Financial Management : PDF

Financial Management

Table of Contents
INTRODUCTION...........................................................................................................................1
PART A - ALAM PLC...................................................................................................................1
Ratios calculations related to Alam Plc for year 2018 and 2017:...............................................1
PART B – CHILLER LTD..............................................................................................................9
Break even point and margin of safety calculations for year 2018 and 2017 related to Chiller
Ltd ..............................................................................................................................................9
Critical Analysis of the key assumptions of Break-even Model in present business scenario. 10
PART C: CROSSWELL................................................................................................................10
Benefits and limitations of various investment appraisal techniques and recommendation of
best techniques:.........................................................................................................................10
Evaluation of main sources of finance for utilisation by a company to finance its capital
investment project:....................................................................................................................14
CONCLUSION..............................................................................................................................15
REFERENCES .............................................................................................................................17

INTRODUCTION
Financial management can be defined as that part of a company's operational activity
which is chiefly concerned with the optimal allocation as well as utilisation of both economic
and non-economic resources through realistic (practical) decision making practice. It also assists
the organization in preparing, directing and accomplishing the finance related activities. It
ensures that an organisation has received in time their funds to run the company's business
operations along with ensuring that management utilise these funds in optimum manner after
funds are procured at minimal cost (DRURY, 2013). This report explains the various practical
issues that a company shall face in day to day life related to financial management. How ratio
analysis may help the company in evaluating its financial performances are also incorporated
in this report. Apart from this, understanding of break even point and margin of safety are also
describes in detail in this report. This report defines the various techniques of investment
appraisal long with their benefits and limitations that may be useful for an entity for evaluating
its proposed investment proposals.
PART A - ALAM PLC
Ratios calculations related to Alam Plc for year 2018 and 2017:
A ratio may be defined as a calculation of some mathematical figure that provides insight
to the company to measure its financial statements and provides useful data that may be used by
the company for future business operations (Weetman, 2019). Ratios are of various types, the
detailed discussion of such with its calculations are as follows:
Profitability ratios:
Calculations of various profitability ratios are as follows:
 Gross profit ratio:
Particulars 2018 2017 Increase/Decrease
Gross profit 8375 8150
Sales 16200 15000
G. P. ratio (%) = 8375/16200*100
= 51.69%
= 8150/15000*100
= 54.33%
Decrease
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Formula: G.P. Ratio = G.P. / Sales*100
Interpretation:
From the above calculations it may be observed that gross profit ratio of Alam Plc has
decreased in current year (51.7 %) as compared to last year which is 54.33 %. Although, there is
not much difference but company shall look into this matter to find the actual reason ( Taylor,
2013). Some of the reasons of such reduced ratio is that profit is not increased as per sales
proportion from last year. So it can be interpreted to board of Alam plc that their gross profit is
not increasing as they should focus on increasing it.
 Net profit ratio:
Particulars 2018 2017 Increase/Decrease
Net profit before tax
and interest
1510 2865
Sales 16200 15000
N. P. ratio (%) = 1510/16200*100
= 9.32%
= 2865/15000*100
= 19.10%
Decrease
Formula: N.P. Ratio = N.P. Before tax and interest / Sales*100
Interpretation: From the above calculations related to net profit, it may be evident that such
company has not performing well and not able to control its operating cost. Due to this, its
current year net profit ratio is 4.04% as compared to its last year N.P. Ratio which is 15.5%. The
reason of this is that its net profit decreases as compared to last year. Same as the above gross
profit ratio, the net profit ratio is also decreasing so it be stated to the board of Alam plc that their
net profits are not in ideal condition.
 Return on capital employed ratio: Net profit before tax and interest / share capital+ long
term loan x 100
Particulars 2018 2017 Increase/Decrease
Net profit before tax
and interest
1510 2865
share capital+ long 7215+4450 = 11665 5030+4075 = 9105
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term loan
Return on capital
employed ratio
=(1510/11665)*100
=12.94%
=(2865/9105)*
=31.46 %
Decrease
From the above calculations it is clear that the ROCE of Alam Plc has declined
significantly in 2018 in comparison to 2017. One of the main impact of this reduction can be
attributed to the decline in EBIT by 47.29% between 2018 and 2017 while the sum of Share
Capital and Long term loan has increased by 28.12%. This is a critical decline in Net Profit
before Interest and Tax, almost double, even though there is a significant increase in the
denominator value. Such Profit Erosion can be directly associated with the operational activities
undertaken by Alam Plc. Other reasons could be increased overhead expenses or decline in
turnover. In order to rectify such a situation, it is important for Alam's Board of Directors to
focus on the overall sales as well as administrative overheads so as to ensure that the company
does no run into the problem of Inadequate Working Capital which is also a driving factor
behind EBIT.
