International Finance: Proposal Evaluation and Cost of Capital

INTERNATIONAL FINANCE

TABLE OF CONTENTS
INTRODUCTION ..........................................................................................................................1
MAIN BODY...................................................................................................................................1
a) Benchmarking financial results of client company against the Oxford Instruments and
preferred proxy company. ...........................................................................................................1
b) Spreadsheet model forecasting impact of proposal over next five years of business case and
critical evaluation of proposal using investment appraisal techniques and the benchmarking. . 2
c) Estimate of cost of capital considering risk neutral DVM and risk changing approach
CAPM..........................................................................................................................................5
d) Critical evaluation of proposal as standing and recommendations for improving viability of
proposal. ......................................................................................................................................6
e) Evaluating how company could meet the funding requirements ............................................7
f) Critical discussion of corporate social responsibility raised by proposal................................8
g) Conclusion providing recommendation for the proposal or otherwise...................................9
CONCLUSION ...............................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
It refers to broad term which describes the activities associated with the leverage,
banking, capital markets, debt, credit, investments and money. It also encompasses creation,
oversight and the study of banking money, assets, investments and the liabilities making up
financial systems. The report is focused on Wandsleigh Wand ltd which is privately owned firm
focusing over manufacture of the technology products under the licence. The stated aim is to
compete with the Oxford Plc. Benchmark financial results of client company will be provided. It
will cover a spreadsheet model covering the impact of results of the analysis. It will provide
estimate of cost of capital of company. Critical evaluation of the proposal, sources for meeting
funding requirements. Critical discussion of CSR in proposal will also be discussed.
MAIN BODY
a) Benchmarking financial results of client company against the Oxford Instruments and
preferred proxy company.
Profitability Ratios Wandsleigh Oxford Xaar
Sales Growth
(T/o 2020 – T/o 2019) / T/o
2019 14.29% 12.36% 18.31%
Gross Margin (Gross Margin / T/o Sales) 43.75% 53.06% 24.22%
Net Profit Margin EBIT/ T/o 31.25% 10.49% -24.07%
ROCE
EBIT/ Capital employed =
EBIT/(debt+equity) 13.00% 14.00% -16.25%
ROE
Net income / Shareholders'
Equity 17.56% -18.60%
ROTA EBIT/Total Assets 9.13% -13.53%
Asset Turnover Revenue / Capital Employed 133.44% 67.50%
Activity Ratios
Stock Turnover Ratios (Inventory / COGS)*365 141.711 157.60
Receivable Days (Receivables / Turnover )*365 85.670 67.31
Payable Days (Payables /COGS)*365 272.468 71.02
Cash Operating Cycle
(Inventory days+Receivable
days-Payable days) -45.087 153.89
Liquidity Ratios
1

Current Ratios
Current Assets/Current
Liabilities 1.2:1 1.332 3.57
Acid Test Ratios
Current Assets-Inventories/
Current Liabilities 0.876 2.47
Cash Ratio
Cash & cash equivalents /
Current Liabilities 0.264 1.69
Gearing Ratios
Debt to Equity Ratios
(Long term debt/ share capital
& reserves )*100 0.138 0.039
Capital Gearing Ratios
(Long term Debt / Capital
employed)*100 0.112 0.034
Interest Coverage Ratio EBIT/ interest charges 10.441 -108.100
Investor Ratios
P/E Price/ EPS 26 N/A
EPS
Net income / shares
outstanding 0.520 -92.1
ROE
Net income / Shareholders'
Equity 0.176 -0.186
Dividend cover EPS/ Dividend per share 0.036 N/A
Dividend Yield
(Dividend per share/ share
price)*100 0.013 N/A
It could be reviewed from the above financial ratios that the financial position of the
client company against the Oxford instruments has to be improved and as regards the Xaar it is
much stable and efficient. Client company Wand has to further increase the efforts and strategies
to improve the turnover. Financial ratios shows that profitability of the clients company is closer
to Oxford. The activities ratios shows that the Wand ltd is required to improve the efficiency of
company. Liquidity of the Wand Ltd is near to benchmark level and stronger than Xaar which is
running negative in liquidity position. It has to increase liquidity a bit more (Kavussanos and
Visvikis, 2016). The gearing ratio of the company has to be reviewed by the company as it is
below the benchmark level. Evaluating the investor ratios it could be identified that the company
is above the benchmark level of returns
2