Introduction to Finance

Introduction to finance

Table of Contents
Question 2........................................................................................................................................3
Question 4........................................................................................................................................4
a. calculation of capital budgeting technique...............................................................................4
b. Difference between discounted and the non-discounted techniques of an investment
appraisal and the reasons behind rare use of the discounted payback technique ........................8
REFERENCES................................................................................................................................1

Question 2
Particulars Formula Primetime (£ 000)
Dimetime (£
000)
Gross profit 600 1100
Revenue 3000 2100
GP margin
Gross Profit
/sales*100 20.00% 52.38%
Net profit 180 250
Revenue 3000 2100
NP margin
Net profit /sales
revenue*100 6.00% 11.90%
Current asset 1100 1100
Current liabilities 100 290
Current ratio
Current
assets/Current
Liabilities 11 3.79
Receivables 1000 1000
Revenue 3000 2100
Receivable days
Average
Receivable/reve
nue*365 121.67 173.81
Payables 100 190
Cost of sales 2400 1000
Payables days Average
payables/cost of
15.21 69.35

sales*365
Long term debt 1000 200
Equity 1800 2010
Debt equity ratio Debt/equity 0.56 0.10
Interpretation- From the above analysis it has been determined that the liquidity and
profitability performance of Dimetime is better than Primetime. This is been stated because
gross profit margin of Dimetime is greater than Limetime which means that after paying off all
the cost relating to sales, an enterprise is generating larger profits as compared to its competitor
(Farrés and et.al., 2015). Similarly, Net profit ratio of Dimetime is higher that is 11.90% than
Limetime equates to 6% which clearly shows that former company is capable of earning
sufficient and high amount of profits in comparison to its rivalry after meeting all its expenses,
cost and taxes.
Moreover, current ratio depicts the liquidity position of the company where the ratio of
Limetime is seen as too high that is 11 which means that it focuses more on current assets and
does not manage its current assets effectively against its current liabilities (Bragg, 2018).
However, current ratio of Dimetime is said to be better than Limetime because its ratio is close to
the ideal ratio that is 2:1 that in turn means that it makes an effective use of the current assets.
Efficiency and solvency position is also reflected as sound of Dimetime because its debt
equity ratio resulted as lower than Limetime (Varadharajan and et.al., 2015). This indicates that
company has managed its borrowings against its equity and does not highly rely on funding its
projects through external borrowings. Furthermore, it takes and provide adequate time in paying
and receiving the amount of money to its debtors and the creditors in order to maintain its
efficiency in its operational performance.
Question 4
a. calculation of capital budgeting technique
Table 1Project A cash flows
Project A
Year Cash flows Depreciation