 Return on ordinary shareholder's fund: Net profit after tax / share capital x 100
Particulars 2018 2017 Increase/Decrease
Net profit after tax 440 1210
Share capital 7215 5030
Return on
shareholder's fund
=440/7215
=6.10%
=1210/5030
=24.05%
Decrease
The aforementioned table provides a comprehensive calculation related to Return on
Ordinary Shareholder's Fund. This is one of the important Ratio which focuses on how much
money is returned to the investors on their investments made. It can be observed that there has
been a significant decrease in this element since 2017. A decline in Return on Shareholder's
Funds does not paint a pretty picture for neither Alam's Board of Directors nor its investors.
Since it is a direct indicator of company's overall efficiency, it can be concluded that the firm has
been performing poorly in 2018. This decline can also be attributed to the 63.64% decline in
Profit After Tax (PAT). Thus, it is recommended that the Board takes necessary actions to
improve its turnover so as to gain its bottom-line profits in a sustainable manner.
Liquidity ratios:
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 Current ratio:
Particulars 2018 2017 Increase/Decrease
Current assets 4675 3755
Current liabilities 2425 2255
Current ratio = 4675/2425
= 1.92 times
= 3755/2255
= 1.66 times
Increase
Formula: Current ratio = Current assets / Current liabilities
Interpretation:
Current ratio of year 2018 is 1.93 whereas such ratio in year 2017 is 1.67, this shows that
Alam Plc has taken positive steps in increasing its current ratio, this has happened because the
company has utilises its current assets in efficient manner to pay off its current liabilities.
Reasons for such increased ratio is that current assets increases as compared to last year and its
current year liabilities is not increased in that proportion. This can be informed to the board of
Alam plc is that their current ratio is increasing as compared to previous year though it is not in
an ideal condition that is of 2:1.
 Quick ratio:
Particulars 2018 2017 Increase/Decrease
Quick assets 3750 2955
Current liabilities 2425 2255
Quick ratio = 4675-925/ 2425
=1.54 times
= 3755 – 800/2255
= 1.31 times
Increase
Formula: Quick Ratio = Quick assets / Current liabilities
Interpretation:
In year 2018 quick ratio is 1.55 and in year 2017 it is 1.31, this means that company has
performing well in utilising its quick assets to pay its short term liabilities and such company has
in good condition. But Alam Plc is required to work effectively and efficiently in order to
enhance the company's quick assets more as compared to its current liabilities, so that,
company's liquidity position may be enhanced. The standard quick ratio is equal to 1.5: 1, this
means that company has to performed well in current year, due to this, it quick ratio enhanced
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and higher than standard ratio. The board of Alam plc are being informed that company's quick
ratio is in better condition because it is increasing as well as in ideal condition in year 2018.
 Working capital cycle: Inventory turnover+ debtors turnover- creditors turnover
Particulars 2018 2017 Increase/Decrease
Inventory Turnover 40.23 38.63
Debtors Turnover 84.49 60.71
Creditors Turnover 98.71 107.93
Working Capital
Cycle
=40.23+84.49-98.71
=26 days
=38.63+60.71- 107.93
=-9 days
Increase
From the above table, it is evident that there has been a considerable increase in the
number of days the working capital cycle takes to complete. In 2017, this value was in negative,
however, in 2018, this has increased to 26 days. A negative working capital cycle which
indicates that the current liabilities exceed the current assets within an organisation. Thus, until
2017, Alam was able to generate cash so quickly that it was able to to sell its products even
before paying off the supplier. However, this changed in 2018, where the cycle ventured into a
positive value. This indicates that, to some extent, Alam Plc has been able to do this by reducing
its creditors turnover while increasing its inventory as well as debtors turnover figures. Thus, it is
crucial for Alam to ensure its maintenance and prevention of any delays in the Working Capital
Cycle due to increase in its numbers.
