Financial Analysis and Cost Management

The provided assignment covers various aspects of financial management, including cost analysis, activity-based costing, direct allocation method, least-squares regression method, and strategies for reducing operating costs. It also includes references to research papers and books on the topic, as well as online resources. The document is suitable for students in accounting or business programs who need to complete assignments or past papers in financial management.

Managing Financial
Principles and Techniques

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Determining the costs in the pricing strategy of a company............................................1
1.2 Designing a costing system for a firm..............................................................................5
1.3 Evaluating the costing and pricing techniques for business.............................................7
TASK 2............................................................................................................................................7
2.1 Application of forecasting techniques to enhance the costs and revenue decisions for firms
................................................................................................................................................7
2.2 Analysing the availability of funds for the business operations.......................................9
TASK 3..........................................................................................................................................10
3.1.........................................................................................................................................10
3.2.........................................................................................................................................10
3.3 Comparison of actual expenditures with the master budget...........................................11
3.4 Determining the budgetary monitoring process in an entity..........................................12
TASK 4..........................................................................................................................................13
4.1 Presenting the process for cost management in entity....................................................13
4.2 Determining the use of activity based costing method...................................................15
TASK 5..........................................................................................................................................17
5.1 Application of the financial appraisal techniques..........................................................17
5.2 Justifying the strategic investment decisions for organisation.......................................19
5.3 Reporting the appropriateness of strategic investment decision by implicating the post
audit appraisal.......................................................................................................................20
TASK 6..........................................................................................................................................20
6.1 Analysing the data set to determine the financing viability of firm...............................20
2. Computation of financial ratios........................................................................................21
6.3 Recommending the strategic portfolio of the organisation............................................22
CONCLUSION..............................................................................................................................23
REFERENCES..............................................................................................................................24

INTRODUCTION
The motive behind presenting principles and techniques that will be fruitful for enhancing
the performance of organisation. In there present report there will be determination and analysis
of various costing principles and techniques which are need to be implement by a firm.
Therefore, such techniques will be helpful in terms of enhancing the performance, efficiency as
well as revenue gathering of the entities. Allocating the costs to any task and operations will help
firm in estimating the required level of funds for the business operations. Therefore, on the other
side it can be said that with the help of such analysis the business will have adequate amount of
revenue generation and tat will be helpful for further industrial activities. The report also
contains various forecasting techniques which will help the managerial professionals in any
organisation in terms of revenue decisions as well as determine the availability of the funds for
the further organisational activities.
There will be presentation of appropriate budgetary targets and the preparation of master
budgets that will be helpful for the growth of entity as well as fund generation of the business.
Therefore, these methods will be helpful for the venture in context with investment decisions and
profitability of the projects. Analysing and interpreting the reports will be fruitful as to enhance
the operations of the firm. To analyse the costs it will be beneficial for the firm in terms of
pricing decision, setting the organisational objectives and analysing the profitability from such
tasks. It will also help the business in proper management, adequate utilisation of the resources
such as men, material, machineries and funds.
TASK 1
1.1 Determining the costs in the pricing strategy of a company
In accordance with allocating the costs to the business activities which will be beneficial
in terms of analysing the profits from such operations as well as the ability of firm in terms of
meeting such expenditures. Therefore, in these regards the firm need to make effective pricing
decision which will be appropriate to meet the demands of firm as well as helpful in revenue
generation. The rates over products and services must be affordable by the consumers as well as
it will be profitable for the entity in terms of attaining the proper revenue on the long term basis.
However, there has been various techniques and methods that will help them in allocating the
prices to the products and services such as:
1

Profit Driver: There has been dramatic changes in the performance as well as in the
revenue generation of the organisation which will be on the basis of consumer reactions on
preferences toward a price and rate over any products and services offered by a company. Here
the hotel has various rate to its room in accordance with the variation in the seasons (Barr and
McClellan, 2018). Therefore, it will be beneficial for them in high seasonal time were they can
make profitable earnings as compared with other seasons.
Value based pricing: The prices are to be developed over the products and services as
per the observations made by professionals. There is need to make research over the different
organisation and the rate implied by them over the various categories of services (Ward and
Forker, 2017). Therefore, in these regards it will be helpful as the managers will have proper
informations regarding the industrial operations as well as determining the rates over such
services.
Premium pricing: In relation with this technique it can be said that the managers and the
professionals determine the prices over the products and services with the additional features. It
can be understand as they offer the prices higher over the similar products and services which is
profitable for them in terms of having the adequate gains (Sun, 2017). This can be said that the
prices are base on “Skim the Cream” concept on which buyers found it will be profitable for the
and they happily spend more of the same categories of products and services.
Price- Quality Basis: Here in this method where the professionals plans the costs of the
products and services which are going to be offered to the buyers are comparatively more but
they increase the quantity of the services and the products offered. Therefore, in this situation the
business will go to have the adequate revenue generation and that will be helpful for them in
terms of having the favourable brand image (Tsai, 2017). Thus, it will be fruitful for them in
terms of having the favourable quality of services as well as income generation for the business.
Competition: The price will be fixed by the managerial professionals on the basis of
competition available in the market. It can be analysed on the basis of prices set by various other
competitors over the same level of products and services facilitated by them. Therefore, it will be
helpful for them in terms of making the adequate plan for setting the prices (Borgonovo and
et.al., 2018). It will be beneficial for them as they allocate low rate than the rivalry firms. This
will help them in generating the adequate revenue as well as attracting the large numbers of
consumers.
2

