Financial Decision Making

Financial Decision
Making

Table of Contents
EXECUTIVE SUMMARY ............................................................................................................3
MAIN BODY...................................................................................................................................3
Part 1 – Industry Review..................................................................................................................3
Part 2 – Business performance analysis...........................................................................................4
2.1 Statement of profit and loss account......................................................................................4
2.2 Statement of financial position..............................................................................................6
2.3 Statement of cash flow...........................................................................................................8
Part 3 – Investment appraisal and source of finance........................................................................9
3.1 Investment Appraisal.............................................................................................................9
3.2 Source of finance.................................................................................................................11
REFERENCES .............................................................................................................................13
APPENDIX....................................................................................................................................15

EXECUTIVE SUMMARY
This report is based on financial decisions which taken by the top management to
evaluate the financial position of the company and make their decisions accordingly (Brown-
Liburd, Issa and Lombardi, 2015). Most of the issues related to the shareholder's equity,
liabilities and issuing bonds which further useful in achieving organizational goals & objectives.
Management focus on financial issues in order to minimise the risk or make them able to survive
in the market for longer period. With the help of ratio analysis or capital budgeting method
managers of Starbucks able to make their decisions regarding acquiring Roast Ltd or not. It
further helps in analysing that company have enough liquidity or not to perform their daily basis
operational activities. After all the analysis of financial statement of the company, it has been
recommended that Starbucks should acquire Roast Ltd because its financial position is good
which help them to capture market share.
MAIN BODY
Part 1 – Industry Review
In the UK market there are similar type of consumers who love tea as well as coffee
because on the basis of survey it was found that every four adults out of five prefer coffee. Retail
sales of coffee reached around 69 million kg in 2019 which is increases around 8% from 2014.
because of inflation or trend in the culture provide 17% growth that is around £ 1.27 billion
(Growth in UK's Coffee market, 2019). Currently, coffee dominate the 65% share of the UK
market which included variety such as ground coffee, beans etc. UK's retailer or wholesaler
target the young age group because they have more craze in comparison to older group.
Coffee industry generate around £ 6 billion revenues in 2019 where number of business
continues raise and reached at 16199. Coffee industry face the huge growth from 2014 to 2019
duration and that is 6.1% which provide the approx. 101,034 employment. Figures of coffee
industry increases because of huge demand in the consumers (Trend in UK's Coffee Industry,
2019). Over the five years, industry revenue is expected to grow around annual rate of 4.8%. it
includes the current growth which is 1.9% and expected to reach £6.6 billion.
Key players of Coffee industry are Costa Ltd, Pret A Manger Ltd, Starbucks or Caffe
Nero Group Holdings Ltd. These are the biggest player of the coffee market which increase the
competitors but along with this, they also face various challenges which impact the production as

well as probability. Coffee industry of UK face the various opportunities such as Coffee is the
growing segment of European market because majority of people prefer to buy cheap
mainstream coffee. Along with this, they ready to pay high price for the high quality Coffee.
Increase in the interest in the coffee will maximise the number of coffee shops, roasters, small
brands and then it create the value of big competitors as well. Global demand for the coffee
increases around 2.5 % every year. On the other hand, change in the climate will impact the
agriculture which affect the coffee production. Increase in the temperature generate lower
altitude farms that is not suitable for coffee plants. Because of pest & diseases. they decrease the
yields & quality of coffee.
Part 2 – Business performance analysis
2.1 Statement of profit and loss account
Profit or loss statement is the financial statement of organizations which include the
various information regarding cost of products, revenues, expenses etc. on the basis of quarter or
annual. It is also called income statement which indicate the overall profit or loss of the business
from their operations (Brunsson and Olsen, 2018). It is used to analyse the financial performance
of Roast Ltd by using the items of income statements. Below mention calculation based on the
financial information of Roast Ltd which is mentioned below:
Calculation of ratio:
Gross profit ratio:
It is the profitability ratio which indicate the overall profit of the company and it is also
used to compare their own performance with previous one. Further analysis done by the
management in order to formulate strategies regarding future growth. Below mention calculation
based on the Roast Ltd and it helps in measuring their overall financial performance of the
company.
Formula: Gross profit ratio = Gross profit / Revenue * 100
Profitability Ratio 2018 (£'000) 2017 (£'000)
Gross profit 544 517
Revenue 2534 2022
Gross profit margin ratio 21.468034728 25.568743818