Financial Management and Analysis

This document provides an in-depth analysis of financial management and analysis. It covers topics such as profitability ratio analysis, liquidity ratio analysis, solvency ratio analysis, efficiency ratios, investment ratios, and more. The document also includes recommendations and interpretations based on the analysis. It is a valuable resource for students studying financial management and analysis.

FINANCIAL MANAGEMENT AND ANALYSIS

Table of Content
INTRODUCTION ..........................................................................................................................4
TASK 1............................................................................................................................................5
2. Limitation of ratio analysis.....................................................................................................7
3. Recommendations...................................................................................................................7
TASK 2............................................................................................................................................7
a. Payback period .......................................................................................................................7
b. Assessment of NPV ................................................................................................................8
c. Computation of IRR................................................................................................................9
d. Recommending the best choice out of several alternatives available by applying investment
appraisal tools............................................................................................................................10
TASK 3..........................................................................................................................................10
a) Theoretical ex-rights price of Dusseldorf plc.......................................................................10
b) Values of rights attached to each existing share...................................................................10
c) Effect on wealth of Lukas.....................................................................................................11
TASK 4..........................................................................................................................................12
a) value of Amsterdam plc through market capitalization........................................................12
B) value of Amsterdam plc using the net asset value...............................................................12
c) Value through Price earnings ratio........................................................................................12
d) average historic dividend growth rate ..................................................................................13
e) Advise...................................................................................................................................13
TASK 5..........................................................................................................................................13
CONCLUSION..............................................................................................................................15
REFRENCES.................................................................................................................................16

INTRODUCTION
Financial management refers to strategic planning, directing and monitoring of financial
undertakings in company fundamentally, which includes applying management principles to
financial assets in company. The report will be analyzing focus on aspects of measuring and
assessing business performance, operations among financial markets. Further study will be also
discussing forecasts of cash flows as examples, to analyze investment appraisals and capital
budgeting decision-making which enables to bring in depth focus on sources of finances in
company valuation.
TASK 1
Profitability ratio analysis
Particulars Formula 2019 2020
Gross Profit 1,553 1,641
Net profit 670 622
Sales revenue 4,167.40 4,266.20
GP ratio Gross profit / sales * 100 37% 38%
NP ratio Net profit / sales * 100 16% 15%
Liquidity ratio analysis
Particulars Formula 2019 2020
Current assets 1,977.80 1,955.40
Current liabilities 1,243.70 949.8
Inventory 502.8 527.6
Prepaid expenses 0 0
Current ratio Current assets / current liabilities 1.59 2.06
Quick ratio
Current assets - (stock + prepaid expenses)
/ CL 1.19 1.50
Solvency ratio analysis
Particulars Formula 2019 2020
Long-term debt 1.28 2.49

Shareholder's equity 0.55 0.44
Debt-equity ratio Long-term debt / shareholders’ equity 2.33 5.66
Efficiency ratios
Particulars Formula 2019 2020
Turnover or sales revenue 4,167.40 4,266.20
Average total assets 3,742.60 3,673.30
Average fixed assets 1,764.80 1,717.90
Total assets turnover ratio 1.11 1.161
Fixed assets turnover ratio 2.36 2.48
Investment ratios
Particulars Formula 2019 2020
Dividends per share Annual dividends / Number of shares 1.68 0
Price-earnings ratio Market value per share / earnings per share 15.61 27.63
Interpretations
Profitability ratio analysis: Through the table it has been interpreted that GP ratio of the
company is good because it is increases from last year by 1% and it means that company's direct
expenses are controlled and that is why, it is able to increase its Gross profit ratio. Whereas, on
the other side, Net profit ratio is decreases which is not beneficial for the Next Plc because it
does not have any control over the indirect expenses. This in turn leads to affect the overall
image of a company in opposite manner. Therefore, there is a need to control the expenses in
order to improve the net profit of a firm.
Liquidity ratio analysis: From the able it is interpreted in the context of current ratio that
it measures the company's ability to pay amount within short period within a limited year. It is so
because it is suitable for the standard criteria i.e. 2:1. Thus, Next Plc is able to pay their liability
amount because it has efficiency to manage the asset over each liability. On the other side, quick
ratio of the firm is good and that is why, firm is able to meet its liability with its liquid assets.