Brand awareness: The prices are to be decided by them with consideration of the brand
image thus, the rates are not to be too cheap or luxurious. Therefore, it can be said that value
services which are to be considered as well as manage by the firm. It must be affordable and
must be reliable over the products and services offered by them (Barr and McClellan, 2018). The
rates must be appropriate as it should help the organisation to have better reputation in the
market.
Uniqueness: The services and products facilitated by the firm should have uniqueness
and bunch of services offered by them. However, with the implication of the innovative
techniques the business will become able to gather the large numbers of consumers (Ward and
Forker, 2017). Hence, this will be beneficial in future as they will go to have proper income
generation as well as have growth in the operational activities of the venture.
Particulars High Season Middle season Low season
Price 80 60 40
Direct cost/ Room 15 8 8
Average Occupancy Rate 80.00% 70.00% 30.00%
No. of Rooms 24 21 9
Revenue generated by such rooms 1920 1260 360
Day* months 30*4 30*4 55*2
Total Days 120 120 112
Revenue (€) 230400 151200 40320
additional rooms 20
price of additional rooms 25
Duration 5
Income from additional rooms 2500
Total income (€) 230400 151200 42820
Less: Direct variable costs 43200 20160 8064
Less: Direct variable costs additional rooms 800
Less: Fixed charges 20000 20000 20000
3

Profit (€) 167200 111040 13956
Interpretation: In accordance with the above mentioned table it can be said that the
managers has planned to allocate prices over the numbers of rooms on the basis of different
seasons. However, it will be fruitful for them in terms of attaining the adequate amount of
revenue as well as gaining the fruitful gains. As per the profits generated in the high season
which is competitively higher than the other seasons. Here the professionals has fixed the costs
over services such as 80 per rooms on the with 80% of occupancy that means 24 rooms are being
reserved out of 30. There will be direct variance costs of 15 per room and the revenue will be
determine on the basis of days. This was fixed by them as per month they will estimate the costs
over the rooms on the basis of 30 days. Therefore, in the high season the period was of 4 months
and during that period the income was being gathered by them for 230400. The variable cost of
43200 and the fixed cost of 20000 will be reduced and the net profit has been generated by them
as 167200.
On the other side, The middle season also has the period for 4 months and at the rate of
60 per room. There has been occupancy of 21 rooms during that season which has facilitated the
revenue of 151200. The direct variance cost of 20160 as 8 per room has been deducted from the
revenue with fixed charges of 200000. Therefore, the total profit earned by the firm is amounted
to 111040. The profit gathered during this period is comparatively lower than higher season.
However, In accordance with the low season the prices are too cheap as compared with
the other seasons such as 40 and with the same direct cost as in middle season for 8 per room.
There is 30% of occupancy which means 9 rooms were booked during this season. As per the
additional information there has requirements of 20 rooms for 5 days. Therefore, the 9 rooms has
been occupied for the period of 55 days at the rate of 40 per room as well as the direct variance
costs for 8 per room on the same period. In the 5 days of November the 20 rooms were booked
on comparatively low rate such as 25 per room and which amounted to 2500. However, after
analysing all the direct variances and fixed charges over it the net profit will be analysed as
13956 for the low season.
4

Therefore, after analysing the profits earned by hotel in all the period which is helpful for
them in terms of earning the adequate revenue and having the fruitful operations. In
consideration with the low season transactions it can be said that firm is earning adequately in
the high season while in the low season the revenue generation is comparatively below the
expectation. However, it can be said that there is need to have proper pricing techniques which
will help the hotel in terms of retain the favourable gains. In context with facilitating the 20
rooms as 25 of the price for 5 days which is the cheapest rate but in accordance with earning in
the low season it has brought the profits to the firm.
1.2 Designing a costing system for a firm
To improve the financial health of the organisation as well as make the adequate changes
in the operations of the business there will be need of developing a costing system. Therefore,
such techniques will help the organisation in having the proper funds for the business operations
with appropriate utilisation. However, there has been various methods which will be helpful for
the entity to have better growth and performance:
Direct cost method:
These are the costs which will be charged over a service department to another
department. Therefore, it will be beneficial as a particular department will be helpful with the
capital help by another unit (Cannavacciuolo, Illario, Ippolito and Ponsiglione, 2015). However,
with the help of assigning the costs to each departments of the entity on the basis of it overheads
and requirements it will be helpful for the ongoing business operations. These methods can be
used by service department as if there are differences in the level of operations performed in each
departments. Loure D will be beneficial as is she follow this technique. It can be understand as
per the differences in each departments as shown in the below listed example:
Direct allocation method (€)
Departments Overheads
Room service 45000
Kitchen 65000
Human resource 20000
Safety and security 24000
Marketing 35000
5

