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Study Strategic Financial Analysis Tools and Methods

   

Added on  2020-01-07

25 Pages5462 Words190 Views
Financial Management and Control1
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Table of ContentsINTRODUCTION................................................................................................................................4TASK 1.................................................................................................................................................41 Report to the Primetown Plc’s board.............................................................................................42 Calculation of working capital day cycle....................................................................................11PART B...............................................................................................................................................121. Assessing the viability of project by using investment appraisal techniques.............................122. Evaluating the merits and limitations of investment appraisal techniques.................................15TASK 3...............................................................................................................................................171. Evaluating the manner in which budget helps in making short-term decisions.........................172. Critical evaluation and practical implications of break-even analysis (BEA)............................18CONCLUSION..................................................................................................................................19REFERENCES...................................................................................................................................21APPENDIX........................................................................................................................................24Figure 1: Profit and revenue results..............................................................................................................................................................................5Figure 2: Profitability ratios..........................................................................................................................................................................................6Figure 3: Liquidity ratios...............................................................................................................................................................................................8Figure 4: Debt-equity ratio............................................................................................................................................................................................92
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Figure 5: Efficiency ratio............................................................................................................................................................................................10Figure 6: Investors ratio..............................................................................................................................................................................................11Figure 7: Working capital cycle..................................................................................................................................................................................123
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INTRODUCTION In the current times, each and every business establishments regardless their size and geographical or worldwide presence need requiredcapital for the smooth functioning and competitive success. Certified Financial Manager (CFO) not only have to gather money but also have toput restriction and control over its utilization to effectively manage their monetary sources. Thus, the target of this research study is to investigateand apply various strategic financial analysis tools and methods like ratio analysis and capital budgeting to meet set financial targets. Apart fromthis, now-a-days, forecasting or projection also considers as an important facet of financial management and controlling, therefore, the report willcritically analyze the use of budgeting. Despite this, break-even model and investment appraisal techniques covering both discounting and non-discounting will be critically examined supporting necessarily evidences. It will enable managers to identify the most appropriate method andapply the same to accept the most beneficial and viable project. TASK 1Primetown Plc is a public limited organization that produces top-quality refrigeration equipments exactly as per the user specifications.Recently, board of directors raised the concern towards business return and creditworthiness, therefore, they wants to analyse the financialaccounts for the recent two years, 2014 and 2015. Ratio analysis is considered as a great method that provides a quick idea about the performanceof the business through quantifying the results in the terms of different ratios. 1 Report to the Primetown Plc’s boardTo: Primetown Plc’s board membersFrom: Financial analystDate: 2017, January 17Subject: Strategic financial performance evaluation for 2014 and 20154
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Profitability performance Profitability ratios quantify profit and loss account results that provide assistance tomeasure business ability to generate yield or earnings in comparison to the incurred cost orexpenditures paid (Matthew, Fada and Ukonu, 2016). Figure 1: Profit and revenue resultsGross margin (GM) expressed the profit (revenue-cost of sale) divided by turnover as apercentage (Jami and Bahar, 2016). In 2015, Primetown Plc’s GM depicts a downward movementas it lower down from 61.71% to 53.76%. Less percentage growth in sales at 14.90% whilstexcessive direct cost as it rose up by 31.91% might be the reasons for decline in GM. Fall in5
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refrigeration equipment’s price due to intensive competition and less prices of competitors productsmay be the reasons for low level of sales, however, shortage of material supply and high labourcharges may caused high increase in COGS and resulted in decreased return (Verma and et.al.,2016).Figure 2: Profitability ratiosOperating margin (OM) is typically used to measure operating effectiveness and efficiencyof the business through measuring the residue of revenues left after making payment of operatingexpenditures like manufacturing, administrating and selling and distribution cost (Manglik andGoyal, 2016). Referring Primetown Plc, in 2015, excessive administrative as well as selling anddistribution cost by 94.92% and 26.27% caused decline in OM from 43.27% due to 32.20%. Apartfrom this, highr irrecoverable receivables, bad debts as it rose up by 292% are also an important6
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