Moreover, it also met the standard criteria in which of 1:2 and have an efficiency to use its
current asset quickly.
Solvency ratio analysis: In accordance with the ratio calculated above, it has been
interpreted that company's solvency ratio is not good because it uses debts highly instead of
equity. As a result, the solvency ratio increases from last year. Also, it can be stated that due to
higher solvency ratio, company's profitability is affected negatively and that is why, it is not able
to pay their debts quickly.
Efficiency ratios: through the table, it is analyzed that from last year, Next Plc is
effectively used their assets in order to generate income. It is so because the overall company's
efficiency ratio is increases from last year which reflect that company is improving its
performance. Also, to improve the same, company may also focus upon training and
development that assist employees to use their assets effectively.
Investment ratios: The values of price per earnings ratio exhibits that the performance of
the company is increases and that is why, investors are willing to pay a higher share price so that
they also able to generate the growth such that 15.61 to 27.63. Therefore, to attract investors to
invest upon the business, Next Plc may identify the opportunity for higher real earning growth.
2. Limitation of ratio analysis
 Inflationary effects: financial statement of the company are released every year and if
inflation occurred between periods, then company is not able to reflect the real price
within statements.
 Historical information: Ratio analysis does not represent future company performance
whereas information is based upon reel past results.
3. Recommendations
 It is suggested to the company to comply the defined policies and procedures in
consistent manner. This will help the company to improve the performance.
 It is further advised to Next Plc that due to inflation rate, company have to make
adjustment in their figures so that it will help to identify minimize the inflationary effects.

TASK 2
a. Payback period
Year
Choice
A
Cumulativ
e cash
inflow
Choice
B
Cumulativ
e cash
inflow
Choice
C
Cumulative
cash inflow
1 48000 48000 48000 48000 48000 48000
2 48000 96000 48000 96000 48000 96000
3 48000 144000 48000 144000 48000 144000
4 48000 192000 48000 192000
5 48000 240000 48000 240000
6 48000 288000 48000 288000
7 48000 336000
8 48000 384000
9 48000 432000
Choice A: 2 + (105000 – 96000) / 48000
= 2 + .2
= 2.2 years
Choice B: 3 + (187000 – 144000) / 48000
= 3 + 0.9
= 3.9 years
Choice C: 5 + (245000 – 240000) / 48000
= 5 + 0.1
= 5.1 years
Interpretation: As per the payback period, it is analyzed that company prefer Choice A over
other because it has an efficiency to return the invested amount within 2 years and 2 months.
Whereas, option B and C return the amount in 3 years and 9 months, 5 years and 1 months
respectively.

b. Assessment of NPV
Years
PV
facto
r
@10
%
Choic
e A
Discount
ed cash
inflows
Choic
e B
Discount
ed cash
inflows
Choic
e C
Discounte
d cash
inflows
1 0.909 48000 43636 48000 43636 48000 43636
2 0.826 48000 39669 48000 39669 48000 39669
3 0.751 48000 36063 48000 36063 48000 36063
4 0.683 48000 32785 48000 32785
5 0.621 48000 29804 48000 29804
6 0.564 48000 27095 48000 27095
7 0.513 48000 24632
8 0.467 48000 22392
9 0.424 48000 20357
Total discounted cash
inflows 119369 209053 276433
Less: Initial investment 105000 187000 245000
NPV 14369 22053 31433
Interpretation: In accordance with the above it is interpreted that NPV value of Choice A, B
and C is 14369, 22053 and 31433 respectively. Therefore, as per the standard criteria, it is
analyzed that company prefer those choice who has ability to generate high NPV value. That is
why, option C can be used by the Brussels plc for investment purpose.
c. Computation of IRR
Years
Choice
A
Choice
B
Choice
C
0
-
105000
-
187000
-
245000
1 48000 48000 48000
2 48000 48000 48000
3 48000 48000 48000
4 48000 48000
5 48000 48000
6 48000 48000
7 48000

8 48000
9 48000
IRR 18% 14% 13%
Interpretation: As per the above calculations, it is examined that option A has higher IRR
followed by Choice B and C respectively. Thus, it can be stated that Choice A generate the high
profitability for a company and that is why, it is preferred over others.
d. Recommending best choice out of several alternatives available by applying investment
appraisal tools
From all, it is recommended to prefer NPV as best investment appraisal tool because it is
based upon time money value concept and also helps to examine the higher return as compared
to other tools. Therefore, option C is preferred by the firm even though option A has higher
internal rate of return.
TASK 3
a) Theoretical ex-rights price of Dusseldorf plc
Formula Amount
(Market Value of shares prior
to rights issue + Cash raised
from rights issue)
Number of
shares after rights issue
(200000 +50000) / 150000 €1.67
b) Values of rights attached to each existing share
Market value of the shares
already held by shareholder
100000 *2 200000

