MOD000983 Strategic Financial Analysis
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Anglia Ruskin University
Strategic Financial Analysis (MOD000983)
Added on 2020-04-15
MOD000983 Strategic Financial Analysis
Anglia Ruskin University
Strategic Financial Analysis (MOD000983)
Added on 2020-04-15
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Running head: STRATEGIC FINANCIAL ANALYSIS Strategic Financial AnalysisName of the StudentName of the UniversityAuthors NoteCourse ID
STRATEGIC FINANCIAL ANALYSIS1Table of ContentsIntroduction:...............................................................................................................................2Critical review of Traditional Methods of Financial Analysis:.................................................2Horizontal Analysis:...................................................................................................................2Vertical analysis:........................................................................................................................4Traditional Ratio Analysis:........................................................................................................5Contemporary methods of financial analysis:............................................................................6Capital asset pricing model (CAPM):........................................................................................6Dividend growth model:............................................................................................................7Effective market hypothesis:......................................................................................................9Conclusion:..............................................................................................................................10Reference List:.........................................................................................................................12Appendix:.................................................................................................................................14Horizontal Analysis..................................................................................................................14Wolseley:..................................................................................................................................14Income Statement:....................................................................................................................14Balance Sheet:..........................................................................................................................14Cash Flow Statement:..............................................................................................................16Booker......................................................................................................................................17Income Statement:....................................................................................................................17Balance Sheet:..........................................................................................................................17
STRATEGIC FINANCIAL ANALYSIS2Cash Flow Statement:..............................................................................................................18Vertical Analysis:.....................................................................................................................19Wolseley...................................................................................................................................19Income Statement:....................................................................................................................19Balance Sheet:..........................................................................................................................19Cash Flow Statement:..............................................................................................................21Income Statement Analysis:.....................................................................................................21Booker:.....................................................................................................................................21Balance Sheet:..........................................................................................................................22Cash Flow Statement:..............................................................................................................23Ratio Analysis:.........................................................................................................................24Wolseley:..................................................................................................................................24Booker:.....................................................................................................................................25
STRATEGIC FINANCIAL ANALYSIS3Introduction: The present study is concerned with performing a critical analysis of the severaltraditional and modern approaches that are involved in the determination of the fiscal andoperational situation of the organization. Numerous financial analysis elements have beenproposed and assessed by the researchers from the very long time. The most recognizedmethod of analysis the financial report is the vertical and horizontal method of analysis foranalysing the financial position of an organization. Another important tool of measuring thefinancial analysis is the ratio analysis that helps in determining the financial position of a firm(Deegan 2013). Ratio analysis is treated as the central part of the financial analysis since itassesses an organizations financial aspects by investigating into the rotational and financialactivities of the firm. The study will be performing a critical analysis of the finical positon of the Wolseleyand Booker by applying the tools of financial analysis such as the vertical, horizontal andratio analysis to assess the operational efficiency of the company. As an alternative to this,other methods such as Capital asset pricing method, dividend growth model and effectivemarket hypothesis will be implemented (Williams 2014). The study will cover the descriptiveanalysis of the models and would be addressing the shortcoming that is accompanied by themodel. Additionally, a conclusive evidence will be presented to present the tool that isavailable in the analysis of the fiscal positon of the organization. Critical review of Traditional Methods of Financial Analysis: Horizontal Analysis:One of the most widely used tool of performing financial analysis is the horizontalanalysis (Whitecotton, Libby and Phillips 2013). Horizontal analysis are those statements thatoffer profitable and financial position of a firm for numerous period in respect of comparative
STRATEGIC FINANCIAL ANALYSIS4form to provide an overview of the financial position of the company for more than twoaccounting period. Horizontal analysis is applicable to the to the financial statements namelyincome statement and statement of financial position to comparatively draw the financialposition of the organization. The data derived from the horizontal analysis provides acomparative overview of the company with similar principles of accounting is put into theuse preparing those statements (Weil, Schipper and Francis 2013). If this is not the situation,any kind of changes in the methods of accounting principles should be methods in thefootnotes. As evident from the financial assessment a fluctuating trend is noticed for Wolseley.On performing a detailed analysis, it is noticed that Wolseley has reported a declining line oftrend for the sales recorded since the company had incurred a declining trend of sales in 2012and 2013. Notably, the organization in the subsequent years of 2015 and 2016 the salesrevenue of Wolseley gained strength as the company recorded a rising trend of sales in thoseyears. Conversely, Booker reported a mix trend of performance as the revenue for the year2014 gained to 17.27% from the previously recorded figures of 1.51% which subsequentlydeclined in the following years of 2015 and 2016 to 1.53 and 5.02% respectively. Therevenue reported by the company represented a declining trend in the following year of 2015though gaining marginally in the following year of 2016. Therefore, it can be stated that thehorizontal analysis is considered as the beneficial for the readers because it offers them withthe benefit of assessing and comparing the financial position of the organization for a specificperiod. Additionally, the method of horizontal analysis suffers from shortcomings as theaggregate information in the financial statements might be changed over the specific period(Bushman 2014). The reason behind this is that the continuous changes in the accountingmay be shifted to different accounts and result in alterations in the accounting period. The
STRATEGIC FINANCIAL ANALYSIS5analysis suffers from criticisms as it does not take into the consideration the impacts of theinflation or current market value of cost. Additionally, these analysis have very small bearingon the future of the company such as technological obsolescence, future decision ofmanagement and varying trends in market.Vertical analysis: There are some forms of statements that reflects that the association of numerousitems on the financial statements having similar components by reflecting each component asthe percentage of common constituents (Henderson et al. 2015). Vertical analysis is referredas the proportional analysis of the financial statements in which every line of items of thefinancial statements is logged as the percentage of the other constituents. Characteristically, itstates that every line of item in the profit and loss account is regarded as the percentage oftotal sales whereas on the balance sheet every line of item is regarded as the total salespercentage. Taking into the consideration the vertical analysis of the companies it is found thatBooker reported a profit from its business 11.88 and 8.58 respectively for the financial yearof 2015 and 2016. It can be stated that the company reported declining trend of profit in thesubsequent year of 2016. Conversely, it is found that Wolseley reported a profit for thefinancial year of 2013-14 stood 2.25% and 4.11% accordingly. Nevertheless, in thesubsequent year of 2015 and 2016 the profit from the operations of the company for theshareholders arrived at 1.60% and 4.57% respectively. Whereas taking into the considerations the short comings associated with the verticalanalysis there are certain limitations that have been associated in the analysis. In the words ofPratt (2016), assesses the tool because it does not meet the significant changes in relation tothe extent of inflationary effect. Therefore, the results generated from the inputs could be
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