Investment Report: Equity Analysis & Capital Budgeting - Caffyns plc

This report provides a comprehensive financial analysis of Caffyns plc, focusing on equity investment and capital budgeting. Section A includes an equity investment report that evaluates Caffyns plc's strategic and operating environment using Porter's Five Forces, analyzes its business model, objectives, and key performance indicators (KPIs). A SWOT analysis further assesses the company's strengths, weaknesses, opportunities, and threats. The report also evaluates the company's accounting quality and compares its financial performance with competitor Pendragon plc. Section B presents a capital budgeting analysis, evaluating investment opportunities and providing recommendations based on financial metrics. The analysis leverages the company's 2017 annual report and other relevant sources to provide a well-rounded assessment of Caffyns plc's investment potential, all of which is available to students looking for solved assignments on Desklib.

Running Head: Accounting financial analysis report
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Accounting financial analysis report 2
Contents
Section A: Equity investment report.................................................................................3
Introduction...................................................................................................................3
Caffyns plc....................................................................................................................3
Strategic and operating analysis...................................................................................3
Accounting quality analysis..........................................................................................8
Financial analysis:........................................................................................................9
Investor analysis.........................................................................................................10
Recommendation and conclusion...............................................................................11
Section B: Capital budgeting analysis............................................................................12
Introduction.................................................................................................................12
Analysis......................................................................................................................12
Recommendation and conclusion...............................................................................14
References.......................................................................................................................15
Appendix.........................................................................................................................17

Accounting financial analysis report 3
Section A: Equity investment report
Introduction:
Equity investment reports are prepared to evaluate the financial and non financial
position of an organization so that a decision could be made about the investment and equity
position of the company. The report takes the concern of industry evaluation, company
evaluation, external environments, internal environments, accounting quality, competitor’s
analysis, financial analysis etc (Grinblatt and Titman, 2016). It makes it easy for the investors
of the company to make a better decision about the divestment into the company.
The report has been prepared to brief you about the Caffyn plc and its performance.
For evaluating the investment opportunity in the company, financial and non financial factors
of the company has been evaluated and it has been recognized that how the company is
performing in context with the industry and the competitor of the company, Pendragon plc.
The financial position of the company has been compared with last year and the competitor to
evaluate the better opportunity of investment.
Caffyns plc:
Caffyns plc is a motor vehicle retailer company in England. The company has been
awarded as one of the largest car retailing company is Southeast, England. The main
operations of the company are to sell the new and used car and car parts. The main products
of the company are mobility van, car, oil, parts, tyres, accessories etc. (History,, 2018).The
company also offers the repairing services to the cars. The company explains about a
portfolio of 6 franchises which are Audi, SEAT, Vauxhall, Volvo, Volkswagen and Skoda.
The company has been founded in 1865. Headquarter of the company is in Eastbourne, UK.
The main competitor of the company is Pendragon plc which is also operating its business in
England (Bloomberg, 2018).
The financial performance and non financial performance of the company indicates
about numerous changes in recent years. The performance of the company has been enhanced
and the company has also managed the non financial factors to enhance the performance of
the company (Reuters, 2018). The financial and non financial performance of Caffyns plc is
below.
Strategic and operating analysis:

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Strategic and operating policy of an organization express about the current policies
and rules which are followed by the comapny to achieve the goal and objective of the
company (Gitman and Zutter, 2012). The strategies of the company, its competitors and the
industry are as follows:
Strategic analysis of industry and company:
Strategic analysis of the company has been evaluated on the basis of porter’s 5 forces
model. This model takes the concern of industry as whole and explains that what changes are
taking place into the industry and how it is affecting the performance of the company:
Porter’s 5 forces model:
Threat of new entrants New entrants always come in the market with
various new changes and in car retailing industry; it
is easier for the companies to enter. Thus, the threat
from new entrants is quite higher and it is suggested
to the company to make few innovations on regular
basis so that the threat level could be reduced.
Bargaining power of suppliers Bargaining power of suppliers have been studied
further in car retailing industry and it has been
found that the suppliers are huge in number and
thus they are not in a position to dominate the
companies and the price of supplies. It helps the
Caffyns plc to manage the performance and the
price (Gambacorta and Signoretti, 2014).
Bargaining power of buyers Bargaining power of buyers have been studied
further in car retailing industry and it has been
found that the buyers are huge in number and thus
they are not in a position to dominate the companies
and the price of products. It helps the Caffyns plc to
manage the performance and the price.
Threat of substitute services
and products
Various substitute products of cars and motor parts
are available in the market and thus it is required for