Reallocation % for each
departments
room
service Kitchen
Human
resource
Safety and
security
marketi
ng
X 30.00% 25.00% 30.00% 15.00%
Y 25.00% 40.00% 25.00% 10.00%
Answer:
Solution
Apportion service units overheads
Units sum of %
room
service Kitchen
Human
resource
X 30+25+30=85 30/85 25/85 30/85
Y 25+40+25=90 25/90 40/90 25/90
room
service Kitchen
Human
resource
Safety and
security
marketi
ng
Allocation of overheads in each
departments 45000 65000 20000 24000 35000
Dept. X 15882.35 19117.65 7058.82 -24000
Dept. Y 12500 28888.89 5555.56 -35000
Total 73382.35 113006.54 32614.38 0 0
However, the above listed example has helped in terms of having the appropriate
knowledge relevant with how a business can allocate overhead in each deportment of business
(Direct Allocation Method, 2013). It is beneficial in determining the proper requirements in each
unit and information about what amount of costs will be required in each units of the firm.
Management Accounting system:
6

This technique will be helpful for the firm in terms of decision making, cost controlling
as well as investments planning., however, the management accounting is used for the internal
auditing of the organisation (Waters, 2015). Here, the managerial and accounting professionals
analyse the costs implicated in each departments and piece of operations and then analyse the
actual requirement as well as revenue gathered by such units. This will be beneficial as these
professional make efficient decision to lower down the costs r to increase the funds for such
operational units. It includes various reporting and presentation of accounts as well as
preparation of budgets as to enhance thee efficiency of entity.
Responsible person for reporting:
There has been various departments in the organisation and each unit must have adequate
record of each business transactions which are need to be recorded by the professionals.
However, the disclosure of the financial health of an organisation is the prime responsibilities of
the board members, chairperson, executive directors, audit committee, accountants as well as
mangers various department (Christ, and Burritt, 2015). Therefore, in consideration with the
internal environment of the organisation thee are different units and departments and each of the
units has their own managers, head, leader and supervisor who executes the work and manager
the workforce to make efforts. Thus, it can be said that with the help of such analysis the
business will have better performance and profitability.
1.3 Evaluating the costing and pricing techniques for business
In accordance with the scenario of the business operation it can be said that there is need
to have adequate improvements in the operational activities of the Hotel as to have better cost
control. Here, uncle of Laure D. has proposed to have the reduction on such rooms which not
booked at that time and were vacant throughout the season (Subramaniam and Watson, 2016).
However, it will be helpful for them in terms of not paying of rent and electricity or various non-
operating costs on them. Thus, it will not enough as to improve the profitability of the firm
during the Low season. Hence, it will be recommended to such stakeholders that they must make
appropriate improvements in the operations of the business as well as generate the profitable
gains that will be beneficial to have proper improvements.
7

TASK 2
2.1 Application of forecasting techniques to enhance the costs and revenue decisions for firms
To estimate the total requirement of costs and funds for the business operations it can be
said that there will be adequate requirement of the funds which will be beneficial for them in
terms of making the adequate changes in operations as well as present the fruitful reasons to
lower down the costs levied over each operations. However, with the help of statistical
measurements it will be helpful in terms of having the proper information.
The Least square regression line method:
This is the mathematical technique which will be beneficial for the business in terms of
having the adequate estimation of total cost on the level of activities performed by the
organisation (Least-Squares Regression Method, 2013). However, this can easily be analysed
with the help of scatter diagram. It can be seen in the below listed measurements and the scatter
diagram such as:
Particulars
Number of Nights in
Hotel (X)
Numbers of nights in
Studios/ Apartments (Y) X² X.Y
2014 22000 16000
484000
000
3520000
00
2015 23000 26000
529000
000
5980000
00
2016 22500 27500
506250
000
6187500
00
Total 67500 69500
151925
0000
1568750
000
Particulars Formulas Details
Outcom
es
Unit variable cost (b) n∑xy- ∑x.∑y
3*1568750000-
67500*69500
150000
00 10
8

n∑x²- (∑x)² 3*1519250000- (67500)²
150000
0
Fixed cost (a) ∑y- b∑x 69500- 10*67500
-
605500
-
201833.
33
n 3 3
Cost volume formula Y= -201833.33 + 10
2013 2014 2015 2016 2017
0
100000000
200000000
300000000
400000000
500000000
600000000
700000000 f(x) = 133375000x - 268227708333.333
R² = 0.807960839
f(x) = 11125000x - 21910458333.3333
R² = 0.2444652483
Number of Nights in Hotel (X)
Numbers of nights in Studios/
Apartments (Y)
X²
Linear (X²)
X.Y
Linear (X.Y)
9

