Financial Management & Control: Evaluating Company Performance and Investment Appraisal

Financial Management & Control
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Table of Contents
Part A..............................................................................................................................................3
Introduction................................................................................................................................3
1. Evaluation of performance of the company........................................................................3
Conclusion..................................................................................................................................6
2. Limitation of ratio analysis...................................................................................................7
Part B..............................................................................................................................................9
1. Investment appraisal technique............................................................................................9
2. Key benefits and limitations of each of the differing investment appraisal techniques 12
3. Possible sources of finance..................................................................................................14
References.....................................................................................................................................16
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Part A
Introduction
The report consists of various ratios that are being calculated to determine the various aspect of
the company such as the profitability, liquidity, gearing, asset utilisation and investor potential
from the viewpoint of investors as well as the company so that the performance can be measured.
1. Evaluation of performance of the company
Ratio Calculation
Sr.
No. Particular The year
2015 £000
The year
2016 £000
1 Total Asset 32229.000 27337.600
2 Total Liability 12080.000 10978.000
3 Ordinary Equity 12410.000 12410.000
4 Net profit After Tax
(NPAT) 972.840 570.170
5 Current Asset 6503.000 7006.000
6 Current Liability 4701.000 2410.000
7 Inventory 1543.000 1320.000
8 Quick Asset 4960.000 5686.000
9 Debt 7120.000 5292.000
10 Net Sales 18920.000 16243.000
11 Fixed Asset 25726.000 20331.600
12 Gross profit 7382.000 5825.000
13 Capital Employed 19530.000 17702.000
Current Ratio = Current Asset/
Current Liability 1.38 2.91
Quick Ratio = Quick Asset/
Current Liability 1.06 2.36
Debt Equity ratio = Debt/ Equity 0.57 0.43
Inventory Turnover Ratio = sales /
Inventory 12.26 12.31
Fixed Asset Turnover Ratio =
sales / Fixed assets 0.74 0.80
Gross Profit Margin Ratio = Gross
profit profit / Sales 1.03 1.09
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Net Profit Margin Ratio = Net
profit / Sales 0.05 0.04
ROA = Net Income / Total Asset 0.03 0.02
R.O.C.E = Net Profit / Capital
Employed 0.05 0.03
Gearing Ratio = Long term
liabilities / Capital Employed 0.36 0.30
The performance of the company can be measured on the basis of profitability, liquidity, gearing,
asset utilisation and investor potential in the company.
Profitability – The profitability of the company can be measured with the help of gross profit
ratio, net profit ratio and return on capital employed. The gross profit ratio of the company has
increased during the year in comparison to the previous year from 1.03 to 1.09 whereas the Net
profit ratio has decreased from 0.05 to 0.04 in comparison to previous year. The return on capital
employed has also decreased in comparison to the previous year. It can be stated with the help of
the ratio calculated that the company must consider the expenses and the revenue earned during
the current year and take steps to strengthen the ratios (Basu, 2018). The revenue of the company
has increased which has resulted in a decrease in profit which needs to be taken care. The return
that can be provided to the shareholder of the company is determined with the help of the
profitable ratio.
Liquidity – The liquidity position of the company can be calculated with the help of current and
quick ratio. The current ratio of the company increased in comparison to previous year from 1.38
to 2.91 which shows the stability of the organisation (Hossan, 2010). The ratio is above the ideal
ratio which is 2 through which it can be stated that it is a satisfactory position. The quick ratio of
the company has also doubled in comparison to the previous year from 1.06 to 2.36. It can be
stated that the company will be able to meet their short-term liability if any arises effectively.
The current ratio is useful in depicting that the company will be able to meet the short term as
well as the long-term liability of the company.
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