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the industry to manage the price and attract the
customers through various tactics so that the
performance and the position could be maintained.
Rivalry among the existing
players
Lastly, rivalry among the existing players has been
studied and it has been recognized that the Caffyns
plc is one of the good players (Borio, 2014).
Though, there are various other big players in the
market such as Pendragon plc.
It explains that the car sell retailing industry is performing well in the market and due
to it; the performance of Caffyn plc is also good.
Activities, business model and markets:
Activities, markets and business model of an organization evaluates about the non
financial performance and position of the company. The activities, market structure and
business model of the company has been evaluated to recognize the performance of the
company and the competitors position of the company. The activities of the company have
been studied firstly and it has been recognized that the main operations of the company are to
sell the new and used car and car parts. The main products of the company are mobility van,
car, oil, parts, tyres, accessories etc. The company also offers the repairing services to the
cars (Annual Report, 2017). The company explains about a portfolio of 6 franchises which
are Audi, SEAT, Vauxhall, Volvo, Volkswagen and Skoda.
Further, the markets of the company have been evaluated and it has been recognized
that the company is focusing on the new car market as well as old car market. It helps the
company to grab both the market. According to the annual report (2017), it has been found
that the revenue from both segments of the company is quite better and it briefs about the
better position of the company (FT, 2018).
Lastly, the business model of the company has been studied and it has been
recognized that the company operates its business with an effective process. It basically
works as a mediator among the customers and the manufacturing companies. The business
model of the comapny briefs about a portfolio of 6 franchises which are Audi, SEAT,

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Vauxhall, Volvo, Volkswagen and Skoda. Caffyns plc sells the cars of these brands to the
customers of UK (Galí, 2015).
Objectives and policies:
Objectives and policies of an organization brief about the man target which has been
set by the management of the company and the entire organizations works as a team to reach
and meet the target. The main objectives of Caffyns plc are to analyze the new market for the
company and grab that market. Currently, the company is focusing on diversifying so that the
new market could be grabbed and the turnover of the company could be enhanced. The
company has prepared various new policies of human resources and financial management to
meet the objectives (annual report, 2017).
The objectives of the company have been prepared in such a manner that society
could not be harmed as well as the position and the performance of the company is enhanced.
The company wants to be leader in the market but various competitors are available in the
market to defeat the company (Simply Wall, 2018).
KPIs:
Key performance indicators of the company have been studied further to recognize the
changes into the performance of the company in context with the last year and the competitor
of the company. The key performance indicators of the company such as net profit, Earnings
per share, gearing ratio of the company etc explains that the performance of the company has
been better from the last year (Annaul Report, 2017). On the other hand, the Pendragon plc’s
key performance indicators explains that the performance of the company has been lowered
in financial year 2017 in context with the financial year 2016. It explains that the Caffyns plc
is a good option for the purpose of investment.
SWOT analysis:
SWOT analysis of the company has been done in addition to recognize the internal
strength and weakness of the company as well as the external opportunities and threats of the
company. The SWOT analysis study of the comapny is as follows:
Strength:
1. High growth rate
2. Better key performance indicators
Weakness:
1. Less market share
2. Competition

