MOD007667 - Finance for Decision Making

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MOD007667 Finance for Decision Making
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Table of Contents
1. Introduction..............................................................................................................................3
2. Financial Analysis of Ocado group..........................................................................................3
2.1 Problems Associated with Financial Ratios..........................................................................6
3. Advantages and Disadvantages of Budgeting..........................................................................6
3.1 Approaches to Drawing up A Business Financial Plan....................................................8
3.2 Performance Management and Decision Making.............................................................8
4. Evaluating Capital Budgeting Approaches..............................................................................9
4.1 Net Present Value................................................................................................................10
4.2 Internal Rate of Return........................................................................................................11
4.3 Risk and Uncertainty in Investment Appraisal....................................................................12
5. Conclusion..............................................................................................................................12
Reference.......................................................................................................................................14

1. Introduction
Covid-19 poses significant challenges for the economies around the globe. Most of the
businesses are massively affected as they fail to deal with the rapid swings and demand and
supply disruptions (Beninger and Francis, 2021). Covid-19 has significantly impacted the
people’s living patterns. Post Covid-19 will have many consequences on the economies and on
the whole societies. People tend to become more interested in saving their money instead of
investing (Donthu and Gustafsson, 2020). There is a need arises for the businesses to reassess
their financing and investment policies to combat this pandemic situation and able to achieve and
enhance business financial gains (Shen et al., 2020).
Ocado group is a UK based Technology Company and provides innovative and unique end-to-
end online grocery solutions around the globe (Ocado, 2021). As a CFO of this company, I
evaluates the £50 million worth investment for the development of product post Covid-19. In
first section of this report, financial performance of Ocado group is assessed by conducting its
financial ratios analysis. Secondly, this report presents the merits and demerits of budgeting and
importance of performance management in effective decision making of an organization. Third
section critically evaluates the investment opportunity by utilizing two major investment
appraisal techniques (NPV and IRR).
2. Financial Analysis of Ocado group
Ocado group is basically a global technology-led company was founded in April, 2000 and
headquartered in Hatfield, United Kingdom. It provides online retailers with unique and
innovative solutions related to software development, robotics and automation systems
worldwide. Ocado group earn a net income of £ 69.6 million in financial year 2020 (Ocado,

2021). According to Cassim and Swanepoel (2021), failure to manage financial distress may lead
to bankruptcy. Financial ratio analysis is used as a measuring business soundness and plays
significant role in eliminating businesses potential financial risk (Kliestik et al., 2020). A
financial ratio analysis of Ocado group is given below in Table 1 and its graphical presentation is
also provides in Figure 1 in appendix section which tells us about company’s financial
performance of last five years.
Table 1: Financial Ratio Analysis; Source: Self-made
Categories Ratios 2020 2019 2018 2017 2016
1. Profitability GPR 0.349 0.337 0.342 0.340 0.342
2. Effi ciency ATR 0.738 0.964 1.425 1.824 1.967
3. Liquidity CR 4.819 2.192 1.745 1.011 0.515
4. Financial gearing DTER 1.193 1.169 1.430 2.304 1.670
Table 1 reports financial ratio analysis of the Ocado group. The profitability ratios measures how
much business is profitable and where it stands in terms of financial performance (McCosker,
2021). The profitability of Ocado group is assessed through gross profit margin ratio which
indicates ability of the company to make profit after settling its costs of goods sold. Profitability
ratio of the company over the period of 2016-20 almost remains the same. However, profitability
of the company slightly declines in 2019 in comparison to previous year as these was slowing
down of business activities due to Covid-19 restrictions (McKibbin and Fernando, 2020). In
spite of the fact that there was a prolonged period of lock down in 2020, the company is able to
manage a little increase in its profit margin as compared to last five years. The statistics of
profitability ratio suggests that the company has adopted necessary policy changes in their
business strategy in awake of Covid-19 pandemic (Khurana et al., 2021).