Strategic Financiale : Impact on Redding Co
Added on 2020-10-22
12 Pages3769 Words355 Views
Strategic FinancialManagement
Table of ContentsINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................3I : Calculation and analysis of Ratios of two companies:............................................................3II : Comparison of the performance of the two companies different ratios:................................7III: Evaluation of the use of financial ratios :..............................................................................9TASK 2..........................................................................................................................................10Agency and its significance for Listed companies :..................................................................10TASK 3..........................................................................................................................................11Impact on Redding Co. of raising the funding for the refurbishment through additional loans:....................................................................................................................................................11CONCLUSION..............................................................................................................................11
INTRODUCTIONStrategic financial management is a systematic allocation of resources and managingmonetary or financial resources to achieve standard performance and provide maximum returnsto shareholders. Strategic financial management explains business objectives or goals whilerecognising and measuring existing and potential resources, and constructs a blueprint forefficient allocation of financial resources to achieve targets (Gamble, Thompson and Peteraf,2013). This report exhibits a systematic analysis of performance of Redding Co. and Neaves Co.through critical evaluation of financial ratios of both companies and assessment of the impact ofraising the funding for the refurbishment through additional loans. This report also explainsTerm agency and role of agencies in order to achieve objectives of company.TASK 1I : Calculation and analysis of Ratios of two companies:There are two companies given which is Redding Co. and Neaves Co., to compare eachother performance, there is a requirement of calculation of ratios and analysis them & comparethem with each other company's ratios. For doing ratios analysis, firstly understanding themeaning of ratio analysis is necessary.Ratio analysis can be defined as a quantitative analysis of organisation's performancewith the help of various information which is recorded in financial statements of the company(Barney, 2012). Ratio analysis is used to evaluate various aspects of a company’s operating andfinancial performance such as its efficiency, liquidity, profitability and solvency. Calculations ofRatios of two companies (Redding Co. and Neaves Co.) are as follows:Profitability ratios:These ratios are calculated to find the profitability of a company so that it can beconcluded that whether company is running in right direction and its business activities is moreprofitable as compared to competitors. This includes following ratios:Net profit ratio: This ratio is calculated to find to net profitability of company takingsales as a base after deducting all expenses whether operating and non operating andafter adding all incomes whether operating or non operating (Berger, 2011). It shows thathow much amount of profit a company able to earn as a percentage of sales. Calculationsof this ratio for two companies are as follows:
ParticularsRedding Co. (2017)Neaves Co. (2017)Net profit after tax49379Sales1951050Net profit ratio (%)25.1336.1Note: Net profit ratio = Net profit after tax/total sales*100Gross profit ratio: This ratio is chosen to find the operational efficiency of a company. Itestablishes the relationship between gross profit and sales. Calculations of this ratio fortwo companies are as follows: ParticularsRedding Co. (2017)Neaves Co. (2017)Gross profit 117777Sales1951050Gross profit ratio (%)6074Note: Gross profit ratio = Gross profit/total sales*100Efficiency ratios:It is also called activity ratios and it is calculated to find that how well a company isutilising its assets to generate income (Sirmon, 2011). If efficiency ratios are good as comparedto competitors then it means company is efficient in optimum utilisation of resources. Thepurpose of these ratio is to find whether company is utilising its assets or not so that correctivemeasure can be taken. This includes following ratios:Fixed asset turnover ratio: It is calculated to evaluate the organisation's effectiveness andefficiency to appropriately use all the fixed assets so that sales can be maximised.Calculation of this ratio is as follows:ParticularsRedding Co. (2017)Neaves Co. (2017)Sales1951050Fixed assets2551016Fixed asset turnover ratio0.761.03Note: Fixed asset turnover ratio = Total sales/Fixed assetsTotal asset turnover ratio: This ratio is calculated to evaluate the effectiveness ofcompany to use total assets to maximised its profits. Calculation of total asset turnoverratio is as follows: ParticularsRedding Co. (2017)Neaves Co. (2017)Sales1951050
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