Financial Analysis of Alpha Limited

The assignment requires analyzing the financial performance of Alpha Limited using various financial ratios such as current ratio, net profit margin, and return on capital employed. The report also includes a SWOT analysis of the company's business operations worldwide with approximately 38 million customers. It has been determined that the overall performance and profitability level of the company have improved for the year 2017 and 2018.

Financial Decision Making

Table of Contents
INTRODUCTION................................................................................................................................2
MAIN BODY.......................................................................................................................................3
TASK 1 ................................................................................................................................................3
Functions of Accounting and Finance department along with SWOT analysis of .........................3
HSBC bank......................................................................................................................................3
TASK 2 ................................................................................................................................................6
Financial ratio analysis of Alpha Limited........................................................................................6
CONCLUSION....................................................................................................................................9
REFERENCES.....................................................................................................................................9

INTRODUCTION
Financial decision making is considered as one of the most important business practice for
company. By considering all the financial and statistical information and data, decision in respect of
financial and investment aspect can be made in a proper and effective manner. The present report is
based on Alpha Limited, a manufacturing company started in year 1954 having it office in UK.
Alpha Limited is having a plan to expand its business operations in the other part of the country in
the coming next 10 years. Report will streamline about all the functions which accounting and
financial department undertakes. Another company taken for understanding the importance of
accounting and financial department function is HSBC Bank which is engaged in providing
banking and financial services. SWOT analysis for HSBC bank will be performed and explanation
related to the aspect of Accounting and Finance will be disclosed. Further, report will discuss about
the performance level of company form investor point of view with the help of financial statements
and financial ratios' analysis.
MAIN BODY
TASK 1
Functions of Accounting and Finance department along with SWOT analysis of
HSBC bank.
HSBC is known as The Hong Kong and Shanghai Banking Corporation. HSBC is one of the
British multinational banking and financial services holding company which is first established on 3
March 1865 and incorporated firstly on 14 August 1866. HSBC is having its headquarter in London,
United Kingdom. Sir Thomas Sutherland is founder of this bank. The main services in which HSBC
bank is dealing is Retail Banking, Corporate and Investment Banking, Mortgage loans, Wealth
management, Private Banking, Credit cards, Insurance and Financial services across the world.
Currently 235,217 number of employees are working in HSBC Bank till 2018. The Revenue and
Operating Income of HSBC Bank is $53. 8 billion and $19.9 billion respectively. Total asset of
HSBC till 2018 is $2.558 trillion. This banking company has a Net Income of around $15.025
billion. HSBC is having 3900 offices in almost 67 countries and territories with approx 38 million
customer base across the globe. Market Capitalisation of HSBC Bank is $194.07 billion till now.
SWOT analysis of HSBC Bank
Strengths – One of the strength for HSBC Bank is its worldwide business operations. This bank is
having leadership in case of multinational financial services. The bank is having its business
operations across 67 countries and territories over the globe. Also, this banking company is having
the highest customer base of around 38 million till 2018 as per the statistical data and information

provided. The Hong Kong and Shanghai Banking Corporation is on 6th rank which makes it as one
the top international bank in the world with the market capitalisation of approximately $194.07
billion. On the basis of Total Assets comparison, HSBC bank has been ranked as the 7th largest bank
in the world with a total asset of $2.558 trillion till the year 2018. Because of its global presence in
the world, it has helped in spreading of risk factor and also offers good economies of scale. Another
strength for HSBC Bank is its diversified banking business operations and financial services such as
Retail and Private Banking, Corporate and Investment Banking, Mortgage loans, Wealth
management, services related to Credit cards and Insurance. It also provides financial aids to its
customers in the form of personal financial services and advices. Also, this banking company enjoys
the Global Footprint practise.
Weaknesses – HSBC Bank in the past few years have acquired numerous number of banks and
financial institutions across the world with the aim of establishing the position of global leap. The
name of banks which has been acquired by The Hong Kong and Shanghai Banking Corporation
includes the British Bank of the Middle East, Hong Kong Bank of Canada and HSBC Banco
Roberts. The weakness for HSBC Bank in acquisition of these bank is that, earlier these banks
doesn't carry the logo of HSBC Bank (Phadermrod, Crowder and Wills, 2019). When all the logos
and names of these acquired banks were changed to HSBC, consumers are having a thought these
banks are newly acquired by HSBC without having knowledge that these banks were already
running its business operations under the control and authority of HSBC Holdings Plc. Another
weaknesses for HSBC is high degree of fall in the share prices and fluctuation in profit levels of the
company.
Opportunities – The high level of market capitalisation of HSBC Bank has provided it a strong
market position in relation to acquiring of more and more assets across the world. One of the best
opportunities for HSBC Banking company is expansion of its business operations in the emerging
and growing market scenario. With the help of merger and acquisition, it can expand and increase
its international presence, improves its business performance and profitability aspect in the
developing market of different economies. By providing services as per the need and preferences of
customer such as personal banking services, personal financial advisory services etc. HSBC Bank
can acquire large market share and become global leader.
Threats – One of the major threat for HSBC is linked with the facility of providing banking and
financial services online. The online banking system come up with some drawbacks and limitations
related to the security and safety issues such as theft of company as well as customer account data
and information, identity frauds etc. Also, there is a situation of hacking of customer and company
information which has resulted in the loss of information related to the business transaction and
accounts. These drawbacks had resulted in lowering of confidence level of its customer (Gürel and

