Financial Decision Making for Cordon Bleu Plc: Business Performance Analysis

Running head: FINANCIAL DECISION MAKING
Financial decision
making
5/26/2019

FINANCIAL DECISION MAKING 1
Executive summary
The intent of this report is to present the financial analysis of Cordon Bleu Plc., which offers
tasty and quality food through restaurants. The report is analyzing the performance of the
business in order to suggest future developments to the managers of the company. The report
has calculated the ratio analysis to evaluate the company’s performance as per different
perspective that is solvency, profitability, efficiency, and liquidity. From the analysis, it has
been identified that the company has recently acquired two chains of a restaurant to increase
its share in the market. However, in the initial phase, the business is not able to make must
effect on the customer, which could be seen from its financial statement. The company is also
planning to grow through food delivery service market for which the report has suggested
some finance sources and significant non-financial factors.

FINANCIAL DECISION MAKING 2
Table of Contents
Executive summary....................................................................................................................1
Part 1: Business Performance Analysis......................................................................................3
1.1 Statement of profit and loss of.........................................................................................3
Profitability Ratio...............................................................................................................3
1.2 Statement of Financial Position.......................................................................................5
Liquidity ratio.....................................................................................................................5
Solvency ratio.....................................................................................................................6
1.3 Statement Cash Flows......................................................................................................8
Operating Cash Cycle........................................................................................................8
Dividend.............................................................................................................................8
1.4 Market Segment Analysis................................................................................................9
Strategies for Value Segment...........................................................................................10
Strategies for Premium Segment......................................................................................10
Strategy for Classic Segment...........................................................................................11
Part 2 Investment Appraisal.....................................................................................................11
2.1.........................................................................................................................................11
a. Management Forecast...................................................................................................11
b. Investment Appraisal Techniques................................................................................11
2.2 Sources of Finance.........................................................................................................13
2.3 Non-Financial Factors 5 250..........................................................................................14
References................................................................................................................................16

FINANCIAL DECISION MAKING 3
Part 1: Business Performance Analysis
1.1 Statement of profit and loss
A profit and loss statement is the document that evaluates and lists the expenses and revenue
of the business for the particular time period. It highlights the financial progress and status of
the company during the surveyed time. It is very important for every business organization to
prepare an income statement because it provides in details the capability of the company in
generating profit by driving revenue and cutting cost (Knight, 2012). This statement provides
detail categories of expenses and revenue which comprise the cost of goods sold, gross
margin, net profit, net sales, administrative expenses, and selling. With the help of the details
of profit and loss statement, the business can calculate some of the key ratios in order to
analyze its performance (Brief and Peasnell, 2013).
Profitability Ratio
A profitability ratio is a type of financial metrics that are utilized to assess the capability of
the business in order to generate earning relative to its balance sheets, shareholder’s equity,
revenue, and operating costs by making use of the data from the particular point. For the
effective profitability ratios, it is important to have a higher relative value in comparison to
the relative of competitors to a similar ratio from the specific time period (Velnampy and
Niresh, 2012). Besides this, if the ratio of a single company is higher than the previous year
of the same company indicates that the business is performing well in the competitive market.
Ratios are said to be more informative as well as useful when practices to compare the
subject company with other company, with the company's own history. Some of the
profitability ratio are Gross Profit ratio, net profit ratio, and return on equity.
Profitability 2017 2018

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Gross profit Ratio= Gross Profit/ Net Sales 126890.00
110958.
00
435381.00
460712.
00
29.14% 24.08%
Net profit Ratio =Net Profit / Net Sales 78793.00
83591.0
0
435381.00
460712.
00
18.10% 18.14%
Return on Equity= net icome after
preference dividends/ average common
stock holder's equity 78793.00
83591.0
0
340252.50
303457.
00
23.16% 27.55%
Gross profit ratio
Gross profit ratio is said to be the probability ratio that highlights the association between
gross profit and total net sales (Bragg, 2014). The gross profit ratio of Cordon Bleu PLC for
the year 2017 is 29.14. However, the gross profit ratio of the business in 2018 is 24.08%
which shows a declining trend. The decrease in the gross profit ratio is due to including two
chains into its product line to increase revenue and market share. These are the initial years
for the company to include both the chains, however considering the increasing net sales of
the company from 2017 to 2018 i.e. £435381.00 and £460712.00 respectively, it could be
said that company will soon in the coming years make increased gross profit ratio.
Net profit Ratio
The net profit ratio is calculated by dividing net profit with net sales. It highlights the
remaining profit of the company after all the expenses and financing has been deducted from
the sales, and income taxes documented (Farris, Bendle and Pfeifer, 2017). This ratio reflects
how well the company is using its working capital. From the net profit ratio of Cordon Bleu
PLC in 2017 18.10% and in 2018, it is 18.14%. The data reveals that there is no major change

FINANCIAL DECISION MAKING 5
in the company's net profit ratio of 2018 when compared to 2017. This highlights that the
acquisition of two chains has not impacted the net profit ratio of the company and there is no
major difference in the profit of the company. However, with the increasing time company
must work on increasing its net profit ratio.
Return on Equity
Return on equity is said to be the financial performance measure that is calculated by
dividing the net income of the company by shareholder's equity. The shareholder's equity is
used because it is equal to the company’s asset minus its debt (IntroBooks, 2019). ROE is
taken as the measure to examine how effectively the management of the organization is
making use of the asset in order to generate profits. The return on equity of Cordon Bleu PLC
in 2017 is 23.16% and in 2018 it is 27.55%. From the analysis, it could be observed that the
return on equity of the company is growing, which means the management of the
organization is making the best use of the assets and generating profits.
1.2 Statement of Financial Position
A statement of the financial position also termed as balance sheet, which reports regarding
the shareholder's equity, assets and liabilities of the company at a specific time frame and
supports in evaluating the capital structure (Makoujy, 2010). It is a financial statement which
offers a picture of what is own and owes by a company, along with the amount invested by
the company's shareholders. This statement is utilized along with different essential financial
statements like cash flow and income statement while conducting the performance analysis or
computing financial ratios. The balance sheet of every company is prepared by following the
accounting equation that is – Assets= Liabilities + Shareholders’ Equity (Ramachandran,
2013).