A Firm's Investment Decision in a European Hotel Chain

The assignment content discusses the benefits of Europe in terms of high return for organizations, highlighting the need to consider various factors that impact pricing decisions. Additionally, it emphasizes the distinct purposes behind using financial statements and how companies like Tate PLC prepare and publish their statements to maintain stakeholder faith.

MANAGING FINANCIAL
RESOURCES AND
DECISIONS

TABLE OF CONTENTS
1. Introduction............................................................................................................................................3
2. Sources of finance for business..............................................................................................................3
2.1. Type of business..............................................................................................................................3
2.2. Sources of Funds.............................................................................................................................3
2.3. Comparing and contrasting right issue of shares and loan notes....................................................6
2.4. Source which proves to be more suitable for raising finance.........................................................7
2.5. Advising source of finance for working capital to the board of directors ......................................7
3. Financial statements...............................................................................................................................8
3.1 Statement of profit and loss.............................................................................................................8
3.2 Statement of balance sheet...............................................................................................................8
3.3 Statement of cash flow statement.....................................................................................................9
3.4 Advising board of director in relation to the financial planning which proves to be more
beneficial for Taste PLC.........................................................................................................................9
3.5 Calculation of company's current earnings per share.......................................................................9
4. Investment appriasal............................................................................................................................10
4.1 Benefits of net present value method of investment appraisal.......................................................10
4.3 Calculation of the payback period and net present value for European investment opportunity. .10
4.4 Recommending the board of directors by evaluating investment opportunities............................11
4.5 Defining the concept of unit cost ..................................................................................................12
4.6 Factors needs to be considered while setting prices for their output.............................................12
5. Cash flow vs profit...............................................................................................................................13
5.1 Main trends which are in the cash flow of organization................................................................13
5.2 Importance of the financial planning.............................................................................................13
5.3 Reason due to which company faces the liquidity issues or problems..........................................13
5.4 Users of financial statements and their needs...............................................................................14
6. Interpretation of the financial statements.............................................................................................15
6. Ratio analysis of Taste PLC.............................................................................................................15
Interpretation of ratios..........................................................................................................................15
6.2 Overall opinion on the company's current performance................................................................16
7. Differences in financial statements of sole traders, partnership and limited companies.................16
CONCLUSION........................................................................................................................................17
REFERENCES.........................................................................................................................................18

1. INTRODUCTION
Successful run of a business enterprise depends upon the level of financial stability that
company maintains. However, looking at the present corporate environment in UK, it is important for
companies to manage their financial position in order to maintain competitive edge. Present report
focuses on evaluating and analysing the financial aspects of various PLC's such as Taste and Drink.
Hence, sources of finance required by the firm to carry out its business and its implications to select the
appropriate source for the investment are discussed in the report (Herman, 2011). Thereafter, researcher
suggests three different financial plans for the benefit of shareholders by using WACC. Along with this,
investigator calculates the current earnings per share of Taste PLC so that shareholders can make smart
and effective judgement regarding future contingency.
Thereafter, report focuses on different appraisal methods to evaluate and analyse the reliability
and validity of investment. Concept of unit costs has been considered and the factors that management
should consider while setting the prices of their products and services are focussed here. Further,
research illustrates the reason by which company can be profitable but run into problems with its
liquidity in terms of financial planning. Lastly, by using four financial ratios, researcher will analyse
the profitability and liquidity performance of Taste plc and differences in the financial statements
between sole traders, partnerships and limited companies.
2. SOURCES OF FINANCE FOR BUSINESS
2.1. Type of business
There are various types of business organizations such as sole proprietorship firm, partnership
firm as well as public and private limited organization. As per the case scenario, Taste plc is the public
limited organization whose main objective is to maximize the benefit by satisfying the needs of
customers.
2.2. Sources of Funds
In order to expand the business, it is essential for the firm to raise funds so that effective
expansion can be carried out. By operating in catering business, constantly increasing competition is
enforcing the firm to enhance their business operations for maintaining their competitive edge. There
are several sources of finance available to the top level management of Taste PLC through the help of
which they can easily carry out expansion strategy in an effective and efficient manner. However,
management is intended to invest $1000000 in buildings and non-current assets. Thus, various
available sources are as follows:

Long term sources of
finance
Features Benefits Drawbacks
Bank loan There are several
financial institutions
available that are
providing corporate
loans for companies at
affordable interest rates
(Bratton and Gold,
2012).
The main benefit of this
source is that it can be
generated easily as
company has to
complete mere legal
formalities. Along with
this, repayment of loan
is based on monthly
instalments which are
feasible for the working
capital perspective of
Taste PLC.
The major drawback of
this source is that
company has to make
payment of interest even
if they are in economic
crisis. This leads to
make the financial
position unstable and
increases the amount of
debt for the firm.
Issue of shares Being a public limited
firm, it is relatively easy
for Taste plc to either
issue IPO or FPO. Both
issuing does not have
major differences but
one of the main
differences is that IPO is
issued to attract new
shareholders while, on
the other hand, FPO is
used to raise funds from
existing shareholders.
Thus, through the means
of this source,
management of Taste
PLC can generate
intended large amount
There are various
benefits of raising funds
through shares such as
amount generated is not
repaid to shareholders as
well as no major
liability arises on the
functioning of company
(Mitchell, 2013).
While on the other hand,
drawback of this source
is that company has to
make the payment of
dividend to its
shareholders as the part
of profit. This may lead
to decrease in net profit
margin of the firm.

that will help in the
expansion strategy.
Long term leasing Leasing is another
important source of
finance. It provides
opportunity to the
company to make use of
fixed asset for the
predetermined period
without making huge
investment on it with
the intention for
purchase.
The main benefit of
leasing is that company
does not have need to
make large investment
of the fixed assets.
Through this, company
can use this money in
the other productive
activities.
Leasing organization
charge periodical
amount for the use of
the assets which impose
high financial cost in
front of the company.
Short term sources of
finance
Features Benefits Drawbacks
Bank overdraft It is also the main short
term source of finance
which can provide
financial assistance to
Taste PLC for the
limited period of time.
In this, company can use
money in excess which
is available in their bank
account up to a certain
limit.
One of the main benefit
of bank overdraft is
interest is charged only
on the fund which is
utilized by an
organization. Besides
this, if credit rating of
customer is good then
bank is ready to give
overdraft facility to their
customers.
In bank overdraft,
organization has to pay
high rate of interest as
compared to other credit
sources which impose
financial cost in front of
the company.
Letter of credit Financial institution
issues letter of the credit
to the seller of goods
and services. In this,
One of the main benefits
is that on the basis of
the financial security
financial institution are
For this facility,
financial institution
charges high interest
rate which creates

financial institution
takes responsibility to
give payment on the
behalf of the company.
ready to give credit to
the organization.
financial burden in front
of the company.
Leasing In leasing, Taste plc has
the opportunity to take
benefit from the assets
without making huge
investment on it.
Tax deduction is one of
the main benefits which
compel organization to
make use of the asset
without purchasing it.
Taste plc requires
paying periodical rent to
the real owner of assets
which imposing high
financial cost in front of
the organization.
2.3. Comparing and contrasting right issue of shares and loan notes Right issue: It can be defined as a form of dividend in which organization provides right to its
existing shareholders to purchase the shares of company. In this, firm initially offers the shares
to its existing investors instead of others. Right issues are usually undertaken by PLC because
they prefer to raise finance through issuing of equity shares rather than issuing of debt. Taste is
also the PLC which prefers to raise fund from the equity sources. Whereas, loan notes are the
financial instruments in which borrower provides a written form to the lender which contains
interest rate that borrower has to pay (Mitchell, 2013). It also consists of the time in which
Taste PLC needs to repay the whole amount of debt. Loan stock: Company also issues the loan note which can be easily convertible into equity
shares after a predetermined time period. Raising fund from right issues proves to be more
beneficial for Taste PLC as compared to debt issues. When company fulfils its financial needs
through its existing shareholders then it does not have need to incur extra expenses to attract
them. Besides this, financial position of Taste PLC is sound so, organization is able to attract its
existing shareholders. In contrary to this, corporation can meet its financial requirements
through debt issues. For this, company has to pay interest to the holders of loan notes after a
regular interval. As compared to equity sources, raising finance through loan notes imposes
high cost in front of the organization.
 Implications of the right issue of shares: There are several implications of right issue of shares
upon the organization, invests and financial statement of an organization. In right issue
company issue shares to their existing shareholders. Thus, corporation does not have need to