2.2 Analysing the availability of funds for the business operations
To estimate the possibility over obtaining the funds and their costs will be based on the
accounting treatment over various business operations. However, it will be helpful for the
business in terms of making the adequate changes in such operations.
Balance-sheet as on year ended 31/12/2016
Assets
Amount
(€) Liabilities
Amount
(€)
Fixed assets 335000 Equity 430000
studios 200000 Bank loan 100000
cash 15000 Operating Liabilities 20000
Total 550000 Total 550000
10

TASK 3
3.1
Cash Flow Budget
Particulars Initial 1 year 2 year 3 year 4 year 5 year
Revenue from sale of land 75000
External contribution (family) 25000
Bank loan @2.75% 100000
Owner's remuneration 11408 11408 11408 11408 11408
Total Cash inflow (€) 200000 11408 11408 11408 11408 11408
Costs/ Expenses
Exploitation yield on average per
month 125488 125488 125488 125488 125488
interest on loan 2750 2750 2750 2750 2750
Total cash outflow (€) 0 128238 128238 128238 128238 128238
Total balanced CF 200000 200000 83170 -33660
-
150490
-
267320
Total CF (€) 200000 83170 -33660
-
150490
-
267320
-
384150
3.2
Master Budget
Particulars March April May June July August
No. of Rooms 24 24 21 21 21 21
Prices 80 80 63 63 63 63
Days 30 30 30 30 30 30
Total Revenue from operations 57600 57600 39690 39690 39690 39690
Sale of land before tax 750000
New Partner contribution 25000
Total Revenue (€) 57600 82600 789690 39690 39690 39690
11

Less: Direct variable costs 10800 5760 5040 5040 5040 5040
Less: Fixed Expense
Fixed charges 20000 20000 20000 20000 20000 20000
Investment payments 40000 40000 40000 40000 40000 40000
Total Expenses (€) 70800 65760 65040 65040 65040 65040
Cash 40000 26800 43640 768290 742940 717590
Total CF (€) 26800 43640 768290 742940 717590 692240
Forecasted Balance-sheet
Balance-sheet as on 31/08/2017
Assets
Amount
(€) Liabilities
Amount
(€)
Fixed Assets 335000 Investment Payment 40000
Cash 692240 Capital investment 25000
Equity 430000
Operating Liabilities 20000
Accounts Payable 498490
Interest on loan 13750
Total Assets 1027240 Total Liabilities 1027240
3.3 Comparison of actual expenditures with the master budget
Particulars
Actual
(€)
Budgeted
(€)
Variance
(€)
Variance
%
No. of breakfast 675 662 13 1.96%
Cost 2025 280 1745 6.23%
Sales revenue 1366875 185360 1181515
6.3741637
894
12

Interpretation: On the basis of above comparison and the variance analysis of actual
sales made by organisation and the budgeted gains, it can be said that the firm has huge gains as
compared with the budgets. However, the variance of their gains can be analysed as 1181515 at
the 6.37%. It can be understand as per the segmentations such as:
Quantities: As per the budgets analysed by the professionals in the firm which represents
that there will be estimation of sales for the quantity of 662 at the cost of 280 per breakfast.
However, as per the percentage of occupancy were made during the period as the weather was
pleasant which in turn attract the large numbers of consumers in the Hotel. There has been
increment of the 75% of occupancy during that period and which are result in the making the
sale of 675 units at the cost of 2025. Therefore, the firm has made more revenues as per the
numbers of sales as well as increment in the total prices of the breakfast meals. There variance of
the quantity were served is 13 as of 1.96%.
Prices: In context with the budgeted costs of the selling quantity was 280 while during
that period there has been increment in the quantity as well as in the prices such as 2025.
However, it can be said that with the help of such increment and the professional strategies to
rise the prices has made favourable gains for the business. Therefore, the Hotel has charged 1745
Euros more than the budgets charges. It was 6.23% more than the expected ones.
3.4 Determining the budgetary monitoring process in an entity
In terms with deciding the budgets for the development and growth of the organisation it
can e said that there will be need to have most efficient and effective budgets for the operational
aspects of firm. The budgets are planned as to have proper utilisation of resources and
controlling the costs spend over operations of business. However, there has been various ways
and methods that will be helpful for monitoring and reporting the internal budgets for the
consistent and regular basis. It will be helpful for the entity in terms of meeting the targets on
time as well as analysing the profitability in such operations (Cannavacciuolo, Illario, Ippolito
and Ponsiglione, 2015). To monitor the budgets of entity which will be beneficial for deciding
the costs, motivating staff to make efforts in terms of attaining the organisational targets of time.
It will be beneficial as the professionals will utilities proper amount of funds for the operations
and make the further forecasting decisions. The process of monitoring budgets can be analyses
as:
13

