Business Decision Making: Capital Budgeting and Financial Analysis

This essay analyzes business decision-making processes, focusing on the case of DDK plc, a textile company. It explores capital budgeting techniques, specifically Net Present Value (NPV) and payback period, to evaluate the feasibility of potential projects. The essay compares two projects, "Belt Project" and "Trainers Project," using financial data and calculations to determine the more commercially viable option. It delves into financial factors like gross profit, cash flow, and return on investment, alongside non-financial factors such as goodwill and technology. The analysis reveals that Project B, with a higher NPV and a shorter payback period, is the more suitable investment for DDK plc. The essay concludes by emphasizing the importance of informed decision-making for a company's competitiveness, highlighting the impact of decisions on various departments and the significance of considering both financial and non-financial factors.

Business Decision Making

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
Comparing the key aspects......................................................................................................................3
CONCLUSION...............................................................................................................................................7
REFERENCES................................................................................................................................................8

INTRODUCTION
Decision making is a market activity (the outcome of which is a decision) that allocates
products and beliefs in a scheme (those very as one's own money and time, social or corporate
capital, or social and public assets). In a corporate sense, the structure is the business entity as a
policy unit, with both the policy maker being the boss or administrator (Noack, 2019). Making
choices is central to starting a country. However, with any potential incentive, there is a possible
downside risk. As a result, the fear of loss that arises with compulsory selection. This report
based on the DDK plc which is a textile company and provides their services in the UK and
some parts of Europe. In this report consist of capital budgeting method in order to analysis
which project is better for investment and analysis financial and non financial factors to measure
performance.
MAIN BODY
Comparing the key aspects
Net present value: While comparing various investment ventures with separate cash
flows, the NPV function comes in handy. Net present value (NPV) is a tool used by many
companies to make important decisions on their development. The philosophy of NPV enables
efficient decision-making that contributes to the long-term viability of a firm. It allows this by
calculating the feasibility of a project or expenditure. It will discover here that the present value
is little more than actual value of currency income and expenses (Coulthard, 2020).
Project A - Belt Project
Year Net Cash flows Discount Factor @
14%
Present value of net cash
flows
1 45000 0.877 39474
2 45000 0.769 34626
3 35000 0.675 23624
4 70000 0.592 41446
5 82000 0.519 42588

Total Present value
=
181758
Initial Investment = 170000
NPV = 11758
Project B – Trainers
Year Net Cash flows Discount Factor @
14%
Present value of net cash
flows
1 50000 0.877 43860
2 45000 0.769 34626
3 70000 0.675 47248
4 90000 0.592 53287
5 90000 0.519 46743
Total Present value
=
225764
Initial Investment = 190000
NPV = 35764
Analysis: The NPV of Project B, 35764, is higher than the NPV of Project A, 11758, according
to the report. This demonstrates that project B is more commercially feasible.
Payback period: The payback period is used in particular project and budgetary control
to measure the time taken to retrieve the nominal value of expenditure. Different techniques of
capital budgeting are often favored since the payback duration approach lacks the gains that
come after that the expenditure is returned as well as the margin requirement of capital (Harjanti,
Novianto and Sukatmadiredja, 2020). Internal rate of return (IRR), discounted cash flow (DCF),
and net present value (NPV) are all terms used to describe the performance of a company (NPV)

Project A - Belt Project
Year Net Cash flows Cumulative cash flows
1 45000 45000.000
2 45000 90000.000
3 35000 125000.000
4 70000
5 82000
Initial Investment 170000
Payback period = 3 years + [(170000 - 125000) / 70000 * 12
months
3 Years + (45000 / 70000) * 12 months
3 years + (0.643 * 12 months)
3 years + 7.71 months
Project B – Trainers
Year Net Cash flows Cumulative cash flows
1 50000 50000.000
2 45000 95000.000
3 70000 165000.000
4 90000
5 90000
Initial Investment 190000
Payback period = 3 years + [(190000 - 165000) / 90000 * 12

months
3 Years + (25000 / 90000) * 12 months
3 years + (0.277 * 12 months)
3 years + 3.33 months
Analysis: The payback time review reveals that Project B, with a shorter payback period of 3
years and 3.33 months, is much more feasible than Project A. As a result, the organisation should
pursue Project B.
In the preceding calculation, the payback method for the Belt is 371 years, while the
payback period for the Trainers project is 3+3.33 years. Project A may be more affordable for
A&B Plc than Project B, which is a determinant of the procedure' profitability. The fastest
recovery period is helpful to the average consumer because it eliminates operation costs in a
short period of time. The NPV of Project A is 11758, while the NPV of Project B is 35764.
Project B is significantly more suited for DDK Plc as per this budgeting proactive strategy, yet it
has a good Result and was preferred for most capital expenditure.
Financial and Non-financial Factors:
Financial factors:
Gross profit: Companies may use gross margin to analyze their effectiveness by using a
certain volume of labor and resources. In layman's words, this is the amount of money earned by
charging additional (income) relative to the amount paying for it (cost of products sold),
excluding fixed costs including such rent, fixed labor costs, and so forth (Abdel-Basset and et.al,
2019).
Cash flow: A cash flow is a financial statement analysis technique that shows of cash
that reaches and exits the company, including more detail on the investment in current assets
needed for a given time. It covers all amount generated from purchases, but excludes sales
inventory and accounts that have not yet been charged for. Likewise, it would not view
manufactured goods or other products bought with cash but not compensated for. Such financial

reports assess whether an organization generates cash to cover its costs and meet financial
obligations.
Return on investment: The sum of benefit produced from expenditure is referred to as
the return on investment. In other sentences, did the behavior generate more (or less) than the
cost of implementation? The ROI solution to budgetary control considers advertising to be an
expense rather than a burden. And, as with any venture, the corporation anticipates a positive
profit margin. The corporation hopes to make a return on its advertisement spending.
Non financial factors
Goodwill: Goodwill is an abstract concept that refers to the portion of an asset's or company's
worth that is derived by variables that is specifically related to the assets or enterprise as a whole.
For example, popularity can result from the company's excellent image or the fact that it earns
higher-than-average income attributable to certain significant attributes (Pieterse, Stiggelbout
and Montori, 2019).
Technology: Mostly on commercial side, businesses rely on technological advances to develop
application development, maintain distribution processes, maintain information, and ultimately
provide the essential knowledge and resources that enable corporations to develop informed
business decisions (Brkan, 2019).
CONCLUSION
As per the above report it has been concluded that any decision make at organization can fix
a specific issue or want from a sector, but every determination has the potential to impact the key
purpose of company – competitiveness. Decisions made by managers in a context will escalate to
cross - departmental problems. Identifying the fundamental considerations to weigh before
making any decision enables managers and workers to create proper plans or respond to
particular circumstances.

REFERENCES
Books and journal
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Dental Journal. 228(7). pp.503-505.
Harjanti, D., Novianto, J. and Sukatmadiredja, N.R., 2020. Which country does it come from? A
review of Business-to-Business Purchase Decision Making Process (Doctoral
dissertation, EDP Sciences).
Abdel-Basset, M. and et.al, 2019. A group decision making framework based on neutrosophic
TOPSIS approach for smart medical device selection. Journal of medical systems. 43(2).
p.38.
Pieterse, A. H., Stiggelbout, A. M. and Montori, V. M., 2019. Shared decision making and the
importance of time. Jama. 322(1). pp.25-26.
Brkan, M., 2019. Do algorithms rule the world? Algorithmic decision-making and data
protection in the framework of the GDPR and beyond. International journal of law and
information technology. 27(2). pp.91-121.