make expenses of prospects and other floating cost. Besides this, when company issue right
share then it place positive impact upon the existing and potential shareholders. Along with it,
voting rights of the investors are also increases when company offers right share to the
investors. In addition to this, amount of share capital is increases in balance sheet when
company issue right shares. Thus, liability side of the organization is also increases which
imposes financial obligation in front of the company.
2.4. Source which proves to be more suitable for raising finance
On the basis of above sources, Taste PLC needs to meet its financial requirements through an
issuance of equity shares. It proves to be more beneficial for meeting the needs such as building and
non-current assets. It does not create financial burden in front of company as compared to debt
instrument. By raising finance through equity sources, Taste PLC is able to take use of money which
ensures smooth functioning of business activities and functions. In this, company requires to pay
dividend to its shareholders whenever it generates profit (Mathis and Jackson, 2011). Through this,
corporation is able to build and maintain faith in the minds of investors. Thus, it proves to be more
suitable source for an organization which helps company in achieving the organizational aim and
objectives.
Further, Taste also approaches bank for the loan to meet their financial needs and requirements.
In this, bank provides credit on the basis of the financial security. The building in which organization
wants to invest is in the under of the bank until the whole amount of loan is not repaid by the company
to the bank. In addition to this, where as if Taste issue loan notes to meet their financial requirement
then it saves time and cost of the organization. Moreover, it is the debt source of finance which is
offered to existing stakeholders of an organization. Thus, company does not have need to incur extra
expenses in order to attract the investors which proves to be more beneficial for an organization.
2.5. Advising source of finance for working capital to the board of directors
There are various sources of finance for working capital that is available to Taste PLC and
which it can use to meet its financial needs and requirements. Sources of working capital include
retained earnings, bank loan as well as loan from the other financial institutions. It is advised to the
board of director of Taste PLC that they should undertake bank loan and retained earnings to fulfil the
need of working capital. It proves to be more beneficial for an organization in terms of high level of
productivity and profitability.
It enables Taste PLC to carry out its business operations and activities more effectively and

efficiently. Retained earnings are the best source which enables the organization to fulfil its financial
needs. Nevertheless, if firm retains high level of profit then it is unable to pay dividend to the
shareholders which make negative impact upon them. On the other hand, if company undertakes only
bank loan then it has to pay high interest amount which imposes difficulty in front of the firm ( Brealey,
2012). Thus, Taste PLC needs to use both the sources of finance to meet the financial requirement.
Sources of finance include trade credit, factoring, lines of credit and bank loan are the major sources of
working capital.
3. FINANCIAL STATEMENTS
3.1 Statement of profit and loss
It is one of the main part of financial statement which provides deeper insight about the profit
generated by the firm during the accounting year. Besides this, it also provides information about the
expenditure which are incurred by the business organization. One of the main purpose behind the
preparation of profit and loss a/c is make analysis of the profit upon which dividend, investment and
other business decisions are highly dependent. In addition to this, business entity can also make review
of their expenditure on which company needs to exert control.
Debit side Credit side
Particulars Amount Particulars Amount
To salaries and wages xxx By gross profit xxx
To electricity expenses xxx By interest receive xxx
To office expenses xxx By dividend receive xxx
3.2 Statement of balance sheet
This statement summarizes company's assets, liabilities and shareholders equity which is highly
associated with the particular time period. Every organization prepares balance sheet at the end of the
financial year to evaluate its financial strength and weaknesses. Through this, manager of the firm is
able to employ competent strategies which helps them in converting their weaknesses into strengths.
Liabilities Amount Assets Amount
Shareholders equity xxx Fixed assets:
 Furnitures &
xxx

