Financial Strategies of S plc

Business Report

Table of Contents
INTRODUCTION ..........................................................................................................................3
SECTION-A....................................................................................................................................3
Reason behind the importance of capital investment appraisal to S plc.....................................3
Cash flow analysis Statement of new investment by S plc.........................................................4
Calculate the pay back period and check whether the project is acceptable if S plc imposes a
three-year maximum payback period..........................................................................................4
Determine whether the project is acceptable or not according to its net -present value.............5
Determine the logic of net present value approach and its relation with cost of capital.............6
Calculate internal rate of return for investment proposal to know if the project should be
accepted or not............................................................................................................................6
Explain the reason behind considering net present value method superior to internal rate of
return...........................................................................................................................................7
SECTION-B.....................................................................................................................................7
Critically contrast Equity issue with long term bank loan..........................................................7
SECTION-C.....................................................................................................................................8
Calculate break-even sales revenue and the margin of safety.....................................................8
consequences of increase and decrease in price of 10%............................................................8
Critically analyse the assumption of cost volume profit analysis...............................................9
SECTION-D..................................................................................................................................10
Compare the three categories of suppliers................................................................................10
Compare the advantages of single sourcing and multiple sourcing of procurement................10
Discuss Cross-sourcing with example and its benefits to the buyer.........................................12
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial strategies of a business are concerned with acquisition and utilization of funds
and assets. They focuses on procuring resources for the firm, evaluation of costing techniques
and structure, ascertaining profit earning potential, managing accounts and many more. Their
main aim is to align the working of finance department in the direction of attaining business
objective by gaining strategic advantage (Banerjee, Tarazi and Akre., 2018). This report is based
on S plc and is divided into four sections. It discusses about the various financial strategies like
budgets, cash flow analysis, net present value approach, intern al rate of return and many more. It
further recognises the cheapest source of loan from bank along with comparing it with equity
shares. The report also determines the break even sales point and consequences of change in
price. At last, there is a description on various types of suppliers and sources of procurement.
SECTION-A
Reason behind the importance of capital investment appraisal to S plc.
It is technique of measuring the performance of a new project. It provides the answers of
questions that a particular investment will be proved beneficial to firm or not. There are various
techniques applied by S plc like payback period, accounting and internal rate of return, net
present value and many more. These are various reasons which proves that this process is very
important for S plc.
 Involvement of company resources- Large amount of efforts and resources are applied
on a particular project. A single wrong decision by S plc can lead to huge loss of all these
things. So, it is always recommended to conduct this appraisal to identify the profitability
from that investment (Block, Hirt and Danielsen., 2018).
 To tap possible alternatives- There are always some sort of options for all jobs. So, to
earn maximum profit, it required that S plc performs these techniques and examine the
benefits of all similar projects and find out the best alternative.
 For avoiding uncertainty- The tools of capital investment appraisal recognises the
impact of inflation on prices and some other uncertain factors, through which true value
of project can be determined. Without applying this technique, management would not be
able to identify the costs and profits associated with it correctly and can result in taking
wrong procurement decision (Young and Legister., 2018).

Cash flow analysis Statement of new investment by S plc.
Initial cash outflow
Initial cash investment Amount in (£000)
Production equipment 1000
Staff training provision 100
Advertising & promotion costs 20
Incremental working capital 180
Total initial outflow of cash 1300
Cash flow Analysis statement of 5 years of new project
(In £000s)
Particulars Year 1 Year 2 Year 3 Year 4 Year 5
Cash inflows
Sales 600 1000 1200 1000 800
Total cash inflow 600 1000 1200 1000 800
Cash outflow
Cost of materials 180 300 360 300 240
Incremental
operational cost
100 100 100 100 100
Total outflows 280 400 460 400 340
Net Cash flow 320 600 740 600 460
Opening balance 320 920 1660 2260
Closing Balance 320 920 1660 2260 2720