 Constantly and regularly monitor the budgets as well as present reports of each
department among the managerial professionals as well as top level stakeholders of the
firm. These will be beneficial for them as they will become able to make changes in
operations, funds and make fruitful decision to achieve the goals.
 After implications of the budgets there is need to have revision of it which will be fruitful
in terms of coordinating the process and preparing the healthy budgets that will help in
increasing the efficiency of firm (Christ, and Burritt, 2015).
 Regular forecasting of the costs and budgets will be beneficial in context with managing
the gap between actual outcomes and the budgeted ones. However, it will be beneficial as
the professionals will have the quick decision making and which will be beneficial for
them to attaining the organisational targets.
 To determine the accuracy and timeliness of the budgets which will be helpful in context
with adequate modification or changes in the budgeting process. Therefore, in these
regards the week points can be improved or modified by the professionals in the entity.
Budget Variance: To have the proper informations regarding the budgeted costs of the
operations with the actual costs incurred. There will be differences in these amounts and which is
known as Variance of such amounts (Öker and Adıgüzel, 2016). However, it can bes aid that if
the excepted costs of such operations is high than the actual costs than such remaining amount
will be used for the future operations. Hence, in this case Laure D. will be suggested that she
must make use of such variance amount for the ongoing business operations.
TASK 4
4.1 Presenting the process for cost management in entity
In order to manage the costs and quality of operations in the Hotel Laure D. has been
suggested various process on which she can become able to manage the costs of the operations.
This is necessary that an organisation must have favourable amount of funds for the operational
tasks such as paying dividends, production, purchasing, marketing and selling (Cucchiella and
Rosa, 2015). However, it will be beneficial as the professionals will analyse the outcomes of
such activities and make their decisions which will be relevant with rising the funds or reducing
14

it. There are several strategies which will be helpful for business in terms of reducing the
operating costs of entity such as:
Budget, Plan and Monitor: To present the budgets for the business operations which in
turn helps the organisation to have the favourable gains as well as analyse the non profitable
activities. The budgets are prepared on the basis of historical and present data and the
professionals at firm will make the estimation of sales, expenses and the level of production to be
made by them in the future (Cucchiella, D’Adamo and Gastaldi, 2015). It will be beneficial for
them as they will analyse the actual gains from the budgeted gains of the organisation. Therefore,
after preparation of the budgets this is necessary that the qualified professionals such as
accountants and auditors need to monitor the budget and motivate the workforce to make efforts
for attaining the aims of organisation. Therefore, with the help of such execution they will make
effective decision which will helpful in reducing the costs as well as generate the adequate
revenue for the business growth and development.
Review Purchasing Procedures: There is need to have proper analysis over the
requirements of the firm. However, in Hospitality industries there will be huge requirement of
perishable nature of goods in the kitchen and restaurant area of the Hotel such as ingredients,
vegetables etc. However, there will be need to analyse the adequate requirement of the goods for
the business operation. It will be beneficial for the entity as to control spendings over buying
products (Kallala and et.al, 2015). There is need to assign the duty to the qualified and talented
professional who will make adequate decision as to rise up the funds for the business operations.
Review Suppliers: There is need to have proper consolidations and record of all the
suppliers of the organisation. Therefore, it will be beneficial for them as to enhance the business
operations as well as make the adequate changes in the operational activities of the firm (Titman,
Keown and Martin, 2017). In terms of making payments to the creditors and receiving money
from debtors this consolidation will be beneficial as the professionals will easily analyse their
gains and profitability.
Analysing the expenses of firm: The professional are required to analyse the expense
incurred by the firm in the operational activities. There will be variations in the level of duties
and jobs performed by the employees in the organisation and they are performing in the different
departments. It will be beneficial as the managers and supervisors will ask workers about level of
15

costs required by them while performing the jobs. However, it will be favourable term for the
organisation as to make adequate reduction in the costs as well as proper utilisation of the
invested funds.
External help: It will use by an organisation as if the internal sources are not adequate to
meet the targets of the firm as well as they are not capable of bringing the proper outcomes.
Therefore, there will appointment of the external individual who will help in determining the
costs as well as suggest various techniques on which the entity can control such expenses.
However, it can be financial consultants, auditor etc. who perform their duties on the
contingency (Strategies For Reducing Operating Costs, 2018).
Determination of the available resources: Instead of waiting for the operational gains
there can be various sources through which the firm will have adequate revenue. In terms with
the hospitality industries it can be said that they can gather the adequate amount of funds form
investments, selling shares etc. However, it will be favourable as if the professionals will make
adequate utilisation of the available resources such as material, workforce and the amount of
funds which are invested in the company (Christ, and Burritt, 2015). There is need to implicate
techniques such as benchmarking and various performance appraisal methods that will be
beneficial for the entity as to enhance the productivity and profitability.
4.2 Determining the use of activity based costing method
To enhance the budgeting and cost control techniques in the premises there will be need
of making the adequate changes in the business operations. Thus, with the help of activity base
costing technique it can be said that there will be proper allocation of resources on the basis of
level of activities in each department (Subramaniam and Watson, 2016). The costs can be
analysed on the basis of determining the level of operations performed by the firm, implication
of laborious efforts in completion of such duties as well as requirement of funds in these
operations. The main motive of professionals in the firm as to analyse the costs over activities as
well as make the necessary efforts, decision and strategic plans that will help in reducing the
costs of operations. These techniques help in proper decision making and adequate changes will
be made by the professionals in terms of enhancing the business performance. However, it can
be analysed on the basis of following method such as:
16

