Financial Decision-Making

Financial Decision-Making

Contents
EXECUTIVE SUMMARY.............................................................................................................3
PART 1: Industry Review...............................................................................................................1
PART 2: Business Performance Analysis.......................................................................................2
2.1 Statement of Profit and Loss..................................................................................................2
2.2 Statement of Financial Position.............................................................................................4
2.3 Statement of Cash Flow.........................................................................................................6
PART 3: Investment Appraisal and Sources of Finance.................................................................9
3.1 Investment Appraisal.............................................................................................................9
3.2 Sources of Finance...............................................................................................................11
REFERENCES..............................................................................................................................13

EXECUTIVE SUMMARY
Roast Ltd. is an independent coffee house chain which was established in the year 2008 in
United Kingdom. In the first part of the report, it has been observed that the revenue and profit of
the company has increased from £36,000 in the year 2017 to £81,000 in the year 2018 which
shows that the company has increased the profitability of its operations with the help of better
operational performance and management of the company. A brief analysis of the statement of
financial position of the company shows that it is able to meet its short-term and long-term
payment obligations and continue smooth business operations and also has a strong cash and
liquidity position. It can be said that the financial managers of Starbucks Ltd. can take the
decision of acquiring the company. In the second part of the report, it has been concluded that
the managers of Roast Ltd. should invest in opening up a new store in Romania as it will result
into enhancement of the profitability of the company and business growth.

PART 1: Industry Review
Over the last few years, one of the largest and rapidly growing industry in the United
Kingdom is Coffee Industry with more than 90 million cups of coffee being consumed daily by
the people in the country. This has presented a huge market opportunity for investors and
entrepreneurs with more and more number of people establishing their own coffee houses at
local, national and global scale. The rapid growth in the industry is appealing and attracting to
business-minded people which has led to establishment of more than 16,000 cafes and coffee
shops in the entire UK. The industry employees more than 1,00,000 people and has a revenue
estimate of about £6bn. All the establishments which focus on selling coffee along with other hot
and cold drinks with light snacks as well are considered a part of the industry. The growth in the
coffee industry is driven by a force of changes in economic and social factors (Doumpos,
Zopounidis and Pardalos, 2012). With the rise in national income and income level of people in
the society, people are willing to spend more amount of money on their personal expenses which
gives them a sense of well-being and changes in consumption pattern and trends in the society
has attracted a large customer base for these café shops and coffee houses. Traditionally, UK was
considered as a tea-drinking nation but during the last few years, coffee culture is gaining more
and more popularity due to a shift in preference to cafes over other avenues of social gathering
and growing interest in coffee blends and cheesy snacks. The projected growth for the industry
for the coming year is 4.8% which is huge considering the current revenue and contribution to
the economy of this industry.
Some of the major companies in the industry includes Starbucks Coffee Company, Costa
Coffee, Caffe Nero etcetera with each company having a decent market share to maintain its
competitive position in the industry. Costa Coffee is the leader in the industry with a market
share of approximately 47% which is much higher than any of its competitors. Along with the
tremendous growth prospects and attractiveness, the industry also faces some challenges which
should be analysed and evaluated before making any investment into the industry. As a result of
high profitability and huge market potential, many players are entering the industry which has
increased the competition to a very high level and it is particularly difficult for any company to
face stiff competition from other players in the industry at a global or national level but many
companies have managed to capture a good market share at local levels (Brahmana, Hooy and
Ahmad, 2012). Increasing awareness about healthy diets and nutritional food items has
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