Add: Price to be paid for
buying one share
50000*1 50000
Total shares (150000) 250000
Average price of one share 250000/150000 1.67
Value of the right Market value – Average price 2 – 1.67
= 0.33
c) Effect on wealth of Lukas
I) Takes up his rights
If the shareholder have existing share of 1000 within a firm. Then they takes up right issues and
buy additional shares of 500 at €1 per share
Value of shares before right issue 1000*2= €2000
Value of right issue shares 500*1 = 500
Market Value of shares after right issue 2000+500)/(1000+500) = 2500/1500 = 1.67
ii) Sells his rights.
Particulars Amount
Value of share before right issue (1000*2) 2000
Less: Value of shares after right issue 1670
Add: Sales proceeds of right renunciation (500*0.67) 335
2005

iii) Takes no action.
Particulars Amount
Value of share before right issue (1000*2) 2000
Less: Value of shares after right issue 1670
Loss of wealth to shareholders 330
TASK 4
a) value of Amsterdam plc through market capitalisation
Price of share €4.00 per share
Number of shares outstanding €20m /0.50 = 40 m shares
Market capitalization Price of share * number of
outstanding shares
€4.00 * 40 m
= €160 million
B) value of Amsterdam plc using the net asset value
Non-current assets €86.0m
Non-current assets €86.0m
Inventories €4.2m
Trade receivable 4.5 * 80% €3.6m
Total realised value 86 + 4.2 + 3.6 €93.8m

Amount received by the
ordinary shareholders
93.8 – (25+7) €61.8m
Value (Net realisable value –
Amount received by ordinary
shareholders
€61.8m.
c) Value through Price earning ratio
Average price/earning ratio 17 times
Post tax earning of Amsterdam €10.1m
Market value of Amsterdam plc 17 * 10.1
= €171.7m.
d) average historic dividend growth rate
Year Dividend Dividend Growth rate
2016 5
2017 5.2 4.00%
2018 5.6 7.69%
2019 6 7.14%
Average historic dividend
growth rate
4% + 7.69% + 7.14% / 3 = 6.27%.

e) Advise
Through the above, it has been analyzed investors are willing to acquire the company,
and they have to pay €171.7 million as defined in price earning ratio. It is preferred over others
because it popular for valuing business. On contrasting note, value on the basis of net asset value
is low and being a brand image, company is not ready to attract investor at low rates. That is
why, it is advised investor to acquire Amsterdam plc by considering price earnings ratio.
TASK 5
(A) Systematic risk can be understood as market risks that are general perils of investments that
cannot be diversified away where interest rates, recessions are examples of systematic risks.
Unsystematic risk on other hand relates to individual stocks associated with particular industry
referred with unsystematic risks, where impact is often also varied. Systematic risk refers to
profitability of loss linked with whole market segments such as changes in government policies
for specific industry, on other hand unsystematic risks has impact on particular industry
businesses. Beta is statistical measure of volatility of stock versus overall market where it
enables to monitor sensitivity of stock market fundamentally. Systematic risk plays strong role
within business as they are non-divertible, cannot be controlled, minimized or eliminated by
company as whole which has to be focused on for higher scale results among business functional
scale growth. The unsystematic risk on other hand can be easily controlled, minimized and
eliminated towards company on whole organization which can be also synchronized as per wider
targets in functional scenarios. The systematic risk is widely crucial to be monitored among
business avenues, where commercial strength can be identified towards present and future work
growth targets actively. Unsystematic risk on other hand, can be monitored by taking steps to
develop strategic control on risk factors and to identify new varied range of effective targets
imperatively. The difference factors have in depth analyzed varied functional scope segments
accurately, towards operational growth paradigm which enables new range of diversity
paradigms towards new business parameters. This can be analyzed as one of the widely crucial
aspect, which synchronizes diversity within strategic planning for competent diversity aspects
and to leverage larger technical growth actively.
(B) Money markets are used for short term lending aspects usually assets are being held for one
year or less, whereas on other hand capital markets are used for long term securities which has

direct impact on capital. Securities and equity shares are some examples of capital markets
which is general term, in stock exchange investment aspects. Treasury of bills and certificate of
deposits are some key example of money market, where it enables fundamental scale expansion
among capital benchmarks. Interest bearing instruments consists of liquid assets mainly cash
balances, due from banks and available funds for sale securities. Whereas discount instrument is
type of security that pays no income until maturity upon expiration, where holder receives full
face value when discounted or redeemed at par (Understanding the Basics: What Is a Financial
Management System? 2020). Money market and capital market can be analyzed as
differentiation, where money market is place of exchange for debt instruments with original
maturity or less than year.
But on other hand capital market is place of exchange for debt instruments within
original maturity or more than year, which can be understood as one of the most common aspect,
where example is based on common stocks and preference stocks. Money market lending is
common often, which enables people to generate wider scale functional work growth targets
effectively towards which new scale perspectives can be analyzed actively. Capital markets are
generally wider among risk taking parameters due to wider scale higher risk due to long scale
time investments, which also generates wider scale targets among business avenues within
functional growth operatives actively (Finance 2020: Financial Management Trends, Priorities,
and Challenges, 2020). Capital market contains primary market and secondary market, where
there are wide range of aspects effectively shaping wider scale long term investments within
business avenues towards gaining wider scale professional commercialization in business
standards. Money market consists of commercial paper, certificate of deposits and treasure bills
which are some of the most effectively used short term debt instruments. Money market are
liquid in nature where redemption is restricted to year, although return of investment in money
market securities are low compared with capital market.
(C) Risk refers to decision-making situations where all potential outcomes and likelihood of
occurrences are known to decision maker, whereas uncertainty refers to situations under which
probabilities of occurrences are unknown. Managers often have to take risks within integrating
strategic decisions in business, where to measure uncertainties is widely crucial. Instruments
such as single point profitability analysis, quantitative risk analysis enable inn depth analysis of