Fixtures
 land and
building
 plant and
machinery
Reserves and surplus xxx Current assets:
 Bills receivable
 Cash at bank
 Debtors
xxx
Current liabilities:
 Bank overdraft
 Bank loan
 Creditors
 Bills payable
xxx
3.3 Statement of cash flow
Financial statement also includes cash flow analysis which provides deeper insight to the firm
about the inflow which is generated through sales related activities. In addition to this, it also includes
other income which is earned by the organization during the predetermined time period. In other words,
cash flow statement contains information about the activities such as operating, financing and investing
which is performed by the firm. Through this, business organization can assess the extent to which
business organization have made effective utilization of its financial resources. Aim of the firm behind
the preparation of cash flow statement is to assess the monetary status of the firm. By identifying such
aspect Taste plc is able to make further investment and financing decisions.
3.4 Advising board of director in relation to the financial planning which proves to be more beneficial
for Taste PLC
The market capitalisation of taste is currently £9,000,000.
Value of the firm £90,00,
000
less: Existing Outside £11,00,

liability 000
Current value of Equity
£79,00,
000
no of equity shares
outstanding
30,00,0
00
Current market price of share £2.63
Dividend coverage ratio given) = 2
Dividend Paid = £42, 00,000/2 = £21, 00,000
Dividend paid / share = £21, 00,000/3,000,000 = £.7 per share
Cost of Equity = £.7/£2.633 = 26.58%
Cost of debt for Taste is as follows:
Cost of Debt stock = Int% (1-t) = 6% (1-.3) = 4.2%
It is advised to board of director of Taste PLC that they need to choose the third alternative
which is available to company. It is recommended to the firm that it should raise finance by issuing
250000 shares @ £2 each and take loan of 50000 @ 6%. It provides assistance in making balance upon
the financial obligations of an organization. If Taste PLC raises finance through the combination of
equity shares and loan then it is able to manage its financial activities effectively and efficiently (Guest,
2011). When taste PLC raises finance through equity shares then it is required to pay dividend to the
shareholders to maintain their trust in the operations of an organization. However, in loan, organization
has to pay interest amount to the loan providers.
Distribution of sources Interest rates (%) WACC
Cost of equity 50£m 12.00% 50£m*8/100 =
4.00%
Cost of debt 50£m 6.00% 50£m*6/100(1-.30)
= 2.1%
Total 4+2.1=6.1 %
3.5 Calculation of company's current earnings per share
Earning per share is a dividend or income which investor gets by investing money in the

business activities of Taste PLC. Shareholders or investors are highly concerned with the income which
they generate from making investment in Taste PLC. Investment decisions of shareholders are highly
dependent upon the growth and development aspects of corporation. By dividing profit after tax to the
number of shares, investor can assess the return which they get from an organization.
Profit before interest and tax = £720000
Number of shares = 3000
Earnings per share = Profit before interest and tax/number of shares
EPS = 720000/3000
EPS = £240 each
4. INVESTMENT APPRIASAL
4.1 Benefits of net present value method of investment appraisal
NPV can be defined as an investment appraisal technique through which organization is able to
assess the inflow and outflow of cash through the discounting factors. This method considers time
value of money concept which provides deeper insight to Taste PLC about the investment which proves
to be more profitable for the firm. Besides this, it also facilitates the comparison between two potential
investments. Through this, organization is able to select the investment which gives higher return to an
organization (Guerrero, Maas and Hogland, 2013). It is one of the important investment appraisal
methods which help in assessing the return which organization gets over the period of time. If it is
positive then, firm should select the investment; otherwise, it should reject it.
4.3 Calculation of the payback period and net present value for European investment opportunity
Investment appraisal techniques can be defined as a tool through which organization is able to
assess the suitability of investment (Maditinos and et.al, 2011). It provides assistance to an organization
in making appropriate investment decisions which makes contribution in the achievement of
organizational goals and objectives.
Given:
Payback period for hotel chain in Asia
Initial investment = £7500000
Payback period = 2 years
Calculation of payback period for European investment opportunity
Project A Cumulative frequency
Initial Investment £-8000000

