EXECUTIVE SUMMARY Thebelowreporthaveevaluatedtheimportanceoffinanceandmanagementin leadership. From the report, it can be seen that Barclay's new idea of developing its product market and launch its new Barclay's Airline is most effective in terms of achieving growth and success. Along with it, the prepared financial plan elaborates in what manner the company can gradually reach towards required growth in the upcoming year of 2020, 2021, and 2022. It can be seen that as per its market reach and reputation the new airline business can maximize the efficiency of the business and can help it to reach new level of growth and development.
TABLE OF CONTENTS EXECUTIVE SUMMARY.............................................................................................................2 INTRODUCTION...........................................................................................................................1 MAIN BODY...................................................................................................................................1 Ansoff Matrix.........................................................................................................................1 BCG Growth-Share Matrix....................................................................................................1 Net present value....................................................................................................................3 Financial Plan.........................................................................................................................4 Break Even Analysis..............................................................................................................5 Projected Profit and Loss........................................................................................................6 Projected Cash Flow...............................................................................................................7 Projected balance sheet:.........................................................................................................9 Financial ratios.....................................................................................................................10 CONCLUSION..............................................................................................................................11 REFERENCES..............................................................................................................................13
INTRODUCTION It is one of the most important aspect for a business to have effective financial systems in place to achieve required set of growth and development. The topic of the report is finance in leadershipin management.The below report identifies the financial plan of a new business venture. The chosen organisation for the report is Barclay's. The organisation is a British investment bank and company that provides financial services. It is headquartered in London. The report is going to explore the Barclays launch of a new product which is Barclay's Airline. It is going to highlight, the important aspects such as it break even analysis, projection of profit and loss, projection of cash flow, projection of balance sheet and financial ratios. MAIN BODY Ansoff Matrix Below mentioned are the core strategies which the organization needs to make use of while launching its airline:Market Development:In development of market, Barclay's can develop its market by targeting its existing products to new segments of market. It is not possible for the firm to make use of this strategy because the idea and the product is new.Product development:In this strategy, the organization tends to develop new products into its existing segments of market. Barclay's in order to launch its airline can make use of this strategy.Market Penetration:In market penetration, the firm tends to seek or achieve new growth by selling its existing products in to the current segments of its market in order to increase the market share. It is not possible for the Barclay'sbecausethe product and the idea is totally new for the firm. Diversification:This strategy needs to be used by the Barclay in order to launch and gain new market reputation while launching its new Airline in the market. In diversification strategy, the organization grows by diversifying into new businesses from developing new products and new markets. BCG Growth-Share Matrix The BCG Growth-Share matrix is a portfolio planning model which is developed by Bruce Henderson. The matrix is based on the observation that a company's unit of the business can be classified into four categories which are based on combinations of market growth and 1
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market share relative. Below explores is the usage of BCG Matrix in order to identify the reason Barclay's is seeking to launch its new airline: (Source: Strategic Management, 2018)Dogs:The category of the dogs have the lowest market share and a very low growth rate as well. The personal banking service of the Barclays is the one which is most effective one since past one decade(Bushee and et.al., 2018). The organization is investing huge sums of money in order to provide its clients with effective personal banking services. This money which is tied up here is having a very little potential and it is making its business facing losses. It is important for the business to reach new potential and ensure that required growth is being achieved. In order to ensure this, Barclay's has decided to enter into new markets, and this is where it chosen to launch its Airplane airlines.Question Marks:The segment of question mark explores those areas of a business which grows rapidly and consumes large amounts of cash. Also, they have a low market share which does not allow them to generate much cash(Whitehead, 2015). The corporate banking sector of the Barclay's is in this category. The corporate sector of the company is consuming a large amount of money and is making it difficult for the organization to ensure required achievement of growth and objectives. In order to ensure this, it is 2 Illustration1: The BCG Growth-Share Matrix
important for the organization to launch its new Airplane airlines to make it possible to achieve set growth and development(Zin and et.al., 2018).Stars:The star category products generate a large amount of cash because of their strong market share which is relative but they also consume large amounts of cash. The wealth management is the part of Barclays which arrive in the star category of the business (Flower, 2018). It tends to produce and generate large amount of cash because of its strong market share but it also consumes a large amount of share. It is important for the organizationtomaintainanequanimityinordertoachieverequiredgrowthand development and ensure products market reach. In order to do this, the company has decided to grow its products and services on large platforms by launching Airplane airlines(Widiatama and et.al., 2018). Cash Cows:The cash cows of the organization exhibit a return on assets which is greater than the growth rate of the market. In order to ensure this, it is important for the organization to have such assets in control. These assets provide the organization with new growth and development opportunities. Barclay's from the last recession has reduced its weight age of assets and has suffered from growth aspects. In order to regain its growth, the organization has ensured that its development goes accordingly, it has ensured development of Airplane Airlines(Zinovchuk, 2016). Net present value Calculation of net present value of the company Net Present ValueNet cash inflow Discounting factor @10%Present value Initial investment£75,000.00 2020£545,000.000.909£495,454.55 2021£613,929.000.826£507,379.34 2022£678,910.130.751£510,075.23 Total present value£1,512,909.11 Less: Initial investment-£75,000.00 Net present value£1,437,909.11 Interpretation 3
The net present value is the method used in the financial accounting which helps in determining the present value of difference between future cash inflows and cash outflows of the business organisation (Allen, 2016). This technique helps theBarclay’s in analysing the future value of its own business organisation. From the above calculation of the net present value of Barclay’s, it can be interpret that the net present value of factorsof the company after completion of 3 yearswould be £1,437,909.11. If the business makes an initial investment of £75,000.00, it would gain a sufficient amount of cash inflow to the business. Further, the above calculations are also showing that the cash inflow from the investment made by the Barclay will also help the company in enhancing its cash inflows into the business. In this regard, from the above calculations it can be analysed that the Barclay is going to be a profitable company in the near future. The amount of cash inflows from its initial investment will result in enhancing the amount of cash inflows from the business through which its financial condition would grow rapidly and would become unable to achieve its business objectives easily and effectively as well.Financial Plan In order to enhance the profitability and financial capacity of the business, a financial plan has been developed. With the help of this financial plan, Barclay would be able to determine its future positioning. The financial plan of Barclay includes a break even analysis of the company as to help it to analyse number of units to be sold by the business in a particulars period as to generate the set objectives of business. Further, it also includes various budgeted or forecasted financial reports like cash flow statements, income statements, balance sheet, etc. these reports would provide information about the future profitability and liquidity of Barclay(McCall, 2018). In addition, with the help of these statements, the company would also become able to determine the areas where the funds would be needed to invest and areas from which it could generate the funds as to maintaining sufficiency of cash in the business. In this regard, the financial plan will help the Barclay in maintaining efficiency in its business operations. 4
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Break Even Analysis Break even analysis202020212022 Fixed cost600060006000 variable cost12098125 selling prices280280280 Break even analysis= Fixed cost/ (Selling price- variable cost)37.5032.9738.71 Interpretation Break even analysis can be defined as a financial measure that helps in detecting the number of goods or services to be sold by the business in order to achieve its goals relating to the profit earnings of a company. This analysis will help the Barclay’s in determining the minimum amount of goods and services to be sold by them. This analysis helps the managers in development of the best marketing and selling strategies for the firm. Through which the company could achieve its business objectives and goals. AftertheevaluationsitcanbeseenasthemonthlyBreak-evenanalysisofthe organisation is keep increasing. It is allowing the organisation to reach and develop its products 5
and services to the required potential and ensure new market reach during its launch of the Air- plane Airlines. Its variable cost is declining over the year which is showing enhancement of the efficiency of business that is the main cause of enhancing efficiency of the break even analysis of business. Projected Profit and Loss Net profit/ loss -100000 0 100000 200000 300000 400000 500000 600000 -60750 425250 480677 532897 Initial investment 2020 2021 2022 The projected profits of the organisation can improve from a low sales percentage in year one (2020) to a modest sales percentage. In year two (2021), the expected sales are as per the peak and are at respectable in year three and thereafter as well. In gross number, the organisation is creating a healthy profit in the second year of its operations. Forecasted income statement Particulars Initial investment202020212022 Sales revenue£560,000.00£627,200.00£702,464.00 Less: Cost of goods sold£20,000.00£20,500.00£21,012.50 Gross profit£540,000.00£606,700.00£681,451.50 Operating expenses Payroll£-£2,500.00£2,500.00£2,500.00 Marketing/Promotion£-£3,000.00£3,150.00£3,307.50 6
Depreciation£-£1,000.00£1,025.00£1,050.63 Rent£-£2,000.00£2,000.00£2,000.00 Utilities£-£1,500.00£1,500.00£1,500.00 Purchasing crafts£40,000.00£-£-£- Equipment£35,000.00£2,000.00£-£10,000.00 Insurance£-£1,200.00£1,218.00£1,236.27 Payroll Taxes£-£800.00£828.00£856.98 Other£-£1,000.00£1,050.00£1,102.50 Total operating expenses£75,000.00£15,000.00£13,271.00£23,553.88 Operating profit-£75,000.00£525,000.00£593,429.00£657,897.63 Less: corporate tax @ 19%-£14,250.00£99,750.00£112,751.51£125,000.55 Net profit/ loss-£60,750.00£425,250.00£480,677.49£532,897.08 Interpretation Income statement shows the profitability of business organisation. It includes all the incomes and expenses incurred by the company while performing its business operations(Mills 2018). The forecasted income statement of the Barclay shows various operating and non operating expenses that would be incurred by the business in upcoming 3 years. The forecasted income statement of the Barclay shows information about estimated operating and non operating incomes and expenses to be incurred by it in the future. With the help of this forecasting the managers of it would become able to analyse and evaluate each expense of the firm, detecting the areas at which expenses could be eliminated or reduced accordingly, and develop their most effective strategies accordingly. Further, by analysing the above budgeted income statement, it can be interpreted that the company is going to generate sufficient profits from the business. As it can be seen that the profit of Barclay would rise yearly, it can be evaluated that it is a profitable company which is going to enhance its profit margin over the year. Projected Cash Flow The cash flows ofthe business plan tend to flow positively from the infusion which is initial infusion of the investment that needs to be taken forward. It is going to produce 7
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continuous cash as long as the target of sales being met. The borrowing is only required if the seasonal fluctuations occur or if the plans of expansion are accelerated further. It helps the business to grow and achieve its required growth. The chart below illustrates the accumulation of first year cash during its formative stage. Forecasted cash flow statement Particulars Initial investment202020212022 Airline services Number of travelers£2,000.00£2,240.00£2,508.80 Average costs£280.00£280.00£280.00 Total revenue£560,000.00£627,200.00£702,464.00 Total revenue (Cash inflow)£560,000.00£627,200.00£702,464.00 Operating Expenses Payroll£2,500.00£2,500.00£2,500.00 Marketing/Promotion£3,000.00£3,150.00£3,307.50 Depreciation£1,000.00£1,025.00£1,050.63 Rent£2,000.00£2,000.00£2,000.00 Utilities£1,500.00£1,500.00£1,500.00 Purchasing crafts£40,000.00£-£-£- Equipments£35,000.00£2,000.00£-£10,000.00 Insurance£1,200.00£1,218.00£1,236.27 Payroll Taxes£800.00£828.00£856.98 Other£1,000.00£1,050.00£1,102.50 Total operating expenses (Cash outflows)£75,000.00£15,000.00£13,271.00£23,553.88 Net cash flow-£75,000.00£545,000.00£613,929.00£678,910.13 8
Capital invested£250,000.00 Bank loan£400,000.00 opening cash balance£650,000.00£575,000.00£1,120,000.00£1,733,929.00 closing cash balance£575,000.00£1,120,000.00£1,733,929.00£2,412,839.13 Interpretation Cash flow statement is kind of financial report that shows information relating to areas showing future cash inflows and outflows of cash and cash equivalents from the business (Robinson and et.al., 2015). The statement helps in determination of liquidity in the overall businessorganisation.Further,forecastedincomestatementswillhelptheBarclay’sin determining the future liquidity of it. Maintenance of liquidity is important for enhancing its capacity in repaying the debts, therefore, it is required by each company to maintain sufficiency of liquidity in the business. From the analysis of above budgeted cash flow statement of the Barclay, it can be analysed that Barclay will invest a sum of £650,000. Company will invest a capital of 250,000 and further will take a bank loan of 400,000 for operating its business. The company will need to invest in various operating activities like equipment, insurance, rents, etc. for running its normal course of business activities. Moreover, the forecasted cash flow statement shows that the net cash flow of business will raise over the year. It would lead in enhancement of capacity of the business in maintaining sufficiency of cash and cash equivalents in Barclay’s. It would lead in helping the firm in its smooth running. Projected balance sheet: Foretasted balance sheet Particulars Initial investment202020212022 Assets Current assets Cash£575,000.00£5,266,768.13£613,929.00£678,910.13 Inventories£5,000.00£2,657.00£567,102.00£784,163.00 Debtors£4,200.00£4,300.00£4,400,339.00£650,067.00 9
Total current assets£584,200.00£5,273,725.13£5,581,370.00£2,113,140.13 Fixed assets Aircraft£3,654.27£4,441,328.00£4,055,484.00 Machinery£35,000.00£12,000.00£4,654,130.00£6,754,421.00 Equipment£40,000.00£50,000.00£461,454.00£781,511.00 Total fixed asset£75,000.00£65,654.27£9,556,912.00£11,591,416.00 Total asset£659,200.00£5,339,379.40£15,138,282.00£13,704,556.13 Liabilities Current liabilities Creditors£3,000.00£123,586.00£345,302.00£426,726.00 Short term debts£2,200.00£111,496.00£1,158,092.00£2,266,130.00 Total current liabilities£5,200.00£235,082.00£1,503,394.00£2,692,856.00 Non-current liabilities Long terms debts£4,000.00£499,800.40£958,188.00£7,984,300.13 Bank loan£400,000.00£783,000.00£9,680,000.00£1,138,000.00 Total non-current liability£404,000.00£1,282,800.40£10,638,188.00£9,122,300.13 Total liability£409,200.00£1,517,882.40£12,141,582.00£11,815,156.13 Equity Capital invested£250,000.00£3,821,497.00£2,996,700.00£1,889,400.00 Total liability and equity£659,200.00£5,339,379.40£15,138,282.00£13,704,556. Interpretation Balance sheet of a company shows its actual financial position. It includes information about the net value of assets and liabilities held by the business at particular time. The budgeted balance sheet of Barclay has been made for 3 years. It is showing that the financial position of the business is going to become more effective in the near future. The forecasted balance sheet of Barclay is predicting good future condition of it. By analysing various elements of the balance sheet, it can be interpret that the company may face a problem regarding insufficiency of current assets as to pay its debts as the current assets of Barclay is not seems to be sufficient for repayment of current liabilities. In this order, the 10
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company is needed to develop polices and plans as to increase the amount of current assets over the current liabilities and develop its sustainability in the market. Financial ratios Required information Particular202020212022 Gross profit£540,000.00£606,700.00£681,451.50 Sales revenue£560,000.00£627,200.00£702,464.00 Operating profit£540,000.00£606,700.00£681,451.50 Net profit/ loss£425,250.00£480,677.49£532,897.08 Total current assets£5,273,725.13£5,581,370.00£2,113,140.13 Cost of goods sold£20,000.00£20,500.00£21,012.50 Total current liabilities£235,082.00£1,503,394.00£2,692,856.00 Credit purchase400000450000467000 Number of employees125153175 Calculating forecasted financial ratios ParticularFormula Amount 202020212022 Gross profit ratio Operating profit / sales revenue * 10096.4296.7397.00 Current ratioCurrent assets / current liabilities22.433.710.78 Operating profit margin Operating profit / sales revenue * 10093.7594.61693.66 Return on ordinary shareholders fund Profit for the year (less any preference dividend) / ordinary share capital * 10011.1216.0428.20 Return on capitalOperating profit / share capital +£12.82%10.63%91.22% 11
employed reserves + non current liabilities * 100 Sales revenue to capital employed ratio Sales revenue / share capital + reserves + non current liabilities12.8210.6391.22% Sales revenue per employeeSales revenue / number of employees£28,000.00 £28,509.0 9£28,098.56 Gearing ratio Long term liabilities / share capital + reserves + long term liabilities * 10012.82%10.63%91.22% Average settlement period to trade payable Average trade payable/credit purchase*365£112.77£280.08£333.52 Sales revenue per employeeSales revenue/number of employees£4480£4099.35£4014.08 Interpretation: financial ratios are the bets measure for determining the financial condition of a business. Various ratios like gross profit margin, current ratios, quick ratios, etc. helps in having an effective analysis of some important measures like profitability, liquidity, effectiveness in operating activities, etc. Therefore calculation of financial ratio has also been included as a part of financial ratios. By interpreting the forecasted financial ratios prepared on the basis of its forecasted income statements, and balance sheet, it can be evaluated that the gross profit margin ratio of the Barclay will grow over the year. It shows the higher range of profitability of the business in near future. Further, by analysing the current ratio of the business, it can be interpret that the current ratio of the Barclay is keep declining(Suksantilap and et.al., 2017). It is showing that the company would not be able to maintain liquidity in the near future. Therefore, managers of Barclay needs to develop effective strategies for it as to maintain its liquidity and help in not suffering from winding up position. As insufficiency of funds for repayment of debts i.e. lack of liquidity may result in winding up of the business. 12
Moreover, operating profit ratio of a business organisation shows the efficiency of business i.e. operating earnings of the firm over its operating expenses. The operating ratio of the Barclay is not growing with stability. As forecasted ratios of company, operating ratio of business will rise in 2021 and would again decline to 93.66%. although, operating profit at this percentage can also not be considered as a bad or unfavourable ratio, butis it may decline in further years as well. It may cause in reducing the profitability of company. In addition, all other major ratios like return on capital employed, sales revenue per share, gearing ratio, return on ordinary share capital fund, etc. are keep increasing. This is providing positive reflection of the forecasted performance of business organisation. By analysing and evaluating all the financial ratios, it can be interpret that the Barclay will have a sustainable financial condition over the year(Torquati and et.al., 2018). As its liquidity would be decline over the year, its managers are needed to develop effective strategies in maintaining more cash and cash equivalent assets as compare to its current liabilities. Further, as the operating profit of the Barclay would not remain stable in the future, it would also need to develop more effective plans so that its operating profit can also be raise rapidly and business could gain a rapid growth. CONCLUSION From the analysis of above business plan, it can be concluded that the Barclay should launch their new airlines. By analysing the BCG matrix of the development plan, it can be concluded that it should launch its new product in different markets as per the BCG analysis. Strategies for launching new Barclay’s Airline in each market should be developed on the basis of BCG matrix analysis. It would help the business in reducing its risks and gaining maximum profits. Further, the financial plan prepared in the study has also concluded that development and launching of the new products in the market would lead in enhancing its profitability and would provide a rapid growth to it. Although, the financial plan has also shown some weak points if the business like maintenance of liquidity, generating profitability, etc. managers of Barclay needs to develop effective strategies and plans of the business accordingly so that the weaknesses of firm could be eliminated and its profitability could be enhanced. 13