Financial Decision Making: Industry Review, Performance Analysis, Investment Appraisal

Financial Decision Making

TABLE OF CONTENTS
Task............................................................................................................................................4
Part 1: Review of industry..........................................................................................................4
Part 2: Analysing performance of business................................................................................4
2.1 Assessing profit and Loss statement................................................................................4
2.2 Analysing statement of balance sheet..............................................................................5
2.3 Determining cash position by making use of cash flow statement..................................7
Part 3: Investment appraisal.......................................................................................................8
3.1.a Management Forecast....................................................................................................8
3.1.b. Capital budgeting Techniques......................................................................................8
3.2 Funding sources.............................................................................................................12
REFERENCES.........................................................................................................................14

EXECUTIVE SUMMARY
This report is about the financial decision making on account of acquisition of Roast
Ltd by Starbucks. The analysis of financial statements of the company depicts that the overall
performance and position of eth business is good. Also, the different investment appraisal
techniques were applied to evaluate the feasibility of the investment plan based on which it
can be said that the company should expand its business. On finding it can be concluded that
the Starbucks should acquire Roast Ltd as its overall financial performance is good with
better future prospects.

Task
Part 1: Review of industry
 The coffee is the most popular drink or beverage in the UK and is very popular among
the residents of country. The coffee industry is a very growing and developing and this
adds to the growth of the overall economy of country. With the research it was outlined
that the all the coffee shops in UK are values to earn £10.1 billion across all the 25,483
outlets all over UK.
 There was a rise of around 7.9 % increase in the annual sales of coffee companies in
comparison to last two decades. Also, the branded coffee shops gained a robust increase
of 8.7 % of growth in the year 2018 and the stores reached to 8149 (Coffee industry of
UK, 2018).
 But the Brexit had a very negative impact on the coffee industry as when UK left EU
there was shortage of labour, increase in prices of product, and many other changes and
also change in the taste and preference of consumers.
 The major competitors and big player of the coffee industry in UK includes companies
like Starbucks, Costa coffee and Caffe Nero. These are the biggest competitors of Roast
Ltd and the profitability of the company is much affected by these bigger competitors.
The companies like Starbucks has around 990 stores, Costa coffee has 2500 outlet and
Caffe Nero has around 650 stores at the global level.
 Also, the aim of the coffee industry is to expand the market with approximately 10000
more stores till 2023. Also, the aim of this coffee industry is to increase the profitability
of the economy with the coffee income with around 5 % of income.
Part 2: Analysing performance of business
2.1 Assessing profit and Loss statement
As per the income statement, the revenue of Roast Ltd has increased from £2022 in
2017 to £2534 in 2018 which indicates that the sales of the company are increasing because
of its improvement in performance (Petersen, Plenborg and Kinserdal, 2017). Along with
sales, the cost of goods sold has also increased to £1990 as compared to £1505 of previous
year. Also, there has been an increase in profits because of income from other sources which
was not there last year.