Year 1 2595000 -5405000
Year 2 2845000 -2560000
Year 3 3175000 615000
Year 4 3513800 4128800
Payback period= A+B/C
2+2560000/3175000
2.81years
Pay back period is of 2 years when Taste PLC makes investment of £7500000 in Asia. It takes
minimum 2 years to recover its initial investment. After 2 years, company is able to generate profit and
achieving success in the competitive business arena. In contrary to this, Taste PLC takes 2 years and 8
months to recover its initial investment which is £8000000. Thus, Taste PLC takes 8 months extra to
recover its initial investment which is made by an organization in Asia.
Calculation of net present value European investment opportunity
Year Revenue Net profit (£) Depreciation Cash inflow(£)
1 25000000 2500000 95000 2595000 0.909 2358855
2 27500000 2750000 95000 2845000 0.826 2349970
3 30800000 3080000 95000 3175000 0.751 2384425
4 34188000 3418800 95000 3513800 0.683 2399925.4
9493175.4
Less- Initial investment 8000000
Net Present value
£493,175.4
0
Net present value for hotel chain in Asia
Initial investment =£7500000
Net present value =£1875000
On the basis of above calculation, it has been assessed that NPV of Taste PLC is £1875000
when it invests its money in Asia. Whereas, if it makes investment in Europe then net present value of
money is £493175.4. It indicates that Taste PLC needs to make investment in European investment
opportunity that offers high financial benefits to them after the period of 4 years.

4.4 Recommending the board of directors by evaluating investment opportunities
On the basis of above calculation, it is advised to the board of directors of Taste PLC that they
should make investment in Asia rather than Europe as per the payback period. If Taste PLC makes
investment in Asia then they take 2 years. However, if they invest money in Europe, then minimum 2
years and 8 months are required to recover the initial investment. Thus, if company wants to recover its
initial investment earlier then it should make investment in Asia which proves to be more profitable for
it (Brown and Petersen, 2011).
In contrary to this, Taste PLC gets higher return if they invest money in Europe rather than in
Asia. It they invest money in the hotel chain of Asia then they get £1944728 however, if they invest in
Europe then Taste PLC get £1875000. On the basis of this aspect, Taste PLC should make investment
in the hotel chain of Europe which helps it in attaining higher level of profitability.
4.5 Defining the concept of unit cost
Unit cost can be defined as a cost of per unit of product and services which Taste PLC has to
incur in order to produce the output. Cost is the summation of fixed and variable expenses which are
required to produce the products or services. Fixed cost are those which are fixed at all levels of the
output produced such as rent, salary etc. (Bowen, 2011). Whereas, variable cost is that which changes
as alteration is made in the output of an organization such as material, labour and overhead. In order to
calculate the unit cost, Taste PLC needs to ascertain the total cost of product and then dividing it to the
number of units produced. Calculation of unit cost is enumerated as below:
Calculation of unit cost
Direct materials 10 kg @ £5 £50
Add: Direct labour 15 hours @ 3 45
Add : Manufacturing costs 15 hours @2 30
Prime cost 125
Add: Overheads 15 hours @ 6 90
Total cost for the Batch 240
No of units in a batch 10
Unit cost £24
On the basis of above calculation, it has been assessed that Taste PLC has to incur £24 to
produce per unit of product and services.

4.6 Factors needs to be considered while setting prices for their output
There are various factors which Taste PLC needs to taken into consideration while setting prices
of the output. Competitors, cost, state of the economy and market conditions are the main factors which
closely affects the pricing decision of an organization. Company needs to analyse the price which
competitor charge for the similar kind of the products. In addition company also needs to consider the
cost which it has incurred to produce per unit of product. It provides assistance to Taste PLC in setting
the appropriate prices which gives benefit to it (Chavis, Klapper and Love, 2011). Further, bargaining
power of customer and supplier also affects the pricing decision of an organization. Thus, Taste PLC
requires considering all these factors which place impact upon the pricing decisions of an organization
(List the Factors to Consider When Setting a Product Price, 2015). Selling price is the summation of
the total cost and percentage of profit which is fixed by an organization. Taste PLC undertakes cost plus
pricing method to cope up with the strategic business environment.
For example: If Taste PLC decided to earn 10% profit margin on cost which organization incurs to
produce the product or services then selling price of the product are as follows:
Selling price = Cost per unit + (cost per unit * profit margin per unit/100)
Cost of the product (per unit) = 24
Profit margin = 10%
Selling price = 24 + (24*10/100)
= 24 + 2.4 = £26.4
5. CASH FLOW VS PROFIT
5.1 Main trends which are in the cash flow of organization
Cash budget of Taste PLC indicates increasing pattern in the sales revenue of an organization.
On the basis of cash budget of Taste PLC, it has been analysed that expenses of an organization are
increasing with high rate as compared to revenue. Thus, corporation needs to frame strategies to make
control over the expenses of an organization and thereby, it improves the profitability aspects. Cash
budget of Taste PLC shows fluctuating trend in the performance so; it needs strategic action to improve
its financial position and performance.
In June, sales revenue of an organization records heavy fall in the performance which is not
good for the organization. Taste PLC needs to undertake immediate action which ensures smooth
functioning of business operations and activities. In order to build faith in the minds of investors and
other stakeholders, organization needs to improve its profitability aspects (Ondraczek, Komendantova
and Patt, 2015).