Gearing ratios:
 Debt equity ratio:
Particulars 2018 2017 Increase/Decrease
Debt 4450 4075
Equity 11665 9105
Debt equity ratio =
(4450/7215+4450)*10
0
=
(4075/5030+4075)*10
0
Decrease
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=38.14% = 44.75%
Formula: Debt equity ratio = Debt / share capital long term loan
Interpretation:
From the above calculations, it is clearly evident that debt portion of Alam as compared
to its equity portion are less in year 2018 (0.62) as compared to year 2017 (0.81). This shows that
company has less finance risk in current year as compared to year 2017. As a result, the decline
in debt-equity ratio indicates that the company has resorted to equity financing in 2018 which is
quite expensive in comparison to raising funds through debt. It has happened due to issue of
additional share capital in 2018 as compared to 2017. Although, there is an increase in its debt in
2018, such increase is not enough to cover the amount of additional share capital along with its
retained earning earnings.
 Interest coverage ratio:
Particulars 2018 2017 Increase/Decrease
EBIT 1510 2865
Interest 850 540
Interest coverage
ratio
= 1510/850
= 1.77 times
= 2865/540
= 5.30 times
Decrease
Formula: Interest coverage ratio = EBIT / Interest
Interpretation:
After seen the above calculation, it may be said that company's interest coverage ratio in
year 2018 is 1.78 and in year 2017 it is 4.75. This clearly shows that Alam Plc has not
performing well as it earnings before interest and tax are less in current year as compared to its
last year and also its finance cost in year 2018 is more as compared to last year. Due to which, its
Interest coverage ratio is less. Hence, this can be interpreted to company's board that they have
sufficient fund to pay its interest cost but if in case of any negative circumstances, such company
may not be able to pay its finance cost.
Efficiency / Assets utilisation ratios:
 Stock turnover days: Average inventories / cost of sales x 365 days
Particulars 2018 2017 Increase/Decrease
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Average inventory (800+925) / 2 = 862.5 (650+800) / 2 = 725
Cost of sales 7825 6850
Stock turn over days =(862.5/7825)*365
=41 days
=(725/6850)*365
=39 days
Increase
Interpretation:
From the above calculations, it may be concluded that Alam Plc has been performing
well as far as its business operations are concerned. This is indicated through its stock turnover
ratio which is 39 days in year 2017 and 41 days in 2018. Thus, it can be interpreted that above
company should focus on decreasing their turn over days in year 2018. Thus, with the rise in this
ratio it can be concluded that the Alam has been having a good amount of sales in 2018 in
comparison to 2017. Thus, indicating that the efficiency of the overall activities of Alam has
improved considerably. This can be improved more by ensuring that the per dollar increase in the
bottom-line profits for each sale made by Alam.
 Account receivable collection period: Trade receivables / credit sales revenue x 365 days
Particulars 2018 2017 Increase/Decrease
Trade receivables 3750 2495
Credit sales revenue 16200 15000
Account receivables
collection period
=(3750/16200)*365
=85 days
=(2495/15000)*365
=61 days
Increase
Interpretation: On the basis of above calculations this can be interpreted that Alam Plc is taking
61 days in making collection in year 2017 that increased in year 2018 and became of 85 days.
Through this increment, it can be said that Alam's customers have been taking delayed payments
in to pay back their dues to the company. This is not a good sign for Alam as it results in a longer
lock-up period of cash flows for the business. Thus, it is recommended that Alam must utilise the
benefits of a Age Receivable Schedule which will enable to determine who its unpaid customers
effectively.
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 Account payable payment period: Account payable / credit purchase x 365 days
Particulars 2018 2017 Increase/Decrease
Account payable 2150 2070
Credit purchase 7950 7000
Account payable
payment period
=(2150/7950)*365
=99 days
=(2070/7000)*365
=108 days
Decrease
Interpretation:
On the basis of above project report this can be analysed that Alam Plc's efficiency
towards making payment has increased in year 2018. This is due to the fact that the overall
Account Payable Payment Period has decreased by 8.33% in 2018 as compared to 2017. Thus,
they are able to effectively pay off their creditors which is crucial for the business and helps it to
enhance its overall credibility as well as strengthen relationship with its creditors in a critical
manner.