 Analysis of Activities: In terms of analysing costs over the piece of work there will be
need to determine the adequate amount of costs required in such operations of the
business. The professionals need to determine the activities which will be value-adding or
non value -adding, primary or secondary as well as which are essentially required by the
firm of not (Cannavacciuolo, Illario, Ippolito and Ponsiglione, 2015). Therefore, in terms
of making the adequate analysis over the activities which are to be required in the firm
and that will bring something in return are to be further proceeded by the professionals.
 Cost data gathering: This will be beneficial for the business in terms of making the
adequate analysis over the operations and determination of the costs will be spend by the
professionals in terms of completions of activities. However, it will include the expense
mainly over Research and development, material purchase costs, equipment costs, wages
to the employees etc. These are the costs which are need to be paid by the firm in terms
of completion of the production. However, in accordance with the Hotel business there
will be mainly costs are relevant with the accommodation facilities, maintenance and
repairs as well as worker remunerations (Öker and Adıgüzel, 2016). However, these are
the main units at which the professionals can make appropriate reduction in the costs
such as implicating the adequate use of machineries more than laborious efforts that will
have the promptness in the operations as well as help the firm in acquiring the adequate
amount of revenue.
 Tracing expenses to the operations: This refers to determining the costs and expense
incurred while producing the products as well as identifying the adequate outcomes
received by them. Here the managerial professionals analyse the adequate amount of
return they are having form the industrial operations such as preparation of food, room
services, salaries to the kitchen and other staff (Waters, 2015). These are the activities
which will require the higher costs and are need to be managed and monitored by the
professionals in the organisation. The decision of the professionals are based on level of
amount invested in a particular operation as well as the amount of return obtained by the
firm. However, it will be fruitful for the business in terms of making the adequate
performance and enhance the profitability by reducing the costs in such operations.
17

 Determination of metrics: In terms of determining the costs over products there will be
adequate increment in the printability and revenue generation of the organisation. Here in
this technique the professionals analyse costs over the products and make the adequate
efforts to reduce the costs with the help of metrics. There will be measurement of actual
costs on each initial piece of work and the bill operations (Christ, and Burritt, 2015).
There will be analysis over the units costs form the total inputs made by the firm in such
operations of the business. Therefore, it will be beneficial for the entity as to analyses the
return as well as make necessary efforts to reduce the costs of such activities (Activity-
Based Costing (ABC), 2005).
 Cost analysis: This will be beneficial for the firm in terms of analysing the adequate
amount of costs for the business operations which will be controlled and reduces by
them. Professionals make plan and strategies to improve the performance of the
organisation in the hospitality sector there are several departments and each department
needs proper execution (Cucchiella and Rosa, 2015). Therefore, here the professional will
make adequate strategies as to reduce the costs over operations as well as make necessary
decision to make changes in such operations. Their decision is based on the motive of
attaining the adequate amount of profits as well as reducing the costs of the operations.
TASK 5
5.1 Application of the financial appraisal techniques
Machine A:
Years Machine A
Maintenance
(€)
Cost of
machine
(€)
Initial investments 12000
1 2500 200 2700
2 2500 200 2700
3 2500 200 2700
4 2500 200 2700
5 2500 200 2700
18

13500
Particulars Formula Outcomes
Payback period Initial investment 12000 4.44
Cash flow per period 2500+200
ROCE Net operating profit 13500 1.125
Capital employed 12000
Years Machine A
Initial investments -12000
1 2700
2 2700
3 2700
4 2700
5 2700
IRR 4.06%
Machine B:
Years Machine B
Maintenance
(€)
Cost of machine
(€)
Initial investments 15000
1 5000 500 5500
2 5000 500 5500
3 5000 500 5500
4 5000 500 5500
22000
Particulars Formula Outcomes
Payback period Initial investment 15000 2.73
19

