Financial Management of Unite Group Plc

The assignment is a comprehensive financial analysis of Unite Group Plc, which covers various aspects such as financial management, methods of valuation, and the impact of convertible bonds on the company's performance. The report concludes that financial management is an effective technique for evaluating overall performance, and provides specific details about the company's share prices and financial sources.

Financial Management for
Organisations

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
A. Methods of estimating cost of capital................................................................................1
Unite group equity: ...............................................................................................................2
Computation...........................................................................................................................2
B: Various valuation methods................................................................................................3
C: Source of finance for growth............................................................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Finance is utmost important part of every business. The effective management of finance
would assists an organisation to increase their productivity as well as efficiency as a whole.
Finance management refers to the efficient and other funds in such a manner in order to
accomplish their primary objectives. This can be done by proper planning, directing and
organising their financial resources in more effective manner. The project report is all about one
of the leading foundation “The Unite Group Plc”. All vital aspects related with international
financial reporting standard are discussed under this project. Certain method of estimating cost of
capital are explain in context to the mentioned company (Brigham and Houston, 2012).
TASK
A. Methods of estimating cost of capital
Cost of capital is said to be an effective cost of Unite group plc overall capital which is
said to be the combination of both debt and equity. The require rate of return on investment
portfolios of existing securities. This is done to make analysis of new projects of a company. The
cost which would be helpful to use discounted future cash flows out of potential project and
other opportunities to predict their total net present value. It is utmost important aspects for Unite
group plc to make their upcoming investment decisions associated to new operations which
would always provide more effective outcomes in order to get proper return that will increase
overall cost of capital. It is related with WACC in the interest rate which a company uses to pay
on its current. It would hold that proper regulators which require to evaluate the weighted total
average costs of total capital to make ensure that a return to investors and sustain the assets base.
This will examine overall techniques for predicating total costs of equity with total market
information (Heizer, 2016).
Methods of cost of capital:
Cost debt: All those cost of debts which is refers to the total cost or interest rate of
interest amount which is to be paid by Unite group for the purpose of raising debt capital.
Likewise, in a present situation the total interest paid for raising debt which is not taken into
account of debt. This is done so that the total interest is treated as expenditure and reduce from
overall tax.
KD = [(1-T)*R]*100
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Cost of preference capital: It is refers as total sum of amount of dividend which is to be
paid and expenditure incurred for increasing preference shares. The earnings is not deducted
from tax. It that part of capital under which accountant need to calculate the cost that is to be
payable to shareholder in respect of dividend with the fixed rate. It is always treated as apart
component to the cost of equity.
KP = [{D + F/N (1 – T) + RP/N}/ {P + NP/2}] * 100
Cost of equity capital: This seems to be cost of equity value which is more difficult to
compare total debt amount and preference capital. The primary reason is that total equity
shareholder does not attain fixed interest out of there total profits. It changes with the total
amount earn by the company during the period of time.
KE= (Dividend per share/Market price per share) * 100
E = R1 +β {E (R2) – R1}
CAPM( Capital assets price model): This will assist in computing the overall expected
rate of return from total share of equivalent risk in various capital market. According to this
particular model cost of share which carries certain risk which be equal to the costs of
opportunities loss (Methods for Measuring Cost of Capital, 2018).
Unite group equity:
According to the board point of view as a high demand to effective communication with
external shareholder and other providers of funds to the business. In accordance to final series of
meetings among institutional shareholder and other service providers of amount to the company.
According to the mentioned board annual report, they are aware of their total reviews of strong
shareholder related tot eh company either directly or indirectly in profit sharing. The Unite group
plc has frequently made discussion with shareholder on arranging issues of affecting their
performance of both following the company overall growth (Higgins, 2012).
Computation
According to Capital Asset Pricing Method, cost of capital (ke) is calculated by using:
Rf+ β(Rm-Rf)
8.23= 6+0.74(9-6)
COST OF DEBT
Interest rate(1-tax rate)
6.125(1-.30)=6.125*.70=4.2875
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here, the tax rate @30% is taken on the assumption basis.
B: Various valuation methods.