Investors:
 Dividend payout ratio: Dividend amount for year / earning of the year available for
dividend x 100

Particulars 2018 2017 Increase/Decrease
Dividend amount 190 170
Earning of year for
dividend
440 1210
Dividend payout
ratio
=(190/440)*100
=43.18 %
=(170/1210)*100
=14.04%
Increase
Interpretation: As per above table of dividend payout ratio, this can be analysed that Dividend
Payout ratio for Alam Plc is 14.04% in year 2017 which increased in 2018 and became 43.18%.
Hence, this can be interpreted that their ability for making payment to investors has been
increased significantly in year 2018. Thus, indicating that Alam has been providing cash benefits
to its owners. However, it is recommended to keep such payments in check as excessive
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Dividend Payouts may result in deficiency of profits to plough back in the business which is
crucial for undertaking future opportunities and projects.
 Earnings per share: Earnings available to shareholders / number of share to issue x 100

Particulars 2018 2017 Increase/Decrease
Earnings available to
shareholders
440 1210
Number of share to
issue
6165 4230
Earning per share =(440/6165)*100
=7.13 p
=(1210/4230)*100
=28.60 p
Decrease
Interpretation: On the basis of above table this can be analysed that Alam Plc's EPS is of 28.60p
in 2017 which has decreased in 2018 to 7.13p. Thus, indicating that company's profitability has
decreased significantly. This would result in decline in investor confidence within the company.
Therefore, it is important for Alam's management to ensure that the company is cost-effective
and is able to pursue a higher revenue growth in the foreseeable future.
PART B – CHILLER LTD
Break even point and margin of safety calculations for year 2018 and 2017 related to Chiller Ltd
BEP calculations:
Particulars 2018 2019
Variable cost per unit:
Direct material 200 200
Direct labour cost 30 30
Variable manufacturing cost 30 30
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Variable selling cost 25 25
Total variable cost per unit 285 285
Fixed cost:
Fixed manufacturing cost 1750000 1750000
Fixed selling and distribution
cost
1900000 1900000
Fixed administration cost 850000 850000
Additional fixed cost 0 1950000
Total fixed cost 4500000 6450000
Products produced in units 300000 300000
Selling price per unit 350 420
Unit contribution margin:
Sales revenue per unit-
variable per unit
350-285= 65 420-285= 135
Contribution margin ratio:
Unit contribution margin /
sales
65/350= 18.57% 18.57%
BEP in units: Fixed cost /
unit contribution margin
4500000/65= 69230.76 units 6450000/135= 47777.77 units
BEP in revenue: Fixed cost /
contribution margin ratio
4500000/18.57%=
24232633.27
6450000/18.57%=
34733441.03
Margin of safety in units: 300000-69230.76= 230769.24 300000-47777.77= 252222.23
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total sales- break even units
Margin of safety in revenue:
Total sales- break even
revenue
(350*300000)- 24232633.2=
80767366.73
(420*300000)- 34733441.03=
91266558.97
Interpretation: On the basis of above calculation of BEP this can be analysed that Chiller
Plc's contribution margin ratio is of 18.57% in year 2018 that remains same in year 2019. Along
with BEP in units is of 69230.76 that decreased by huge margin and became of 47777.77 units.
Apart from it, BEP in revenue is of 24232633.27 that increased and became of 34733441.03. In
the end Margin of safety in units is of 230769.24 units that raised and became of 252222.23. As
well in revenue it is of 80767366.73 and 91266558.97 for year 2017 and 2018.
Critical Analysis of the key assumptions of Break-even Model in present business scenario
The Break-even Model is widely used by corporations in the present day business
environment so as to gain valuable insights on how to improve their overall profitability. Thus,
this framework assumes certain criterion such as:
 Constant Marginal Cost and Revenues;
 Presence of only variable and fixed costs and no Semi-variable costs;
 Price of product remains unchanged; and
 Units Sold is equal to units produced.
In light of such assumptions, it can be said that Break-even enables the management to
exactly determine the degree of cost which is required to be covered by the business in order to
enjoy normal as well as supernormal profits from both short-term and long-term perspective. It is
also important to note that even though there are a lot of unrealistic assumptions under this
model, it is still used welcomingly by business managers.