5.2 Importance of the financial planning
Financial planning plays a significant role in achieving the organizational goals and objectives.
It facilitates the coordination between activities of different departments of business organization. In
addition to this, financial planning facilitates optimum utilization of financial resources and helps in
making contingent plan.
5.3 Reason due to which company faces the liquidity issues or problems
Financial planning can be defined as a process which facilitates optimum utilization of financial
resources. It also provides assistance to an organization in making cost effective decisions. One of the
main reasons due to which Taste PLC faces liquidity or financial issues are lack of proper financial
planning. Financial planning helps organization in making coordination between different activities that
are undertaken by the firm (Koziol, 2014). It helps company in achieving success in the dynamic
business area.
5.4 Users of financial statements and their needs
There are mainly seven users of financial statements who possess different needs in relation to
the assessment of financial health and performance is enumerated below: Management: They are one of the main users of financial statements through which they assess
the effectiveness of their strategies and policies. Management of Taste PLC also uses its
financial statements to identify the position of sales and revenue of an organization. Employees: Employees are also highly concerned with the stability and profitability aspects of
an organization. Moreover, salary and other benefits of employees are closely associated with
the functioning of an organization in which they work. Shareholders: Existing and potential investors invest money to earn money in the form of
dividend. To assess the return, shareholders make assessment of financial statement which
provides deeper insight about the financial health and performance. Financial institutions: Financial institutions provide financial support to Taste PLC in the form
of loan. Bank and other financial institutions undertake financial statements to assess the
capacity of Taste PLC that it is able to repay the amount of loan or not (Larkin, 2011). Suppliers: They assess the financial statements to identify that whether Taste PLC is able to
make payment to them on time or not. Competitors: Competitors also make use of financial statements to assess their strategies and
policies with another firm.

 Government: It also uses the financial statements of an organization to assess that whether Taste
PLC is effectively allocating the resources or not. As company also contributes in the national
income so, government is highly concerned with the financial statements of organization (7
Users of Financial Statements & their Information Needs under IFRS, 2015).
6. INTERPRETATION OF THE FINANCIAL STATEMENTS
6. Ratio analysis of Taste PLC
Formulas 2014 2015
Profitability Ratio
Gross Profit Percentage gross Income / sales (2245,000/2930,000)
=76.6%
(2210,000/2920,000)=
75.7%
Net income Percentage Net income/sales for
the year
(1393,000/2930,000)
=47.54%
(1241,000/2920,000)
=42.5%
Liquidity Ratio
Current Ratio Current assets/CL (87,000/119,000)
= .73:1
(110,000/117,000)=.94:
1
Acid test Ratio Liquid Assets(CA-
stock-prepaid
expenses)/CL
(37,000/119000) =.31:1 (50,000/117,000)
= .42:1
Interpretation of ratios
Ratio analysis is used to examine or evaluate financial performance of the company. It helps an
investor to take investment decision. Different ratios are analysed to evaluate the performance of Taste
PLC. They are stated below.
Profitability ratio: It is a ratio that measures the company's ability to make profit. Profit can be
determined by deducting all costs and expenses from earned income (Ondraczek, Komendantova and
Patt, 2015). Or it can be said that, it is a ratio that determines company's return on investment. This
ratio includes gross profit ratio, operating profit ratio and net profit ratio. Gross profit ratio: Gross profit ratio is a profitability ratio that evaluates gross profit to net sales
of the business. It is an important ratio to be evaluated for any business. This ratio must be
satisfactory to meet expenses and increase profits. The gross profit ratio of Taste PLC is 76.6%
in 2015 as compared to 2014 in which it is 75.7%. GP ratio of the company is decreasing which
states that Taste PLC fails to frame effective selling strategies. Thus, firm needs to frame