There are various reason which is having a perfect information of business valuation. It is
essential for the company to determine companies overall total costs of capital which a company
is investing by using various resources during providing proper information during the time. It
has been seen that business owner cannot be able to do their own business evaluation. It is
essential to make sure that company would set and get reliable prices while selling units of a
business. The valuation can be done by using expert professional such as auditor. A business
analyst can evaluate their business by using wide variety of business techniques. This will
determine a fair price for their operations which consists of various aspects which will assists in
increase productivity of Unite group plc. There are various methods to make proper valuation of
business. Some of them are discuss underneath:
Asset based approach: It is an integral part of any business community in order to
develop in the sense that are related with facilitating people and communities joint together to
attain positive growth chance (David, 2011). It is a types of business valuation that mainly
focuses on a companies total net assets value. The fair value of their total assets will be deducted
from total debt to evaluate overall costs of the company. In order to determine net assets value
report which is prepared under IFRS are amended to evaluate the total mark which is based on
market valuation of swaps, deferred tax obligation and to recognise all properties at market cost.
NAV is based on total net assets attributable to equity shareholder of The Unite group plc. The
number of share issue at the closing of year are evaluated accordingly to examine total position
of net assets kept with the foundation. This seems to be integral part of company development in
the sense they are related with facilitating individual to come together to attain positive growth
opportunities for the company. Asset based business valuation which can be done on going
aspects which is use as on liquidation basis.
 Going concern assets based method is said to list of business which is use to determine
net balance sheet of the company.
 Liquidation asset based approach which is use to determine total net cash that could be
received if all assets were sold and debts are being paid off.
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Using this particular method for the purpose of evaluating a sole proprietorship is more hard to
be done. All assets are owned by Unite group plc which would normally be concluded in sale of
business (Chandra, 2011).
Earning value approaches: Such kind of valuation methods are estimated on the idea
about Unite group plc whose true value lies in their ability to produce sufficient amount of
wealth in coming time. The most similar and crucial earning value method of capitalising past
earning. By this particular approaches, an auditor would estimate an expected level of cash flows
for a company by using various financial record of earlies revenues. Basically, there are related
with unusual earning or expenses and multiples as expected normalised cash flows by using
capitalising aspects into consideration. This is simply means that total rate of return a purchaser
will be expected on their total investment as well as to measure total risk in the business.
Valuation of sole proprietorship in accordance of past revenue that can be handled more quickly
by the company. Customer loyalty is directly tied to make direct connection with the business
owners. This will be related with the existing customers those are expected to deliver same
degree of services to various people. According to this particular method, a business valuation
methods would be total up all capital investments in unite group plc. It is set proportion that a
business valuation could be based on estimated future firms capacity to incur cash flows.
Henceforth, this method reduce certain limitation of total assets based approaches which are
totally not consider overall company's potential to produce cash flows and revenues. Future
earnings of untie group plc are estimating by adjusting for extraordinary products such as
occupational fluctuations (Finkler and et. al., 2016).
Market value method: This approaches to business valuation will attempt to determine
total value of business by through analysing overall similar businesses that are currently sold.
Basically, this particular method is only going to work positively, if there are valuable amount of
similar operations to compare. Assigning value to a sole proprietorship would relies on market
value which is particularly very hard to accept. Such valuation method can be more reliable to
determine total value of assets or primary part of valuation process for ending up their business.
Additionally, the market techniques can be held responsible to determine total value of a
business possession interest or intangible assets. This market approaches offers attractive views
of Unite group plc market value that is easy to attain and accurate to implement in their future
planning process. Sole traders are based on market value which individually owned so
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attempting to determine public information before sale of such king of business which is not
providing sufficient among to return to Unite group plc. Although the earning value method
which is more effective and popular business method for maximising overall growth and
performances of an organisation.
Heuristic pricing rules methods: Under this particular approaches, unite group plc
which would be helpful for pricing formulas that are formulate on the basis of expert opinion of
professional consist in concern sales. The best suitable group that does by business to
intermediaries as a brokers to sale transactions in particular sector. Their knowledge about
market place and direct exposure related to the transactions can involve these experts in positive
manner to predict the likely business at their selling costs. There are certain problems which are
associated with this types of methods. Some of them are discuss underneath:
 Pricing multiples relies on total expert opinion of ongoing market participants from the
trenches.
 Pricing policies are mostly depends on both practitioner and their customers business
owners as well as buyers during any pricing deal (Tang and Musa, 2011).
