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Financial Ratio Analysis Example

   

Added on  2020-02-05

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Financial Ratio Analysis Example_1

Table of ContentsINTRODUCTION ..........................................................................................................................3Task 1...............................................................................................................................................31.1 Sources of finance available to the company........................................................................31.2 Implications of different sources of finance..........................................................................41.3 Appropriate sources of finance which can aid the company to raise its capital....................42.1 Cost of sources of finance identified.....................................................................................52.2 Importance of financial planning..........................................................................................52.3 Information needed by internal and external decision makers. ............................................62.4 Appearance of various sources identified in the profit and loss account and balance sheet.7Task 2...............................................................................................................................................73.1 Analyze of companies budget...............................................................................................73.3 Calculation of various investment techniques in order to find out the best project..............8Task 3.............................................................................................................................................104.1 The main purpose of financial statements and its uses. .....................................................104.2 Financial statements prepared by various business organization........................................114.3 Calculation of company various ratio.................................................................................11Conclusion.....................................................................................................................................11References......................................................................................................................................12Appendix........................................................................................................................................13
Financial Ratio Analysis Example_2

INTRODUCTION Finance is the management of large amount of cash that take place both the inside andoutside of the organization. In order words, it can be said that finance is the science that definesthe management of banking and investment as well as assets and liabilities. British airways arethe airline company headquartered in Waterside, Harmondsworth, England. It is one of thelargest airline companies operating its business in UK. The present report depicts about thevarious internal and external sources of finance and at the same time it shows how these sourcesof finance are beneficial for company to raise its funds. In this report, importance of financeplanning is discussed and per unit cost of company will be identified in order to make variouspricing decisions. At last, various financial statements are studied in order to calculate thevarious ratios. Task 11.1 Sources of finance available to the company.There are various types of sources of finance through which company is available to raiseits funds. Some of them are internal sources of finance and some are external sources of finance.Internal sources of financeSales of assets: - Company can raise its funds by selling its own property or assets.Company often sales its unwanted stock in order to meet its requirement of short term finance(Ageba and Amha, 2006). This is one of the simplest methods through which company canquickly meets its short term requirement of cash.Retained profit: - Retained profit is an amount of profit which company earns at the endof financial year. A small amount of profit is kept by company as a reserve in order to meet anysudden requirement of short term finance.External sources of finance Issue of shares: - By issuing shares to the general public, company is able to meet itslong term requirement of funds. Equity shares are also is issued to the existing shareholders(Beaver, McNichols and Rhie, 2005). This method is generally used by company to expand itsbusiness or to purchase new machinery. Hire purchase: - It is a method which aids company to purchase assets without paying thecompleted amount. It is a method which is used by company to meet its long term requirement of
Financial Ratio Analysis Example_3

the fund. In this, company rents some of its required equipment or property for some year ascompany can bear expenses in terms of hiring equipment instead of purchasing it. 1.2 Implications of different sources of finance.SourceAdvantagesDisadvantagesSuitabilitySale of assetsRate of deprecation will bereduced and at the sametime cost of the assets canget back.Reduces the assets of thecompany. To pay dividendand interest to theshareholders. Retained profitAid the company to meetits short term requirementwithout paying anything(Cetorelli and Strahan,2006).Reserves of the companyare reduced and at thesame time shareholdersmay not be happy toforego its profit ratio. To make paymentto the suppliers.Issue of sharesFunds collected from theshareholders need not to bepaid back.Dividend and the votingrights need to be given.For expanding itsbusiness orpurchase of heavymachinery.Hire purchaseCompany can avail benefitsof using the assets withoutpurchasing it.Total rental installmentcost became more ascompared to its originalcost. For using assets forsome time periodwithout purchasingit (Paramasivan andSubramanian, n.d). 1.3 Appropriate sources of finance which can aid the company to raise its capital. British airways want to expand its business to other countries in order to beat the salesrate of Tesco and to become the number one leading retailer company in the UK as well as allover the world. Therefore, in order to raise its capital for the achievement of its objectives,company can sale its least usable asset to meet short term requirement and at the same time,company can issue large number of shares in the market in order to meet long term requirementof the fund.
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