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FINANCIAL DECISION MAKING EXECUTIVE SUMMARY

   

Added on  2020-07-22

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FINANCIAL DECISIONMAKING

Table of ContentsEXECUTIVE SUMMARY.............................................................................................................1PART 1............................................................................................................................................1Analysis of statement of profit and loss.................................................................................1Analysis of statement of financial position............................................................................4Analysis of statement of cash flow.........................................................................................7Market segment analysis........................................................................................................9PART 2..........................................................................................................................................13Management forecast............................................................................................................13Investment appraisals techniques.........................................................................................13Sources of finance................................................................................................................14Non financial factors............................................................................................................15Hiring Locals........................................................................................................................16Making corporate connections.............................................................................................16REFERENCES..............................................................................................................................17APPENDIX....................................................................................................................................19

Illustration IndexIllustration 1: Comparison of Gross margin ratio............................................................................1Illustration 2: Comparison of Net margin ratio................................................................................2Illustration 3: Comparison of return on capital employed...............................................................3Illustration 4: Comparison of current ratio......................................................................................5Illustration 5: Comparison of Quick ratio........................................................................................6Illustration 6: Comparison of long term debt to total asset ratio.....................................................7Illustration 7: Inflow and outflow of cash........................................................................................8Illustration 8: Comparison of cash conversion cycle.......................................................................9Illustration 9: Northern region.......................................................................................................10Illustration 10: Midlands region.....................................................................................................11Illustration 11: Southern region.....................................................................................................11Index of TablesTable 1: Calculation of Gross Margin Ratio..................................................................................19Table 2: Calculation of Net Margin Ratio.....................................................................................19Table 3: Calculation of ROCE.......................................................................................................19Table 4: Calculation of Capital employed.....................................................................................20Table 5: Calculation of current ratio..............................................................................................20Table 6: Calculation of Quick ratio...............................................................................................20Table 7: Calculation of quick assets..............................................................................................21Table 8: Calculation of long term debt to total Assets ratio..........................................................21Table 9: Cash flow statement.........................................................................................................21Table 10: Calculation of DOI........................................................................................................22Table 11: Calculation of DSO........................................................................................................22Table 12: Calculation of DPO........................................................................................................22Table 13: Cash conversion cycle...................................................................................................22Table 14: Profits of different geographical region.........................................................................23

EXECUTIVE SUMMARYAnalysing the financial statements helps in making comparative analysis of sales, profits,investments etc. which further contributes to better decision making. Harvey homes is involvedin creating quality homes to people. The key findings of the report are that the current ratio of thebusiness is on higher side leading to productivity of the current assets. Further, the Harvey is notearning mush revenues from Midland region hence, require improving product mix. Thecompany is low at its operating cash and therefore require working upon its operating income inorder to conduct its day to day business. The entity have been able to get loan for 150 millionthrough which it will be managing its cash requirements. There is an increase in revenue of theentity also there is overall increase in the profits of the entity I comparison to the figures ofprevious year.PART 1Analysis of statement of profit and lossGross Margin RatioGross margin ratio reveals the profit the company has earned after paying all the cost ofgoods sold. It indicates the financial health of the company by indicating the gross profit it has1Gross profitNet sales020040060080010001200140020162015Illustration 1: Comparison of Gross margin ratio

earned on every Pound of sales revenue (Huang and et.al., 2013). Based on table (Appendix 1), itcan be interpreted that gross margin ratio have grown in comparison to the results of 2015. There is a rise in demand of customers for high quality housing. It shows that thecompany is more efficient in comparison to last year. The reason of increase in gross profitmargin of the company is due to increase in its sales revenue in comparison to previous year. Thecompany have been able to do more sales due to increase in customer's demand. The revenue have increased due to rise in the demands of housing which has initiated anincrease in the revenues from three segments of Harvey.The cost of sales of the company have been increased from 811 million in 2015 to 965million in 2016. The significant increase in cost of sales is because of increase in productiondone by Harvey. It shows that the entity have been using more material, labour and overhead inorder to satisfy the arising demand. The percentage change in the amount of cost of sales incomparison to the previous year is 18%The cost of sales have increased more than the revenue which shows that it is required tooptimally utilize the resources and keep the cost of production to the minimum.The ratio was 25.1% in 2015 and it has been increased to 25.6%. Statement of profit andloss is prepared for Harvey Homes Plc for the year ended 31 December 2016 shows that the salesrevenues have grown from £1083 to £1297. It further reveals that overall profit of the entityhave also increased to a significant margin. There is a loss in the ratio due to increased cost of sales of Harvey and revenue have notbeen generated in comparison to its expenditure. Net Margin Ratio2

Net profit margin reveals the profit earned by the company after considering all the costincurred. It is an important factor indicating the financial health of the company by estimatingnet profit earned on every Pound of sales revenue (Moroney, Windsor and Aw, 2012). Accordingto the calculation of net profit margin ratio (Appendix 2) there is a significant decrease in netmargin ratio of the enterprise. The ratio in 2015 was 20.5% and it has decreased to 20% in 2016. The operating cost of Harvey have a significant impact on net margin ratio which hasincreased from 61 million in 2015 to 73 million in 2016. It shows that the company has increasedits operating cost in order to meet arising demand. The utilization of company's resources haveincreased. 3Operating profitNet sales020040060080010001200140020162015Illustration 2: Comparison of Net margin ratio

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