risk. It can be also analyzed as one of the widely essential aspect, to keen benchmarks retained
among competent fundamental scenarios effectively.
Risk analysis plays crucial role in analyzing new range of wider range of business
operatives towards expanding on new domains, higher specific scale functional scale position
targets and to keep quality standards at check. This can be understood as one of the widely
crucial aspect towards enhancing wider growth in risk measurement within business decisions.
Also managers while using best decision-making skills are able to take diverse focus on keeping
risk factors under control and be accurate towards further resource planning (The Best Personal
Finance Services for 2021, 2021). Risk analysis segments enable business owners to work
towards bringing on strategic shift towards wider scale aspects, for leveraging new range of
affirmative scenarios variably towards which keen domains can be analyzed actively. Risk
analysis will also enable cost effective usage of all diverse resources strategically towards
pertaining stringent innovation, higher brand value within longer run and to generate new scale
growth. Owners of businesses by specifically heading on commercial growth aspects, will be
able to generate wider technical growth professionally and for conducting diverse domains
within longer business run.
(D) Bank overdraft is an extension of credit from bank, that is granted when account reaches
zero, it enables to continue withdrawing money even when account has insufficient funds. For
business considering purchase of an adjacent property, it will be suitable to finance the purchase
of property by using bank overdraft. It can be also analyzed that bank overdraft functionally
enables secure payment within credit, which further strengthens productivity within business
domains. This can be also analyzed as one of the widely used source of finance for company to
bring on large capital for investments, in longer time factor (Finance 2020: Financial
Management Trends, Priorities, and Challenges, 2020).
The bank overdraft handles timing mismatch flow of funds accurately, and generates
proper time record within businesses for constant connectivity rise among varied new range of
innovation aspects actively. It can be also analyzed that flexibility and benefits of less interest
cost factors, have strong role to play among business advantages while using bank overdraft. The
disadvantages on other hand are based on aspects here higher interest rates and risk of reduction
in limit are some widely competent domain on which bank overdraft lacks efficiency standards.

Risk of seizing is also high, which on wider term impacts on debtor collection aspects, making it
lethargic for business entrepreneur. This factor will enable business owners to gain knowledge
towards the best functional aspects for keen investments and resource planning, while taking
bank overdraft and to measure financial management goals effectively within longer run
strategically. It can be understood that bank overdraft significantly impacts functional growth
towards functional scope aspects, to keenly bring on functional scope for higher innovative
business standards. Financial stability also can be analyses based on varied results cooperatively
shaping new scale parameters, on which new range of efficacy paradigms can be understood
lethargically (BEST PERSONAL FINANCIAL MANAGEMENT TOOLS FOR 2020, 2019).
CONCLUSION
By summing up above report it has been concluded that within business decision-making,
financial management plays crucial role. Through the ratio analysis, it has been summarized that
Next plc has a good image at global level. Whereas through investment related tools, Choice C is
preferred as per its NPV value. Also, study concluded many methods to determine the value of
Amsterdam Plc and determine that €171.7 million should be invested in order to buy a firm, as it
has a brand image at global level,

REFRENCES
Books and Journals
BEST PERSONAL FINANCIAL MANAGEMENT TOOLS FOR 2020. 2019 [Online]. Aavailable
Through : <https://www.focusfinancial.com/best-personal-financial-
management-tools-for-2020/>
Finance 2020: Financial Management Trends, Priorities, and Challenges. 2020. [Online].
Available Through :<https://www.apqc.org/resource-library/resource-listing/finance-
2020-financial-management-trends-priorities-and>
Finance 2020: Financial Management Trends, Priorities, and Challenges. 2020. [Online].
Available
Through :<https://www.apqc.org/resource-library/resource-listing/finance-2020-
financial-management-trends-priorities-and>
The Best Personal Finance Services for 2021. 2021. [Online]. Available
Through :<https://in.pcmag.com/personal-finance/74121/the-best-personal-
finance-services-for-2020>
Understanding the Basics: What Is a Financial Management System? 2020. [Online]. Available
Through :<https://blog.workday.com/en-us/2020/understanding-the-basics-what-is-a-
financial-management-system.html>