Tat, 2017).
The term Accounting is defined as a process of recording, classifying, summarizing,
reporting and analysing all the financial and statistical data or information gather. It is considered as
one of the most systematic and effective measure of recording of all the financial transactions
pertaining to a particular business organisation (Mitchell, Hammond and Utkus, 2017). Recording
of company's data and information should be done in a proper and accurate manner in the financial
statements so that it can benefit all its shareholders and company as well. The importance of
Accounting department are as follows:
1. Financial accounting – A method of accounting which ensures proper recording of all the
financial transactions taking place in the company during the accounting year. HSBC by
keeping track of its financial records by classifying, summarizing, monitoring its business
transaction related financial information in its financial report or statements can facilitates
its investor.
2. Management accounting – Is a process of preparing internal report related to the business
activities which helps management of the company for taking crucial business decision.
HSBC with the help of internal managerial report can develop better and effective business
strategies and plans for acquiring market share (Cowton, 2018).
3. Tax function - Tax department of accounting helps in ensuring compliance of all the
applicable laws, rules and acts as per the provisions of Income Tax Act. By making proper
tax plan, HSBC can reduce its money expenditure in relation with taxes amount. Also, this
function ensures timely filling of federal and state income tax returns.
4. Auditing function - Auditing is defined as a process of making detailed examination of
books, accounts and financial documents so as to determine the accuracy of information
provided and all the material disclosure has been made (Mwangi, 2018). HSBC with the
help of good auditor can assess fraudulent business activities which helps in reducing cost of
capital, error made at the time of preparation of statement, recording etc.
Finance is described as those financial activities which are associated with the facilities
related to banking services, debt & credit facilities, capital markets, money and investments options.
Finance department ensures proper management of money requirements and its related process of
acquiring funds and capital for business. The importance of Finance department are as follows
1. Investment Function - Company by making sound business strategies, plans, budgets and
policies can make effective investment in available investing options. HSBC Bank can
maximize its profit level by assessing the required rate of return and cost of capital.

2. Financing Function – Every business organisation needs capital for meeting its day to day
business obligations which can be achieved by managing limited financial resources of the
company available. HSBC should always manage its financial resources and makes its
proper and effective utilisation for business expansion and growth (Duclos, 2015).
3. Dividend Function - Dividend function is associated with dividend distribution policy of
the company. Policy should ensures balance between shareholders expectations of wealth
creation and retention of capital amount in the business. A good dividend policy adopted by
HSBC can make its shareholders happy because of wealth creation and should also
emphasizes on retention of profit amount for future business expansion.
4. Working Capital Function - It is a measure which determines the ability of a company to
pay off all its short term or day to day business operations expenses and debt amount due.
By properly managing of working capital, HSBC has been able to expand its banking and
financial services across the world.
TASK 2
Financial ratio analysis of Alpha Limited
Ratio analysis
Particulars Formula Amount (in £000) Amount (in £000)
2017 2018
Operating profit 300 262.5
Total assets 2235 4035
Current liabilities 322.5 1110
Capital employed Total assets-current liabilities 1912.5 2925
Return on capital
employed
Operating profit/capital
employed*100 15.69% 8.97%
Net profit 300 262.5
Sales 2400 3000
Net profit margin ratio Net profit/sales*100 12.50% 8.75%
Current assets 757.5 1035
Current liabilities 322.5 1110
Current ratio Current assets/current
liabilities 2.35 0.93
Trade receivables 450 600
Sales 2400 3000
Average receivable
days
Trade receivables / Sales *
365 68.4 73

