Financial Management and Control: Evaluating Company Performance and Investment Decisions

Financial Management and Control
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Contents
Introduction:....................................................................................................................................3
Part A:..............................................................................................................................................4
1. Prepare a report for the Board of Zurich Plc. that evaluates the performance of the company
in relation to profitability, liquidity, gearing, asset utilization, and invest or potential...............4
2. Critically evaluate the limitations of ratio analysis for decision-making purposes as an
additional section within the report..............................................................................................8
Part B:..............................................................................................................................................9
1. Calculate using the following investment appraisal techniques, and provide
recommendations as to the economic feasibility of acquiring the machine:...............................9
2. Critically evaluate the key benefits and limitations of each of the differing investment
appraisal techniques, supporting the response with relevant academic research as to whether
each of the differing techniques is applied in practice within a real life business context........12
3. You are also required to critical evaluate the possible sources of finance to fund this
investment..................................................................................................................................14
Conclusion:....................................................................................................................................15
References:....................................................................................................................................16
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Introduction:
The financial management and control report has been prepared in order to develop an
understanding of the user regarding the use of ratio analysis in evaluating the performance of the
company and also describing the utilization of capital budgeting techniques in taking financial
decisions for a company. The part A of the report will involve evaluation of the financial
performance and position of the company and recommending the necessary solutions. This will
also involve explanation of some of the limitation associated with using ratio analysis. The
second part of the report will consist of evaluating the investment option for a company while
calculating net present value, internal rate of return, accounting rate of return and payback period
for the given project. The various types of benefits along with the limitations of sing these
investment appraisal techniques will be discussed in this report. The last part will describe the
various sources of finances available for funding purposes.
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Part A:
1. Prepare a report for the Board of Zurich Plc. that evaluates the performance of the
company in relation to profitability, liquidity, gearing, asset utilization, and invest or
potential.
Introduction:
The report has been prepared to evaluate the performance of Zurich Plc. for the last two years
ending 2015 and 2016. For this purpose various ratios will be calculated for the company and
necessary recommendation will be made accordingly.
Ratio Analysis:
Profitability ratios – The profitability ratios of the company will be calculated in order to
analyse the gross profit and net profit of the company (Brigham & Ehrhardt, 2013). The gross
profit ratio will be calculated after considering the gross profit acquired by the company and
relating it with the revenues obtained by the company and same will be in the case of net profit
ratio where emphasis will be made in net profit after tax acquired by the company.
Profitability ratios
Particulars Amount (£'000) Amount (£'000)
2015 2016
Revenues 18920 16243
Net profit 972.84 570.17
Net profit Ratio 5% 4%
Gross Profit 7382 5825
Gross Profit Ratio 39% 36%
Analysis – The profitability ratio of the company Zurich Plc. indicates that the gross profit has
decreased over the last year significantly and the net profit has also decreased by 1%. There has
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