Assignment : Financial Decision Making

Added on - 22 Jul 2020

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FINANCIAL DECISIONMAKING1
TABLE OF CONTENTSEXECUTIVE SUMMARY.............................................................................................................3PART 1............................................................................................................................................1BUSINESS PERFORMANCE ANALYSIS...............................................................................1PART 2..........................................................................................................................................12INVESTMENT APPRAISAL..................................................................................................12CONCLUSION..............................................................................................................................15APPENDICES..............................................................................................................................17REFERENCES..............................................................................................................................182
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EXECUTIVE SUMMARYIn order to have desirable profits and to attain organisational goals and objectives,management of an organisation has to take various financial decisions during a financial year.The report provides information regarding financial decision making of Dining group plc that isbased in UK. Its overall business performance has been analysed by its financial statementsusing ratio analysis techniques that shows following results. Liquid position of the cited firm isnot good and has increased more of its finance through bank loan and other creditors. It has alsobeen determined that profit earning capacity of the company has been declined in 2016 than2015. Operating cycle of the business is 16 days. Further, for making more investments, directorshave provided investment appraisal information that has been critically evaluated. Dining groupplc initial investment is 120000 million pound. During first year it will receive 20800 millionpound, same as last year it will receive 43200 million pound. Company's average rate of return is11.2% and average annual profit was 6694 million pound. It was found that company's netpresent value is 16% and total cost of capital is 3% and cited firm has an investment targetcriterion of 12%. At last, sources of funds that can be used by Dining Group plc for raising fundsof 100 m has been recommended along with other non-financial factors that its board of directorsmust consider.PART 1BUSINESS PERFORMANCE ANALYSISIn order to measure and manage quantifiable achievements of an organisation, variousmethodologies, processes, measurements and techniques are used by the management isconsidered as a business performance analysis (Allan and et.al., 2015). Here, the performance ofDining Group plc is undertaken by analysing and interpreting its financial statements using ratioanalysis technique.Statement of Profit and LossAs per the profit and loss statement of Dining Group plc, it has been analysed that, in2016, profit earned by firm is 29099, while in 2015, firm earned profit of 68875. This shows that,the earning capacity of the company has reduced. However, revenues has been increased by2
approximately3.70%along with the increase in cost of sales by approximate 14%. In year 2016,firm has also generated income from sale of plant property and equipment. Furthermore, financecost and taxation expenses in 2016 is also less than that of 2015. Thus, the only reason due towhich profit of Dining Group plc has been declined in 2016 is increase in proportion of revenueto cost of sales. Factors that facilitated increment in revenue of the company may be increase inthe percentage of tourists in UK in 2016, or decline in competitors. While, factors that havecaused increase in cost of sales could be increase in staff and their salaries, increase in the cost ofaccommodation facilities or high food material cost.Moreover, for further analysis of company's profitability, profitable ratios such grossprofit ratio, operating profit ratio and net profit ratio has been calculated below.(APPENDIX 1)Gross Profit ratio:Gross profit ratio of Dining Group plc in 2015 is 18.51%, while in 2016 is 9.98%. Thismeans that the firm's efficiency to earn profit has been declined in 2016. This is due to theincreased cost of sales. In order to increase revenue, did not effectively maintained its cost ofproviding services which lead to decline in profit percentage (Bas, 2013). (APPENDIX 1)Revenue and sales: Dining Group Plc belongs from a hospitality, service providing industry.Primary services that are provided by the organisation are accommodation service and diningservice. In 2016, revenues are increased due to increase in its dining services, which also lead toincrease in the cost of material used.Cost of sales: Due to weather changes, prices of food material gone up in UK. Therefore,external factor i.e. change in weather negatively affected business and caused decline in grossprofit. However, there may be some other factors causing increase in cost of sales that includesincrease in staff payment, increase in the proportion of electricity bill that is associated with theuse of hotel rooms, etc.3
201520160100000200000300000400000500000600000700000800000201520160.002.004.006.008.0010.0012.0014.0016.0018.0020.0018.519.98From the above graph it can be seen that, revenues has been increased from the past yearbut profit has been declined. Decline in gross profit indicates that the organisation is notperforming well in the hospitality sector.Operating Profit Ratio4Gross incomeNet salesGross profit ratio
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