Trade payable 285 1050
Sales 2400 3000
Average payable days Trade payable / Sales * 365 43.3 127.8
1. Return on capital employed - It is considered as one of the most important profitability
ratio which helps in measuring the efficiency level of company in generating profit amount
with the help of capital employed. Investor can determine return by comparing net profits
with capital employed.
In case of Alpha Limited, return on capital employed for the year 2017 and 2018 are 15.69%
& 8.97% respectively which indicates that the return from the capital invested is decreasing. It
means that profit generated is lower in proportion to the capital amount employed. From this ratio
investor can predicts that capital of company is not utilized efficiently for carrying on business
operations as result of which company's performance and profitability level is affected (Lakshan
and Wijekoon, 2017). The return on capital employed of Alpha Limited is facing a declining trend
due to several reasons such as using of outdated machinery and business processes, increase in debt
amount along with high liability side.
For improving this ratio, the company must opt for formulation of sound and better improved
business strategies, plans and policies. IT can also sell its outdated equipment related to production
and manufacturing function so as to lower the production cost associated with unproductive and
unnecessary business areas for enhancing the operational efficiency of business. By paying off all
the business obligations, debts, liabilities, the company can improves the return on capital employed
ratio.
2. Net profit margin - This ratio determine the percentage of revenue amount left or remain
after the making payment of all business related operating expenses, taxes, interest expenses
and the preference dividend out of the total sales amount.
This ratio indicates the profit which the business has earned from its total revenue or
sales level made during a particular period of time. The sales in this ratio is taken after making all
deductions which are pertaining to the sales amount. The net profit margin of the Alpha limited is
showing the decreasing trend from 12.50% in 2017 and 8.75% in the year 2018 which means that
the income remaining after the meeting all sales expenses is lower. It reflects the poor performance
of the Alpha limited in setting up the prices for its product and services. Also, the cost of goods
sold, operating expenses of Alpha limited are very high which can leads to the decrease in the net
profit margin.
There are various methods by use of which Alpha can improve its business operation and profit
level such as reducing labour and operational cost. The company should focus on increase its

product and service price which can result in high earning. Alpha limited must find ways for
producing goods at cheaper rate which leads to lower cost of production per unit which in turn
increases the return and competitive edge can be achieved by the firm in the overall market.
3. Current ratio - It is a part of liquidity ratio which measure the ability of company in paying
of all its short term obligations or dues which are going to be occurred within a year. With
the help of this ratio, investors of Alpha Limited can become aware of the company is
maximizing its current assets over its current liabilities with the aim of bringing satisfaction
to its current debt and trade payables. This ratio depicts the liquidity position of the
company. It is very important for the firm to measure the current ratio as it provides
information related to short term liabilities due on the behalf of company (Robinson and
et.al., 2015).
Current ratio indicates the capability of the business to pay-off its dues on time with the available
current assets. In 2017, the current ratio of the Alpha limited was 2.35 which means is considered as
goods ratio i.e. 2:1 it states that company is having enough current assets for paying of its liability.
However, in 2018 the current ratio decrease to 0.93 which shoes that company lacks in managing its
current assets effectively. This also means that the liabilities of company are greater than the current
assets.
From the past year current ratio, it can be understand that Alpha Limited does not have sufficient
funds and assets to meet its short term obligation and reflects poor liquidity position of the
company. The current ratio of Alpha Limited decreases due to the increase in the short term loans,
spending more cash expenditures, increase in accruals or payable with decrease in trade receivables.
Ways of improving liquidity position are by submitting the invoices on early basis, switching for the
long term loans rather than the short-term loans, removing or selling the irrelevant assets,
controlling the overhead expenses and negotiating payment cycle for longer duration etc.
4. Average receivable days - It defines the average period or number of days in which
customers will make payments to the company or time in which company will receive its
cash back from customer on credit sales. It is computed by dividing the trade receivable to
the sales and multiplying it by the total number of days I.e. 365 in a year (Arkan, 2016).
The best way for measurement of the account receivable days is by tracking on the trend line for
each month so that changes regarding the ability of an entity can be shown in collecting the
receivables from its customers. This ratio indicates the average time taken by the Alpha Limited in
collecting its payments on the goods sold on credit basis. The average receivable days for the year
2017 is 68.4 days and for 2018 is 73 days. The company should focus more on collecting its debt
amount from customer and try to receive it as soon as possible. Delay in collecting cash from
customer can lead to shortage of cash or funds requirement for carrying on business operations in