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3. Competitive strategies and policies
4. Better business model
5. High labour cost
3. Small business unit (Ward, 2012)
Opportunities:
1. New technology
2. New markets to grab
3. Diversification of products
Threats:
1. High cost of material
2. Technological issues
3. Rapid changes in the prices
4. Government regulations
Strategic report in annual report:
The annual report of the comapny briefs that the main strategy of the company is to
focus on the premium price and premium volume market from where huge sales could be
made by the company as greater resilience is there is the market. The annual report (2017) of
the company briefs that generally comapny operates its business through its freehold property
so that the flexibility could be maintained and the better long term returns could be got. The
after sales strategy of the company is also strong as it has been found that the turnover of the
company has been enhanced by 8.8% due to after sales service of the company (Yahoo
Finance, 2018).
Company has also prepared some strategies and policies for the UK government
regulations and the economy of the country. The company monitors the economical
indicators time to time and make the new strategy on the basis of that. The company has also
diversified its market to mitigate the risk level and enhance the performance of the company
(Weston and Brigham, 2015). The company has described briefly about the potential risks ,
their measurements, impacts and the key control strategies of these issues.
Critical evaluation:
On the basis of the above study and the analysis on Caffyns plc, it has been
recognized that the company is performing very well in the market. The industry strategic
analysis briefs that the position of the company is good. Further, other factors also brief that
the current position of the company is quite better and in near future, the position of the

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company would be much better. It evaluates that the company is a good option for the
purpose of investment.
Accounting quality analysis:
Accounting quality is an extent which evaluates the accounting standards, accounting
reports and accounting position of the company and it briefs that whether the comapny is
disclosing all the activities and figures to the company or not. Auditors of an organization are
required to evaluate the accounting reports of the company so that the accounting qualities
could be measures and evaluated.
Accounting quality:
Accounting quality of Caffyns plc has been evaluated on the basis of annual report
(2017). On the basis of annual report of the company, it has been found that the company has
measured and recorded all the financial figures such as depreciation, tax amount, goodwill
amount, provisions etc on the basis of accounting standards and the international accounting
regulations which explains that the accounting quality of the company is quite better and the
company is following all the main accounting connects to run the business properly such as
going concern concept (Weaver, Weston and Weaver, 2001).
Company disclosure policies and estimates:
Annual report (2017) of Caffyns plc describes that the company is disclosing all the
relevant and main figures of accounting in a proper way. The final accounts of the company
have been prepared and notes have also been attached with them which contain all the
relevant information. The annual report of Caffyns plc has been compared with Pendragon
plc’ annual report (2017) and it has been recognized that the performance and the disclosing
policies of both the reports are same which explains that Caffyns plc estimates, records and
disclose all the figures on the basis of accounting standards.
Auditors focus:
Auditor report has also been studied further to evaluate that whether the company is
involved in any fraudulent activities or any figure or transaction has been disclosed by the
company. On the basis of the evaluation, it has been recognized that the company’s
accounting quality is quite good and no issues are involved in the company.
Red Flags:

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There are no red flags in the accounting policies and standards of the company. It
briefs that the financial position of the company is is quite good and no issues are involved in
the company. The annual report of Caffyns plc has been compared with Pendragon plc’
annual report (2017) and it has been recognized that the performance and the disclosing
policies of both the reports are same.
Financial analysis:
Financial analysis study has been done further to analyze the performance of the
company in context with the last year performance and the competitors of the company. the
financial analysis study of the company is as follows:
Trend analysis:
Trend analysis stands for changes into the financial figures if income statement and
balance sheet on the basis of sales revenue, total assets and total stockholder’s equity and
liabilities. The trend analysis of the company briefs that the gross profit position of the
company has been lowered from last year and the same has been impacted on the net income
of the company (Appendix). The evaluation of trend analysis on Pendragon plc briefs that the
gross profit and income of Competitor Company has also been lowered. These changes have
been occurred into the company due to some industrial issues and it explains that the
performance of the company is quite good (Du and Girma, 2009).
The balance sheet of the company has also been studied and it has been recognized
that the capital structure has been changed by the company to maintain the optimal capitals
structure as well as the liquidity position has also been maintained by the comapny through
managing the level of current assets (Morningstar, 2018). The evaluation brief that the
company is maintain a good competitive position.
Ratio analysis:
Ratio analysis study has been done to evaluate the profitability, liquidity, asset
management etc position of the company. firstly, the profitability ratio of the company has
been evaluated and it has been recognized that the profitability generation capability of the
company has been lower on the other hand, competitors position also brief about decrement.
Further, the liquidity position briefs that reduction in the company as well as
competitor comapny and briefs that the current position of the company is quite better
(Appendix). Company is utilizing the resources at their fullest. Asset management ratios of

