Financial Decision Making

Financial Decision
Making

EXECUTIVE SUMMARY
Financial Decision-making implies to an organised process or collection of tasks which
help in creation of systematic framework for taking finance and fund related decisions in quick
manner (Brown-Liburd, Issa and Lombardi, 2015). The study-report summaries comprehensive
analysis and evaluation of business performance of Roast Ltd that help to assess that company is
quite profitable and financial performance has also improved as compare to previous year. This
analysis is done through review of company's financial statements and other supporting materials
with aim to support CFO of Starbucks in evaluation of Roast Ltd's attractiveness and
effectiveness as a target company for acquisition-decision by Starbucks. This has been find that
company's overall efficiencies and performance has been enhanced over the year.
MAIN BODY
Part 1 – Industry Review:
On the UK market, common customers like tea and coffee as it was found that every four
adults out of five like coffee. There are also similar kinds of customers that like coffee. In 2019
retail coffee sales hit 69 million kg, up approximately 8% from 2014. The inflation or cultural
trend has produced 17% rise, which amounts to approximately GBP1.27billion. Actually, the
coffee industry, including soil coffee, beans etc., is leading the 65% share in the UK market. UK
retailers or wholesalers are targeting the young age demographic because they are crazier than
the older group. Property costs, labour and Brexit effects are three major challenges in this
industry.
In 2019, the café industry produced approximately GBP6billion in sales, with the sector
growing and reaching around 16200. The coffee market is facing enormous growth between
year-2014 and 2019 and that's about 6.1 per cent, there are 101,034 jobs. The coffee industry's
statistics are growing due to high consumer demand. The sector will expand by an average rate
of around 4.8% over the course of 5-years. The currently growth-rate is 1.9-percent and it
should hit £6.6 billion, this involves current growth (Trend in UK's Coffee Industry. 2019).
Increasing in household spendings towards non-alcoholic beverages and foods is key opportunity
for business.
Costa Ltd, Starbucks Coffee, Pret A Manger (Europe) Ltd and Caffe Nero Group
Holdings Ltd are key players in this industry. Pret A Manger (Europe) Ltd.

Part 2 – Business performance analysis:
2.1 Statement of profit and loss account:
A profit&loss account or P&L account shows a corporation's profitability position as it
involves all the incomes and expenditures. P&L statement also reflects organization's quality to
make revenues/sales, handling expenses, and provide profits and net income. Analysis of this
systems offers wide range of information about company's actual profitability level. This
statements offers comprehensive and more detailed information of company's direct and indirect
expenses along with sources of income (Brunsson and Olsen, 2018).
Roast Limited has reported overall sales of GBP2534000 in year-2018 while company's
sales in year-2017 was just GBP2022000 reflecting around 25.32 percent growth. Business's cost
of sales figures has been increased by around 32.23 percent (From 1505000 GBP to 1990000
GBP during year-2017 to 2018. Gross profits of such corporation has been rose to 544000 GBP
in year-2018 that was 517000 GBP in 2017, this enhancement in the level of gross profit is
indicator of increasing gross profit generation capabilities of company. Operating income in
year-2017 was just nil while in next year there was operating income of 60000GBP.
In business operating profits has been increased from 51000 GBP to 127000 GBP
indicating that business's operational efficiencies in terms of generation of profits has been
increased. Finance costs of business has been increased substantially from 6000 GBP in year-
2017 to 26000 GBP in year 2018 such major rise shows that company has borrowed funds.
While Net-profits are 81000 GBP and 36000 GBP in year-2018 and year-2017 respectively
disclosing a increasing or upward trend in net profitability level. It simply means that company is
efficient to generate net profits and such efficiency level has been grown over the period.
However for interpretation of relationship between different items of income-statement, ratio-
analysis would be effective. In this context following are several ratios related to P&L accounts
items of Roast Ltd, as below:
Gross Profit Ratio: