Managerial Finance: Financial Analysis and Capital Investment Appraisal

Managerial Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
Portfolio 1 – Financial analysis........................................................................................................3
A. Evaluation of report for the potential investors which analyses is for finance and suggest
which organization is better:..................................................................................................3
B. Analysing the performance of both the company with the help of Ratio:.........................8
C. Recommendation for the poor performing company:......................................................11
D. Limitations of financial ratios to measuring a company’s performance:........................12
Portfolio 2 – Capital Investment Appraisal...................................................................................12
A. Using appropriate investment appraisal techniques, advise senior management on whether
they should opt for project A or project B............................................................................12
B. Discuss the limitations of using investment appraisal techniques in long term decision
making..................................................................................................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................18

INTRODUCTION
In the below report, first task determine the two companies financial statements which
analysed by calculating two year financial ratio of each company (Aggarwal and Raja, 2018).
Ratio describe the financial position, growth or expansion of the company Shell and BP plc by
obtaining the difference of two years. In this report, ten types of ratios are calculated, such as
current ratio, Quick ratio, operating profit ratio, gross profit margin, return on capital employed,
Average inventories turnover ratio period, debtor's days, creditor's days, gearing ratio and
earning per ratio. In second task, two projects are provided Project A and Project B in which 6
years cash flow and initial cash investment for both plants will be £ 100000 given. This report
calculate the NPV of both the project for advising the senior management on whether they
should opt for project A or project B. It also discuss the limitation of using investment appraisal
technique in long term decision making.
Portfolio 1 – Financial analysis
A. Evaluation of report for the potential investors which analyses is for finance and suggest
which organization is better:
Computation of financial ratio of company Shell :
Current Ratio : Current assets / Current Liabilities
For year 2020,
= 90695 / 73951
= 1.22 times
For year 2019,
= 92689 / 79624
= 1.16 times
Quick Ratio: Quick assets / current Liabilities
For year 2020,
= 71238 / 73951
= 0.96 times
For year 2019,
= 68618 / 79624
= 0.86 times

Operating Profit Ratio: (Operating Profit / net sales) * 100.
Working Note
Operating Profit of 2020= Revenue – COGS – operating expenses
= 180543 - ( 19457+117,093-24071) – 33882
= 180543 – 112479 – 33882
= 34182
Operating Profit of 2019 = Revenue – COGS - operating expenses
= 344877 – (24071+ 252983 – 21117) – 36931
= 344877 – 255937 – 36931
= 52009
For year 2020,
= (34182 / 180543) * 100
= 18.93%
For year 2019,
= (52009 / 344877) * 100
= 15.08%
Gross Profit Ratio: (Gross profit / net sales) * 100
For year 2020,
= (68064 / 180543) * 100
= 37.79%
For year 2019,
= (88940 / 344877) * 100
= 25.78%
Return on Capital Employed: EBIT / Capital Employed
For year 2020,
= (26967) / 305317
= (0.088)
For year 2019,
= 25485 / 324712
= 0.078