the company, which can lead to business loss.
The ratio also shows that the credit policies of the company is not strict. The increased number of
days depicts that the company is seeking for more and more credit sales rather than cash sales.
Alpha limited by using online payment facility can receive its money faster The company must
maintain healthy working relations with its customers for receiving payment on time and by setting
up of the clear policies in relation to credit.
5. Average payable days – It means number of days which the company is taking for making
payment to its trade suppliers, vendors etc. against the purchases of raw material on credit
basis. The average payable period of Alpha Limited for the year 2017 was 43.3 days and for
the year 2018 was 127.8 days which shows that company is taking more time in making
payments for the credit purchase made to its suppliers, vendors. The average payable days of
the Alpha Limited is increasing which is good for company as it will have more cash amount
with itself for conducting or meeting of day to day business operations on time and can
make more profits (Penman, 2015).
The reason for increasing the accounts payable period can be because of emphasizing on buying
and purchasing of raw material more on the credit basis. It can also be interpreted that company is
taking more time in paying its invoices and bills to the creditors vendors, suppliers etc. Account
payable days can be improved by setting up the reminders for the due date of payment, looking for
the discounts, budgeting for the expenses, maintaining the relationships and standardizing the
workflow process of the accounts payable.
CONCLUSION
From the above report it can be concluded that, company by using all the statistical and financial
information can make sound and effective decision related to the procurement and utilisation of
financial as well as business resources. Report has defined the importance of accounting and
finance department for HSBC Bank. After conducting SWOT analysis of HSBC, it has been
determined that this banking company is conducting its business operations worldwide with approx
38 million customers. At last, the report has disclosed the financial analysis of Alpha Limited has
been made for the year 2017 and 2018 including financial ratios such as current ratio, net profit
margin, return on capital employed etc. By this financial analysis, it has been evaluated that the
overall performance and profitability level of the company has improved.

REFERENCES
Books and Journals
Arkan, T., 2016. The importance of financial ratios in predicting stock price trends: A case study in
emerging markets. Finanse, Rynki Finansowe, Ubezpieczenia. 79(1). pp.13-26.
Cowton, C. J., 2018. Management Accounting and New Information Technology. In Management
Information Systems: The Technology Challenge (pp. 115-126). Routledge.
Duclos, R., 2015. The psychology of investment behavior:(De) biasing financial decision-making
one graph at a time. Journal of Consumer Psychology. 25(2). pp.317-325.
Gürel, E. and Tat, M., 2017. SWOT ANALYSIS: A THEORETICAL REVIEW. Journal of
International Social Research. 10(51).
Lakshan, A. I. and Wijekoon, W. M. H. N., 2017. The use of financial ratios in predicting corporate
failure in Sri Lanka. GSTF Journal on Business Review (GBR). 2(4).
Li, Y., Chen, T. and Xin, B., 2016. Optimal financing decisions of two cash-constrained supply
chains with complementary products. Sustainability. 8(5). p.429.
Luque, J. P., Ikromov, N. and Noseworthy, W. B., 2019. Beyond Financing: The Process of
Development. In Affordable Housing Development (pp. 121-128). Springer, Cham.
Mitchell, O. S., Hammond, P. B. and Utkus, S. P. Eds., 2017. Financial Decision Making and
Retirement Security in an Aging World. Oxford University Press.
Mwangi, G., 2018. Assessing the Influence of Accounting Outsourcing on Financial Performance
of Small and Medium Enterprises in Thika Subcounty, Kenya. Management and Economics
Research Journal. 4(2018). p.4945.
Penman, S. H., 2015. Financial Ratios and Equity Valuation. Wiley Encyclopedia of Management.
pp.1-7.
Phadermrod, B., Crowder, R. M. and Wills, G. B., 2019. Importance-performance analysis based
SWOT analysis. International Journal of Information Management. 44. pp.194-203.
Robinson, T. R. and et.al., 2015. International financial statement analysis. John Wiley & Sons.
Online
Maker, S., 2018. Financial Decision Making. [Online]. Available through:
<https://www.skillmaker.edu.au/financial-decision-making-for-small-businesses/>.
SWOT analysis of HSBC. 2019. [Online]. Available through:
<https://www.paperdue.com/essay/swot-analysis-and-strategies-for-hsbc-2156807>.