competent policies to improve its sales and revenue. Operating profit ratio: It states the revenue which is remaining left with the company after the
payment of all expenses. Operating profit ratio of Taste PLC records fall in the operating profit
of an organization. On the basis of this, it has been interpreted that firm does not have sufficient
amount of profit to make investment in the other productive activities. It place negative impact
upon the shareholders. Net profit ratio: Net profit ratio of Taste PLC records heavy fall in the profitability aspects of an
organization. In 2014, NP ratio of the corporation is 47.54% where as in 2015 it is only 42.5%
which is not good signs for the firm. Thus, Taste PLC requires to make focus upon the
promotional campaign to generates higher level of sales and profit.
Liquidity ratio: It is a measure which provides deeper insight to Taste PLC about the liquidity
and financial performance of the enterprise. Current ratio: Current ration of the company indicates that the firm is able to meet its financial
obligation over the current assets or not (Chavis, Klapper and Love, 2011). Ideal current ratio is
2:1 which states that to meet the 1 financial obligation company needs to have 2 current assets.
As compared to 2014, current ratio of Taste PLC is increasing in 2015 which is .94 but still it is
very far from the ideal ratio. Taste PLC requires framing effective strategies and policies to
improve its financial condition.
 Quick ratio: It consists of the current assets which can be easily converted into cash to meet the
short term current obligations of an organization. In 2014, quick ratio is .32:1 where as in 2015
it is .42:1. On the basis of this, it has been interpreted that Taste PLC has enough amount of
liquid assets to meet its short term financial obligations.
6.2 Overall opinion on company's current performance
On the basis of above mentioned ratio analysis, it has been assessed that profitability ratios of
Taste plc is not sound. Gross and net profitability of Taste plc is decreased which shows that business
strategies and policies of an organization are not good. On the basis of quick ratio, it is determined that
Taste plc has the capability to meet their current obligations over the current assets of an organization.
In addition to this, organization requires to make efforts to improve the current ratio which helps them
in meeting all the financial obligations more effectively.
7. Differences in financial statements of sole traders, partnership and limited companies
Sole traders: It is a type of business which is run by an individual. In this form of business, all

elements are controlled by the owner. The owner of company only bears profits and losses. In United
Kingdom, all the profits can be kept by the sole trader after payment of tax. It prepares balance sheet,
income statement and cash flow statements to identify the financial health and performance of firm. In
this form of business, the statements are not to be presented in front of the public. It is simply prepared
to measure their own profits and losses (Drivelos and Georgiou, 2012).
Partnership: It is an agreement between two or more individuals for the operation and
management of business. Under partnership, all the owners are personally liable. Partnership firm
prepares income statements, balance sheet and statement of partners' capital. Statement of partner's
capital is prepared by partnership firms only. Statements are prepared to find out the actual profit
distribution among the partners.
Public Limited companies: Table PLC comes under a public limited company which needs to
prepare balance sheet, income statement and cash flow statements. Moreover, to publish these accounts
to general public to maintain faith and trust, it is used.
CONCLUSION
From this report, it has been concluded that through issuance of shares and bank loan, Taste
PLC is able to expand its business operations and activities. It can be inferred that liquidity and
financial position of Taste PLC is weak so it needs to frame sound strategies and policies for the growth
and development of an organization. Besides this, it can be concluded that financial planning plays an
important role in the success of a firm. Taste PLC needs to make investment in the hotel chain of
Europe which provides more benefits to the organization in terms of high return. It has also been
concluded that company needs to consider all the factors which highly impacts the pricing decisions of
company. Further, it can be stated that different users have distinct purposes behind the use of financial
statements. Along with this, Tate PLC prepares and publishes financial statements of the firm to build
and maintain the faith of stakeholders.
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