PART C: CROSSWELL
Benefits and limitations of various investment appraisal techniques and recommendation of best
techniques:
In evaluating various mutually exclusive capital investment proposal of any organisation,
several investment appraisal techniques are given to help the company selecting any one
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investment proposal which is best for the company (Akgün, Ince and Kocoglu, 2014). Some of
investment appraisal techniques along with their benefits and limitations are as follows:
Brief description about the given case:
Crosswell is currently measuring two proposals related to long term investment in super
market. Both the projects have same initial investment of £25m. Company has calculated
following ratios for its two projects which are as follows:
Particulars Project A Project B
Payback period (Years) 6 7
Accounting rate of return 16 22
Net present value (NPV £m in 15 years) 140 175
Internal rate of return (IRR %) 20 17
Payback period:
It may be defined as an investment appraisal technique which is used by the company in
finding the total period up-to which such organisation can recover (get) its investment amount
which it plans to invested in the proposed investment project (Mitchell, 2017). It can also be said
that pay back period does not consider the all years of investment project. Some benefits and
limitations are as follows:
 Benefits: The foremost advantage of using this technique is that it uses the concept of
time value and payback period assist the company in finding the actual risk that is
involved in the given capital investment project.
 Limitations: It is not helpful in evaluating that such proposed investment helps the
company or not in increasing the value of such organisation. Discounted payback period
may have complex calculations if there are existence of negative cash flows more than
one. The main disadvantage of this method is that it does not include the whole years’
cash flows, due to which, it cannot represent the correct value addition to the firm.
Decision:
In the given case scenario, Crosswell company determines the payback period of both the
projects A & B as 6 and 7 years respectively. Hence, the project A seems to be more beneficial
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for company as it has a lesser Payback Period in comparison to Project B.Accounting rate of
return:
It is represented as a percentage that an organisation expected on an investment as
compared to initial investment cost. The benefits along with its limitations are as follows:
 Advantages: Calculation to find ARR for a given investment project is effortless and all
the data regarding calculation of accounting rate of return may be easily available.
 Disadvantages: ARR is not a real rate, hence, company cannot rely on the accounting
rate of return to select its proposed investment project and this technique does not
considered time value of money. The main drawbacks of using ARR is that it does not
consider the accounting real cash flows. Rather it considers only accounting net profit
which is not a suitable criteria for evaluating any capital project (Hyndman and Lapsley,
2016).
Decision:
In the given case scenario, Crosswell company determines the ARR of both the projects
A & B as 16% and 22% respectively. This shows that project B is beneficial for company
because of higher rate of return. Hence, the project B seems to be more beneficial for company
as it has a lesser Payback Period in comparison to Project B.
Net Present value:
NPV is an investment appraisal technique which is utilised by the company for
evaluating its investment proposal. In this method, net present value is calculated by subtracting
the initial investment from present value of net cash inflows. Present value is calculated by the
help of discounting factor of cot of capital. Benefits and its limitations are as follows:
 Benefits: The main benefits of using NPV to an organisation is to having assumption of
reinvestment, it means that annual cash inflows are also invested again and again as they
receive by the company. It allows an organisation to accepts traditional cash flow pattern
along with take into mind the factors risk. By the help of NPV, a company may measure
the profitability aspects of proposed project (Viney and Phillips, 2012).
 Limitations: Opportunity cost is not real in calculating the NPV, this is estimated by the
company and NPV method also ignores sunk (Traditional) cost. The main limitation of
such technique is that it does not gives best results in case where two mutually exclusive
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projects are evaluated which has different size (i.e. different life of the projects or
different initial capital engaged).
Decision:
In the given case scenario, Crosswell company ascertains the net present value of both A
and B projects as 140 and 175 respectively. It means the project B can be useful for them
because its net present value is higher in compare to project A.
Internal rate of return (IRR):
IRR may be defined as discount rate, under such rate, net present value of a proposed
investment project becomes zero. This rate is calculated by taking the initial outflows and
present value of net cash inflows equal to find the discount rate due to which annual cash inflows
are discounted in such a manner that present value becomes equal to project's initial investment.
Benefits as well as limitations of using Internal rate of return are as follows:
 Benefits: In calculating the IRR of an investment project, time value of money
concept are used to consider the essential value of time (Dyreng, Mayew and
Williams, 2012). The main benefits of using IRR is that it considers all the cash
flows of a capital project which is good because it provides accurate information to
the company. The main advantage of using this technique is that when there is a
comparison of various mutually exclusive projects then in this case, such method
gives accurate result for selecting the best capital investment project.
 Limitations: This method does not make difference between investing and
borrowing, therefore, in some cases, it is not good for the company for evaluating
its proposed investment capital projects. In calculating the internal rate of return,
calculations becomes much complex, therefore, sometimes it is difficult to calculate
the correct internal rate of return.