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the company briefs that the cash conversion cycle of the company is higher than competitive
company and thus the company should reduce the level.
Lastly, capital structure ratio of the company explains that the company should
maintain the optimal capital structure to manage the risk and cost of the company.
Horizontal analysis:
Horizontal analysis stands for changes into the financial figures of income statement
and balance sheet on the basis of last year data. The horizontal analysis of the company briefs
that the sales position and gross profit position of the company has been lowered from last
year though, the net income of the company has been better (Appendix). The evaluation of
horizontal analysis on Pendragon plc briefs that the income of Competitor Company has also
been enhanced but net income has been lowered. These changes explain about the better
performance of the company.
The balance sheet of the company has also been studied and it has been recognized
that the company has made few changes into its financial performance to make the position
more competitive. The evaluation brief that the company is maintain a good competitive
position.
Critical evaluation:
It evaluates that the financial performance of the company is quite better. Few
changes are required to be done in the company though; it hardly matters to the inventors.
The investing position of the company is quite better.
Investor analysis:
Investor’s analysis has been done further to analyze the performance of the company.
Dividend position:
Dividend position of the company explains that the dividend amount has been
enhanced by the company by 3.4% which explains that the divided payout ratio of the
company is quite better (Yahoo Finance, 2018).
Market price:
The market stock price of the company explains about the increment into the stock
price of the company. the current stock price of the company is GBP 429 which is quite better
in context of the competitors of the company (Business Insider, 2018).

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Company news and Analysts view:
the news and the analysts report brief that the company is a good opportunity for the
purpose of investment. The market performance of the company is quite better as well as the
dividend payout ratio of the company is also good (Morningstar, 2018).
Critical evaluation:
It evaluates that the investment position of the company is quite better. The investing
position of the company is quite better in context with the competitors. It briefs that the
investors should invest more in the company for better returns.
Recommendation and conclusion:
The above study recommends the investors to hold the stock for some time for better
returns. Though, the current position of the company is also string but the evaluation study
brief that in future the position of the company would be enhanced more. The non financial
performance of the company briefs the position of the company is quite strong in the market
as well as the strategies and future policies of the company are also strong.
On the other hand, financial figures of the comapny briefs that the investment position
and financial position of the company has been better and it is also better from the
competitors. The investment report and the analyst report also briefs that the company is a
good option for the purpose of investment and thus the investor should hold the stock.

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Section B: Capital budgeting analysis
Introduction:
Hammond electronics is manufacturing computer peripheral devices and that wants to
invest into a new product “Super Zip”. This report has been prepared to evaluate that whether
the project is beneficial for the company or not. For evaluating the performance of the project
discounted cash flow, internal rate of return and payback period of the project has been
evaluated and on the basis of that a conclusion has been made about the investment.
Discounted cash flow, internal rate of return and payback period are some techniques of
capital budgeting which evaluates the project and analyze that whether the project would be
beneficial for the company or not. It analyzes the project on various bases such as total time
period, cash flow etc.
Analysis:
In the given case, initial cost of the project is £700,000 and total revenue of the
project is £ 4,80,000 per year for 5 years. After 5 years, the machinery would be of no use
and it would be sold by the company in £ 70,000. The analysis and the calculations on the
given case briefs that the total cash flow of the company would be -£ 7,95,000 in initial year
and £ 1,82,000, £1,77,000, £1,77,000., £1,77,000 and £3,42,000 in next 5 years respectively
(Kaplan and Atkinson, 2015). On the basis of it, discounted cash flow has been calculated
and it has been found that the total discounted cash outflow of the company would be
£7,95,000 and total discounted inflow of the company would be £7,77,967 in next 5 years
which explains that the inflow of the project is quite lower than the outflow of the company.
Where the cash outflow is higher than the cash inflow then the project should not be accepted
by the company. It evaluates that the discounted cash flow of the company would be -£
17,033.27. It explains that the project should not be accepted by the company.
Calculation of Net Present Value
Year
s Cash Outflow Cash Inflow
Factor
s
P.V. of Cash
Inflow
P.V. of Cash
Outflow
0
£
7,95,000.00 1.000 £ 7,95,000.00
1
£
1,82,000.00 0.909
£
1,65,454.55
2
£
1,77,000.00 0.826
£
1,46,280.99