMARYThe project report summarise about term financial decision making. In the first part ofproject report, given company's financial performance is analysed with help of various kind offinancial statements. In the first part, profit & loss account, statement of cash flow, statement offinancial position and market segment analysis is done for the purpose of analysing the financialperformance. While in the second part of project report, investment appraisal is done with thehelp of various kind of techniques such as payback period, accounting rate of return and netpresent value. Apart from it, sources of finance and non financial factors are consisted in secondpart of project report. The aim of second part of report is to taking decision related to theinvestment appraisal. Along with the project report overall abstracts about taking financialdecisions 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 containsinformation about total profit and loss during a particular time period (Petersen, Kushwaha, andKumar, 2015). Basically, the main objective of this statement is to assessing the financialcondition of companies with help of total profits and loss. On the basis of Easy-flight company'sprofit and loss statement for year 2017-2018, it can be analysed that in both the years company'snet profit is different. In year 2017, company's seat revenue were of £ 4462 million whichincreased by 3.45% and became of £ 4616 million in year 2018. The seat revenue is a kind ofrevenue which is generated by multiplying the number of miles which is aeroplane flies withnumber of passenger seat available for sale. So the seat revenue of above company raised by3.45% in year 2018 in compare to 2017. While the non seat revenue was of £65 million in year2017 that raised by 7.69% in next year and became of £ 70 million in year 2018. In combine ofseat and non seat revenue, the company earned the total revenue of £4527 million in year 2017which 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 year2017 that decreased in year 2018 by 1.40% and became of £1475 million. It means companydone 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 grossprofits. In year 2017, the operating cost was of £2559 million that decreased by 1.48% andbecame of £ 2521 million which means company's cost of operation is decreasing in 2018 incompare 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 allthe losses and profits from gross profit, the company's operating profit was of £ 583 million inyear 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 toyear 2018. In 2018, this cost was of £ 11 million. As well as the company's profit before tax wasof £574 million in year 2017 that increased by 18.29% and became of £679 million. Though, inyear 2018, the finance cost was more then to year 2017 this was so because more finance costmeans company acquired huge amount of loan in 2018 that became reason of higher profit. Fromthis, PBT (Profit before tax) the taxation amount deducted by various percentage. Like in year2017, the taxation was charged of 22.82% of profit before tax. While in year 2018, the tax ratewas of 20.32 % of profit before tax. So the taxation amount was of £ 131 and 138 million foryear 2017 and 2018 significantly. After deducting the taxation amount from profit before tax, thenet profit was of £443 million in year 2017 which increased in year 2018 and became of £541million in year 2018.So as per the above analysis of company's profit and loss account, it can be commentedthat company's profitability is increasing in 2018 as compare to previous year. The reason behindthis is that in year 2018, company is performing very well in each part such as their seat revenueis more as well as their various expenditures are decreasing in year 2018. So overall company'sperformance is good except in one area which is finance cost. The company should try tominimise the cost acquiring fund from sources and that can be done only if they will not relay onexternal 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 bedefined as a kind of statement which includes detailed information about total assets and
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