Financial Decision Making

Financial Decision
Making

EXECUTIVE SUMMARY
This report presents about the financial decision making with respect to acquisition of
Roast Ltd which is a UK based coffee house chain to be acquired by Starbucks. This report
highlights about the current coffee house industry along with the key competitors prevailing in
the business environment along with the challenges and opportunities available. The profit or
loss statement analyzeddepicts about the currentfinancial performance of Roast Ltd which is
good. The financial position of Roast Ltd is analyzed which states that the current financial
position is not good and also by cashflow analysis it is determined that the cash flow from
operating activity is negative which might be the reason for not distributing dividend to the
shareholders. Along with that the different investment appraisal techniques are evaluated based
on which decision is taken the Starbucks should acquire Roast Ltd as the overall business
performance is good and further investment plans are also feasible.

TABLE OF CONTENTS
Task..................................................................................................................................................4
Part 1: Review of industry...............................................................................................................4
Part 2: Analyzing performance of business.....................................................................................4
2.1 Assessing profit and Loss statement......................................................................................4
2.2 Analyzing statement of balance sheet....................................................................................5
2.3 Determining cash position by making use of cash flow statement........................................6
Part 3: Investment appraisal.............................................................................................................8
3.1.a Forecast of management.....................................................................................................8
3.1.b. Capital budgeting Techniques...........................................................................................8
3.2 Funding sources...................................................................................................................11
REFERENCES..............................................................................................................................14
APPENDIX....................................................................................................................................16

Task
Part 1: Review of industry
 Coffee is the popular drink among the residents of UK.
 The instant coffee has a turnover of £810 million in the year 2017 which is equal to 54%
of £1.5 billion total turnover generated by all coffee products.
 The total estimated revenue in the year 2017 was £7.2 billion which represents an
average growth of 7% during the period 2012-17.
 The coffee industry has approximately 7.5% of workforce with respect to thewhole food
and beverage industry.
 The industry is affected by the impact of Brexit along with the value of pounds.
Manufacturers have seen an increase in the price (Ferreira, 2017).
 The majorcompetitorsin the industry are - Costa Ltd., Caffe Nero Group Holdings Ltd
along with Starbucks.
 Costa Ltd is the market leader and is having the highest number of outlets which is 2121
in UK followed by Starbuck with 898 and Caffe Nero with 650 stores.
 The major challenges faced the coffee industry is the increasing cost of landand
labourcost and the impact of Brexit.
 The opportunities available in the industry is the emergence of sustainability and plant-
based menus (Luty, 2019).
 These leading coffee chains have already introduced the vegan menu and along with
meeting the requirement of oat milk.
Part 2: Analyzing business performance
2.1 Assessing P&L statement
It has been interpreted from the statement that over the year revenue of Roast Ltd is
increasing that is from Pound 2022 in the year 2017 to Pound 2534 in 2018. This reflects that the
sales of an entity have been increasing that in turn seen as the positive sign and better
performance of the firm. With an increase in the sales, COGS also increases from pound 1505 in
2017 to 1990 in 2018. This means that the variable cost of Roast Ltd has increased from one
accounting period to another in associated with the cost of sales. Therefore, the company should
focus on ensuring or keeping control on its cost so that it could earn higher profits on its sale. In