The value of net profit during the time is about 223.8£million in 2017 financial report.
The financial information that would be set out in the annual reports does not constitute the
company statutory accounts for year ended 31st December 2017. The reconciliation among profit
attributable to the owners of parent company and other earning is available to unite group plc.
The operations segment are use to manages rental properties which would be owned either
directly by the group or by taking joint ventures. Its total revenues are derived from rental
earning and assets engagement fees that are earned out of joint venture. Operating lease rental
arise from properties which the group has sold and is now leasing back. These are being sold for
the purpose of generating financing and they are now contributed to the groups overall property
operating costs expenditure.
C: Source of finance for growth
There are various sources of finance which are related to short term and must be paid
back within an accounting period of time. Some other sources of finance are also available which
can be paid in long time duration. It is categories into various parts such as:
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Internal sources: These are generally related with the internal department of Unite group
plc. Some basic examples of these are profit that can be kept back to for finance expansion.
There are certain alternatives which a business can collect from their sales of assets.
External sources: These are said to be that said to be collected from outside. According
to this particular theory of capital structure, these are outside financing which is being used to
describe capital that unite group plc take into account (Blome and Schoenherr, 2011).
Short term finance: These can covers various aspects which are to be mentioned underneath:
Overdraft: These are simply collect from banks which allows a unite group plc to take
out maximum money then it has in their bank savings. It occurs during an amount is withdrew
from a bank account and available balance will goes on zero.
Trade credit: These are collected from suppliers those are delivering products and are
willing to wait for a wide number of day before making payment. It is an effective tool of
financing growth. It is an agreement in which a customer can buy products on accounts and
make payment to suppliers at a later date.
Factoring: In this, firms can sell their total invoices to a factors just like banks. They
does this for few cash rights always, instead of waiting for 28 days to be paid as total amount.
Long term sources of external financing: Under these external sources there are certain
ways from which funds can be raise for the company. Some of them are discuss underneath:
Owners capital: It is related with owner of Unite group plc those are responsible for
investing amount in their business. In case of sole trader or partners which can be their as total
saving amount. As per this unite group plc, funding would be invested by shareholder which is
said to be share capital (Pasin and Giroux, 2011).
Loan from bank: It is known as one of the primary sources form of loan capital for a
businesses. It would provides medium or long term finances to short and mid size companies.
For this purpose, bank sets the fixed period over which the loan is provided. In accordance of
meeting those amount they need to make payment of various high interest rate.
Hire purchase or leasing: It is known as monthly payment are made for use of assets such as a
new business units. It is an effective type of asset finance that allows a company to possess and
control companies assets during an agreed time period. This particular consideration is an
essential form of financing source which are meet out company all short of long term
requirements (Ginter and et. al., 2014).
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After making all necessary evaluation of various sources of finance available to unite
group. It has been found that charities and communities are two primary aspect for Unite group
plc. The central role is that to play there valuable impacts on various nations. They are working
closely with domestic community from past time for developing effective planning to deliver
maximum opportunities to students.
In 2016, to support their charity, sport relief and people marathon static cycling world
record is being made. One of the person named Jamie McDonald cycled for approx 43000 miles
and raise total of £175000. They have included a static bike race as bike challenge in total 24
cities where they have student accommodation facilities. From closing donation alone they raised
total of £140000 for cancer research. A total donation of £2million to charities which consists of
unite foundation and occur for charity from sport relief. A maximum of 33% employees
volunteered with local communities.
In case of convertible bond the amount is invested into bank loan then they need to pay
certain amount of interest which will make huge impacts on total earnings. Thus, Unite group plc
has decided to make investment into their shares.
Information collected from regulatory articles on London Stock Exchange, unite
share prices.
Particular Share prices
16/05/17 109.55
22/06/17 109.85
23/11/17 107.5
From the above information which is being collected from LSX, it has been determine
that share prices in three respective quarters are showing little fluctuations. In starting two
quarters the share prices is more constant. While in the last quarter, it get reduce to 107.5 per
share for unite group plc.
CONCLUSION
From the above project report, it has been concluded that financial management is an
effective techniques by which overall performance of the company can be evaluated in more
impressive manner. For this purpose, various methods of valuation in business operations are
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done in better ways. This will also increase profitability by proper use of financial sources that
are benefit them in long time to Unite group plc.
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