Financial management Assignment PDF

FINANCIAL MANAGEMENT

TABLE OF CONTENTS
Financial Ratio Analysis............................................................................................................5
Profitability............................................................................................................................5
Interest and Dividend Coverage.............................................................................................7
Debt to Equity Ratio...............................................................................................................8
Liquidity Ratios......................................................................................................................9
Assets Ratios........................................................................................................................11
Investment appraisal techniques..............................................................................................13
(a) Calculation of Net Present Value...................................................................................13
(b) Calculation of Internal rate of return of project C..........................................................14
(c) (i) Selection of Net Present Value method as a best investment appraisal technique....14
(c) (ii) Non Discounting Methods of investment appraisals................................................16
(c) (iii) Factors impact on the investment decision..............................................................17
(d) Calculation of optimal investment policy if the project are divisible............................19
MAIN SOURCES OF FINANCE............................................................................................20
Financing through owned capital.........................................................................................20
Financing through the borrowed capital..............................................................................22
References................................................................................................................................24

LIST OF TABLES
Table 1: Table of Profitability Ratios.........................................................................................4
Table 2 Table of Interest and Dividend Coverage Ratios..........................................................6
Table 3 Table of Debt to Equity Ratio.......................................................................................8
Table 4 Table of Liquidity Ratios..............................................................................................9
Table 5 Table of Assets Ratios.................................................................................................11

LIST OF FIGURES
Figure 1 Chart Showing Profitability Ratios..............................................................................4
Figure 2 Chart Showing Interest and Dividend Coverage Ratios..............................................6
Figure 3 Chart Showing Debt to Equity Ratio...........................................................................7
Figure 4 Chart Showing Liquidity Ratios..................................................................................8
Figure 5 Chart Showing Assets Ratio......................................................................................10

FINANCIAL RATIO ANALYSIS
Profitability
In accordance with Bratton and Gold (2017), profitability ratios refer to a class of financial
metrics which are utilised to evaluate the capability of the organisation of producing income
comparative to its related expenditure. Profitability ratios include mainly profit margins and
return on assets.
Figure 1 Chart Showing Profitability Ratios
2016 2015 2014 2013 2012
0
2
4
6
8
10
12
14
16
18
20
Profit Margin
Preturn on Assets
Table 1: Table of Profitability Ratios
Profitability 2016 2015 2014 2013 2012
Margin Trading Profit % 7.8 7.5 7 7.2 7.3
Sales
Return on
assets
Trading Profit % 16.3 17.6 16.2 18.2 18.3
Net operating assets

In order to evaluate the productivity of the firm at different cost levels, profit margins are
utilised comprising gross margin, operating margin, pre-tax margin as well as net profit
margin. Further, as per study of Clegg, Kornberger and Pitsis (2015), the margin shrinks as
layers of additional costs are considered for example cost of goods sold, operating and non-
operating expenditures along with taxes paid. Thus, in the present case, as the margin
percentage is increasing on a continuous basis, it can be assessed that the appropriate level of
additional cost exists in the company. The profit margin of Outdoor Plc. is boosting which
implies that the company is operating in an efficient manner due to which level of the profit
is increasing.
Profitability is evaluated in relation to costs and expenditures, and it is assessed in
comparison to assets in order to measure the effectiveness of an organisation under deploying
assets to produce sales and ultimately incomes. Further, Brigham and Ehrhardt, (2013),
specifies that the word return under ROA implies net profit that is the amount of income
earned from sales after including all costs, interest as well as expenditures. It is considered
that the increase in assets will lead to an increase in sales which in turn results in enhanced
profits. In the present case also the there is an increase in assets which leads to enhanced sales
and amplified profits. Moreover, ROA of Outdoor Plc of every year is positive which implies
upward profit trend that is the profit of the company keeps on increasing. The fact cannot be
denied that the company is having a positive return on assets, though it is fluctuated and not
sustainable. Thus, the company requires investigating this area in detail in order to apply
assets more effectively.