Financial Management Tools - Report

Financial
Management
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Table of Contents
INTRODUCTION...........................................................................................................................3
A) ORGANIZATION'S PERFORMANCE THROUGH RATIO ANALYSIS..............................3
B) INVESTMENT APPRAISAL TECHNIQUES AND DECISION MAKING TOOLS.............7
a) Net present value (NPV)..........................................................................................................7
b) Internal rate of return (IRR).....................................................................................................9
c) Data interpretation and results for management....................................................................11
d) Optimal investment policy.....................................................................................................12
C) FINANCIAL SOURCES AND DECISION MAKING PROCESS FOR ADEQUATE
INVESTMENT..............................................................................................................................13
CONCLUSION..............................................................................................................................15
REFERENCE.................................................................................................................................16
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INTRODUCTION
Financial management is one of the main approach that is helpful for fund allocation
impacts on profitability of organization. It is related to making decisions for investment and
getting sources for business operations. The present report is based on understanding financial
management tools of outdoors plc including ratio analysis and different investment appraisal
techniques. However, several kinds of ratios involving liquidity, profitability, debt equity and all
that presents organization's performance effectively. In addition to this, several tools and
techniques for expansion of firm, increasing internet sales as well producing greenhouses and
conservatories are to be described through this assignment. Moreover, net present value and
internal rate of return is to expressed. Along with this, different decision making tools are to be
obtained for appropriate investment. Hence, students are able to understand significance of
financial management of expansion of outdoors plc and enhancing this efficiency through this
report.
A) ORGANIZATION'S PERFORMANCE THROUGH RATIO ANALYSIS
It is a form of financial statement analysis that is used to measure or to find the financial
position of the organization. Ratio analysis have several categories i.e. debt management ratio,
asset management ratio, market value ratio, short term solvency ratio. In other words we can say
that it evaluate various aspects of operating and financial liquidity, profitability, efficiency and
solvency. It is based on accounting information (Adrian, Etula and Muir, 2014). It is the first step
in the financial analysis. It helps to compare organizations financial performance with industry
average. It helps to find out the relationship between two variables or figure.
However, ratio analysis is financial component that presents overall performance of
business organization. Including this, different kinds of ratios are determined that evaluates
liquidity, profitability, debt equity and all for making decisions regarding further business
operations. Including this, comparison of last years financial positions is compared therefore,
appropriate decisions can be made to operate business activities in future time. According to this
given case scenario, outdoors plc aims to expand its flourishing retail outlet, develop into interest
sales and producing greenhouses and conservatives (Andréadès, 2013). Therefore, it is required
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to obtain monetary position of organization at first. In this process, decision maker recognizes
economic profile through ratio analysis. Some of the main ratios can be measured as below:-
profitability ratio:-
Under this ratio analysis, profit earning capacity of outdoors plc is determined that
presents economic profile of the company. In this regard, gross profit and net profit margin are
evaluated (Bakand, Hayes and Dechsakulthorn, 2012). However, determining profit margin is
one of the great tool for effective profitability. In this process, profit margins and last years
performance can be recognized as below:- Margin:- As per presented collected data, it is identified that in 2011, company earned
7.3% profit on production and distribution for camping, walking, skiing and
mountaineering. Further, in 2012 and 2013, the profit ratio is decreased by 0.1% and
0.3% respectively in comparison to 2011 performance. It is due to imbalanced production
and distribution of services and changes in environmental factors. However, by
formulating and implementing strategic plans, in further years this profit ratio get
increased as 7.5% and 7.8% in sequence. Therefore, according to current financial
position, it is analyzed that financial performance of organization is quite moderate
therefore it is needed to work upon it and increasing its profitability through strategic
planning and decision making for effective business operations.
 Return on assets:- Under this ratio analysis system, manager of the organization
identifies return on investment in last 5 years. However, in 2011 company gained 18.3%
which is quite effective and also it was able to develop organization's efficiency and its
sustainability. In this process, by analyzing next further years' financial position, it is
obtained that return on assets value get fluctuated due to some circumstances and
ineffective business operations. In this process, in 2012 and 2013, company's return on
asset is 18.2% and 16.2%. Similarly, calculating return on asset for 2014 and 2015 by
dividing trading profit to net operating asset, the value is identified as 17.6% and 16.3%
sequentially. It is flexible rate that is needed to be stable for effectiveness and making
decision for economic stability. On the basis of this data interpretation, it is evaluated that
organization requires to increase its profitability and effectiveness in business operations.
Interest and dividend cover
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