Cash flow per period 5500
ROCE Net operating profit 22000 1.47
Capital employed 15000
Years Machine B
Initial investments -15000
1 5500
2 5500
3 5500
4 5500
IRR 17.30%
Net present value:
This is the technique which will be beneficial for the operations of the organisation as it
helps them in analysing the present value of the future cash flow. However, it will be fruitful for
the professionals in terms of making the adequate efforts as well as analysing the profitability of
the projects and new planing for the future (Cucchiella, D’Adamo and Gastaldi, 2015). This will
be beneficial for the organisation as they analysis the level of outcomes they will about to receive
in the future. Therefore, there are several techniques which will help the professionals in
determining the fruitfulnesses of the investments such as:
Favourable/ Positive NPV: The outcomes represents that the project will be beneficial
for the organisation in terms of making the adequate efforts as well as utilise the appropriate
amount of funds for the completion of the business operations. Therefore, presents that the
inflows are more than the outflows over the project and that will have the positive result at the
time of expected completion period of the period (Kallala and et.al, 2015). Thus, it can be said
that the positive value of the cash flow which indicates that the projects must be accepted as it
will be fruitful for the industrial operations. Therefore, in terms with enhancing the operations of
Laure D.'s Hotel there are mainly requirements of costs for the maintenance of the
accommodation facilities and for the staff remunerations. Thus, the analysis will be made over
20

the expansion of the business operations and introducing new piece of work that will bring the
adequate revenue generation for them.
Negative NPV: It indicates that the project will be unfavourable as well as non profitable
for the business. Therefore, the professionals were suggested to stop making plans and decision
for the success of these operations. In accordance with this technique thee negative outcome will
be recovered by the measurement. It can be said that the inflows are less than the outflows
(Titman, Keown and Marti, 2017). Therefore, this will be non profitable and the professionals
need to stop spending over it. In terms with the hospitality sector if the NPV calculations reflects
negative balance than Laure D. has to make changes in the operations of the business as well as
plan for getting appropriate amount of revenue.
Neutral NPV: In this case if the NPV reflect the zero balance than it can be said that all
the inflows and outflows are same and balanced. It means the professionals will not have losses
from such project and it will be chances that they will have profitable gains from such projects.
Therefore, it can be said that here they can accept the project and make plans to enhance the
revenue generations and increase the profitability.
5.2 Justifying the strategic investment decisions for organisation.
To have the fruitful decision which will help in enhancing the performance of the
organisation there are many techniques that will help Laure D. in terms of overcoming with the
costs of operations as well as have the profitable gains. However, to improve the operational
performance of the organisation the mathematical technique will be beneficial such as:
Sensitivity analysis: This technique will be beneficial as it determines the amount of
independent variables and their impacts over a particular dependent variable on the facilitated
data set. Therefore, it will be favourable to analyse the professionals will become able to analyse
the adequate interest rates and the return form the operations. Laure D. is making investment in
the two machines such as A and B.
However, in this case the Machine A and B were analysed on the basis of their various
financial appraisal or capital budgeting techniques. Therefore, in these regards it can be said that
Machine B has the most preferable outcomes and it will be beneficial for the operations of the
business (Subramaniam and Watson, 2016). In relation with the IRR analysis of both the
21

machines. B is more capable of facilitate the higher rate of returns, that means the business will
have favourable amount of earning and gains as it make the purchase of machine B. Thus, in this
case it can be said that Laure D. must proceed the operations for Machine B as it will be more
fruitful and profitable for the firm in terms of attaining the best revenue.
5.3 Reporting the appropriateness of strategic investment decision by implicating the post audit
appraisal
In order to have the preferable amount of revenue there is need to implicate the adequate
techniques that will be beneficial for the business in terms of enhancing the performance.
However, the strategic investments decision are need to be made by the firm which will be
helpful for the business in terms of enhancing the operations as well as making the necessary
efforts to attaining the goals of firm (Cannavacciuolo, Illario, Ippolito and Ponsiglione, 2015).
However, in accordance with the firm's investment in the Machine A and B it can be said
that Machine B will be profitable. This is because it helps in facilitating the adequate amount of
returns over the invested capital as well as helpful for the industry in terms of enhancing the
profitability. As the business will have favourable and higher rate of IRR than it will be
beneficial for them to have the adequate gains in the future.
TASK 6
6.1 Analysing the data set to determine the financing viability of firm
It can be interpreted that La choc company is gone with severe changes which is reflected
by financial statements such as balance sheet, income statement and cash flow statement. As
income statement shows that net income of company in 2014 financial year was 302 which has
gone negative in financial year 2015 as it is -266. This means that loss has been incurred in the
financial year 2015 as net income after deducting costs and taxes comes to negative. Moreover,
sales are also decreased up too much extent. This means that company need to have control on
various expenditures quite effectively so that income may exceed costs quite easily. This is
important for company to formulate effective and well-structured strategies so that it may earn
profits in the best possible way (Minnis and Sutherland, 2017).
Furthermore, statement of financial position which shows assets and liabilities of
company at a particular point of time. From the balance sheet, it may be analysed that total assest
are also decreased from previous year. As it was 6189 in 2014 financial year and has come down
22