Decision:
In the given case scenario, Crosswell company ascertains the IRR of both A and B
projects as 20% and 17% respectively. It means the project A can be useful for them because its
rate is higher in comparison to Project B. Thus, it should be preferred. So on the basis of
above mentioned investment appraisal techniques for project A and B, this can be recommended
to the director of Crosswell company that they should choose project B. This is so because it can
be beneficial for them in future as its NPV, ARR are higher as compare to project A.
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Evaluation of main sources of finance for utilisation by a company to finance its capital
investment project:
In practical business environment, there are many sources that are available to a business
organisation to raises funds to finance its proposed capital project. The detailed information and
analysis of such sources are as follows:
 Equity shares: It is source to raise the funds by the company, in which, Crosswell need to
issue additional equity shares to general public either by issuing right shares or by issuing
shares to outsiders. The main limitations of this source is that it helps the company in
obtaining the finance but in return ownership of company is also transferred to additional
person. This results in ownership percentage decreases of existing shareholders
(Larionova, Petrovskaya and Chaplyuk, 2015). Also, in return, company is required to
pay the cost of capital, so, it is beneficial to the company to evaluate all possible aspects
related to issue of equity shares before raising funds from Equity Financing. Equity share
may be issued as per the need of investment proposal, but usually this source is selected
for financing the long term investment proposal.
 Preference shares: This is another source for raising funds, under this, an organisation is
required to issue such shares when it requires to raise funds by issuing of shares but
company does not want to provide ownership rights to such new shareholders. In this
source, company is required to pay an amount at fixed percentage to its preference
shareholders (called as dividend). The Crosswell company can issue preference shares to
finance its investment proposal for long term projects (i.e. to finance the projects having
life more than 5 years) as well as for medium term projects (i.e. projects having life of 3
to 5 years) (Guess and Ma, 2015).
 Debenture/bonds: It is debt instrument that a company may used to finance the its various
capital investment projects. Under this method, company my issue debenture to the
general public and in return, company has to pay interest amount at fixed rate to its
debentures holders. By doing so company may enhance its finance risk, therefore, before
issuing debenture to the public, company is required to evaluate all related aspects and
factors that may affect the an organisation. It may be issued by the company to finance
the its long term as well as medium term investment projects. This means that company
may issue debentures for more than 5 years as well as for a period of 3 to 5 years
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(Deering and Sá, 2014). For example, in above Crosswell company, they can raise fund
for their project by issuing of debenture and bond to general public.
 Term loans: A company may take such loan to finance its various capital projects from
the banks or other financial institutions. Under this, companies have to pay a fixed rate of
interest to the financial institutions along with repayment schedule in monthly and
quarterly period and other specified period. It may be taken for long term period as well
as for medium term period. Such as the Crosswell company can take loan from financial
institution or bank for financing of their project. This can be cost effectively for them
because bank charges a lower amount of interest.
 Retained earnings: This is the best source to finance an organisation's various capital
projects because in this source, company has not required to pay any extra money to raise
the funds. Company shall evaluate the such source of raising funds by comparing the net
inflows of an investment proposal with the help of opportunity cost of utilising amount of
retained earnings. Opportunity cost means the money that may be earned by the company
from such retained earning if company has not investing its retained earnings in such
project. Therefore, it may be said that company has to select such alternative, if it has
more earning from such projects as compared to its opportunity cost (Richard, Kirby and
Chadwick, 2013). In the aspect of above Crosswell company, this can be a main source of
fund because after payment of dividend to their shareholders they can use remaining
profit as a source of fund.
CONCLUSION
From the above report, it may be concluded that an organisation has required to do ratio
analysis and other technical analysis of its financial statements, because it gives an accurate and
idea about the financial performances of a company. It is further concluded that company has
required to calculate various costing related parameters for its production process before actual
production of its products. It assists the company in evaluating the its production process and
helps in eliminating various unnecessary activities. These costing related parameter includes
break-even point calculations, margin of safety concept and so on. For accepting any capital
budgeting related projects, company has required to evaluate these projects with the help of
various investment appraisal techniques and these different appraisal techniques have different-
different benefits along with few limitations. Therefore. It is recommended to the suitable
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techniques according to its nature of business and according to requirements of various capital
investment projects.
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