to 5935 in 2015 financial year. On the other hand, liabilities are increased as financial debts and
borrowings are more taken by La choc organisation which is seen in non-current liabilities in the
section. Borrowings taken in 2014 was 2611 and is in 2015 financial year, it is around 3133
which clearly shows that loan is taken more in financial year 2015. As such, firm need to make
timely payment of loan so that profitability may be increased and as such, efficiency may be
maintained with much ease.
Cash flow statement which shows cash generated or utilised by company is also not
good. It involves three activities such as operating, investing and financing activities. It can be
seen that cash is generated in operating activities after charging amortisation, depreciation and
working capital. On the other hand, investing activities are in negative form which conveys that
business is growing positively and as it is purchasing more non-current assets than it is selling.
This is a positive sign as it shows company is stable and is growing positively (Berger, Minnis
and Sutherland, 2017). The financing activities is -460 which shows that La choc is paying
dividends from operating activities. It can be said after analysing financial statements that
financial health of company is not effective and it is required that it may formulate effective
strategies so that profits may be earned and it should control on various costs as well.
2. Computation of financial ratios
Particulars Formula 2015 2014
Profitability ratios
Net profit margin Net income / sales -0.03% 0.03%
Return on Assets (ROA) Net income / total assets -0.04% 0.05%
Liquidity ratio
Current ratio
Current assets / Current
Liabilities 1.98 : 1 1.76 : 1
23

Acid-test ratio
Liquid assets / Current
liabilities 0.9 : 1 0.69 : 1
Efficiency Ratios
Inventory turnover ratio COGS / Average inventory 16.70% 17.05%
Average length of customer
credit
Receivables / turnover x
360 (days) 10.02 13.73
Financial ratios are being calculated of La choc organisation. Financial ratios are
effective way of providing clear picture of financial health and condition of company in effectual
manner (Paul and Mitra, 2017). As, it can be interpreted from the above calculations that
financial position of the organisation is not overall effective. Starting from net profit margin
ratio, in 2014 it was 0.03 which was not good but in 2015, it has become negative which clearly
shows that organisation is not earning profit and costs are not controlled which has led to
expenditures exceed income.
Coming to ROA, in 2014 financial year, figure was 0.05 % which has come to negative
figure 0.04 % in 2015 year. This means that company is not able to generate profit from the
assets employed in the business which has led to negative value. As such, it should formulate
effective strategies so that assets may be utilised fully. Liquidity position of La choc is good as
both current and acid-test ratio of both years are overall good and are close to ideal ratio. As a
result, it can be seen that company will be able to meet short-term liabilities with much ease
(Caro, Guardiola and Ortiz, 2018).
Furthermore, efficiency ratio such as inventory turnover reflects that organisation is
effectively utilising inventories which are shown as it is around 17 % in both years but is
declined in 2015 financial year. This means that company has strong sales. Lastly, average
length of customer credit shows that company is not able to collect timely payments from credit
customers as in 2014 year, it was 13.73 which had reduced to 10.02 in 2015 financial year. This
means that company should make strict credit policies so that it may get timely payments.
24

6.3 Recommending the strategic portfolio of the organisation
To have the better financial growth as well as increment in the financial performance of
the organisation there is need to make efforts that will help in enhancing the profitability of these
chocolate factory, Choco. There are several ways on which they can be make efforts to provoke
the financial liquidity of the firm such as:
A. Strategic portfolio:
In accordance with such techniques it can be said that the business has to disclose all the
relevant information which are being used in the operational aspects of the firm such as daily
operations, customer services etc. These are the operations which are need to be included in the
portfolio of the entity (Öker and Adıgüzel, 2016).
B. Opportunity cost:
These are the costs which are need to be analyse by the firm as to analyse the alternative
costs and assuming the best choice of the operations to be made (Waters, 2015). However, it can
be said that, these are the estimation over the operations and help the processionals in
determining the best opportunity of the business.
C. Profitability or cash flow:
In terms with determine the most suitable terms that will help in revenue gathering of the
firm. There are various financial terms such as profitability and cash flows of the period.
Therefore, it can be said that income statement will reflect the profits gained by the entity in the
period with adjusting the total gains and losses, incomes and expenses (Christ, and Burritt,
2015). On the other side, the cash flow statement will be beneficial as it determines the total
inflows and outflows made the firm in the operational aspects.
CONCLUSION
On the basis of above study it can be said that there has been analysis of various
accounting and financial terms with the use of adequate tools and techniques. Laure D is having
financial data set and the relevant adjusted entries which were analysed and a fruitful decision
has been recommended to her to enhance the financial health of firm. Therefore, there has been
presentation of budgets and financial statement that reflect the overall gains and losses will be
25

obtained by them in the future. Further, there has been analysis of ratios on the given data set of
La Choc on the basis of liquidity, profitability and efficiency.
26