Sports Limited Financial Analysis Report: Finance CW2 Assignment

This report provides a comprehensive financial analysis of Sports Limited, evaluating its future prospects and financial viability. It utilizes investment appraisal techniques, including Net Present Value (NPV), to assess the profitability of potential projects like the Capital Suite and Capital Platform software. The report also conducts capital budgeting, cash flow analysis, and break-even analysis to assess the financial performance of a new shop over a three-month period. Sources of finance, such as bank loans, preference shares, and asset securitization, are explored to support the company's expansion. The analysis includes detailed financial data, cash flow statements, and budget projections, offering insights into the minimum sales required for break-even and the overall financial health of Sports Limited. The report concludes with recommendations for investment strategies and capital allocation, emphasizing the importance of financial planning for sustainable growth.

Running head: FINANCE
Finance-CW2
Name of the Student:
Name of the University:
Authors Note:

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Executive Summary:
Investment appraisal techniques are been used in the assessment to identify the
financial viability of the future prospects that is presented to the organisation. In
addition, adequate capital budgeting, cash flows analysis and breakeven analysis
has also been conducted for analysing the performance of the company for the
tenure of 3 months. The capital budgeting has directly indicated a positive cash flow
for the new shop of the organization. The break-even analysis and the cash flow
created for the new shop as indicated a positive attributes of the new opportunity,
which can increase profitability of the organization. The break has stated the
minimum amount of revenues or units that needs to be produced by the new shop
for achieving no profit no loss. However, the cash flow analysis indicators and
negative closing cash balance for the new shop.

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Table of Contents
Introduction:..................................................................................................................3
Literature review to support the accounting models used:...........................................3
Sources of Finance:......................................................................................................4
Investment Appraisal technique:..................................................................................5
Capital Budgeting:........................................................................................................7
Breakeven analysis:......................................................................................................8
Evaluation:..................................................................................................................10
Conclusion and recommendation:..............................................................................10
Reference and Bibliography:......................................................................................12

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Introduction:
The assessment aims in evaluating the future prospects that is presented to
Sports Limited. Investment appraisal techniques are been used in the assessment to
identify the financial viability of the future prospects that is presented to the
organisation. In addition, adequate capital budgeting, cash flows analysis and
breakeven analysis has also been conducted for analysing the performance of the
company for the tenure of 3 months. Moreover, adequate evaluation is mainly
conducted for identifying the accurate level of income that can be generated from an
investment. The accounting models and the source of finance that can be used by
the organisation is mainly identified in the assessment.
Literature review to support the accounting models used:
There are different accounting models used for analysing the proposed
projects presented to Sports Limited. The investment appraisal technique Net
present value is mainly used for analysing the projects that is presented to the
company. In addition, the net present value provides adequate information regarding
the future incomes by scrutinising the cash flow under time value of money. This
measure can eventually help in selecting the project, which can provide the highest
level of income from investment in the long run. Caglayan and Demir (2014)
mentioned that investment appraisal techniques allow the management to select the
most appropriate investments, which can boost their sales in the long run.
Moreover, the other accounting models used in the analysis are cash flows
statement, budget and breakeven analysis. The budget is used for preparing the 3-
month projected income of the new shop, which can help ion detecting the income
that can be generated from the investment. On the other hand, the breakeven
analysis is conducted to determine the level of minimum sales that is required by the
new shop for obtaining no profit no loss scenario. This breakeven analysis helps in
understanding the minimum level of sales that needs to be conducted by the
company to continue its operations without hindering the invested capital. Lastly, the
cash flow statement has provided adequate information regarding the cash position
of the organisation during the three-month period.

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Sources of Finance:
There are specific sources of finance that can be used by the Sports Limited
organisation for complementing the planned expansion program. The organisation
has been successfully operating for the past 10 years, while making adequate profits
from the operations. From the relevant evaluation, it can be detected that the
organisation can access different sources of finance for supporting its financial
expansion, while accommodating the level of operations, which can increase its
performance in the long run. Khan (2015) mentioned that available source of the
finance is considered to be a blessing for the organisation during cash crunch or
expansion, as it provides the management adequate liberty to make appropriate
decision to fulfil their financial goals. There are specific sources of finance that is
available for Sports Limited, which are depicted as follows.
Bank Loan:
Bank loan is one of the best and quickest sources of finance that is available
to Sports Limited, as loan from banks can be provided for initial year with low interest
rate. Moreover, bank loans have certain limitations and advantages for the
organisation, who is interested in selecting the source of finance. Bank loan is
considered to be one of the quickest forms of finance that can be used by the
organisation for supporting it cash crunch. However, the increment in bank loan can
raise the level of interest payments, which can negatively affect the actual profits of
the organisation (Carbo‐Valverde et al. 2016).
Preference Shares:
The second-best option for Sports Limited is the issue of preference shares,
as it can allows the management to acquire the adequate level of capital for
supporting its operations. The major advantage of Preference shares is the security
it provides to investors, which allow the company to acquire the capital quickly from
investors. However, the preference shares reduce the retained income of the
organisation, as constant payments need to be conducted to the investors.
Asset Securitization:
The third finance source that is available to Sports Limited is asset
securitizations, as it allows the management to get the required money quickly after

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providing assets as mortgage to the loan. Mortgage based loan is considered to
have low level of interest due to the security provided to the loan provider. However,
there is major limitation to the asset securitization method, as the company might
lose the asset If adequate repayments and interest is not been provided to the
lender. This is a major risk, which might hinder the progress and continuity of the
company (Peirson et al. 2014).
Investment Appraisal technique:
Year 0 1 2 3 4 5
New software cost 8,800,000£
Working capital 900,000£ 618,000£ 824,000£ 309,000£ 721,000£
Change in WC 282,000£ 206,000-£ 515,000£ 412,000-£ 721,000£
Sales revenue 3,300,000£ 6,592,000£ 7,931,000£ 8,961,000£ 9,991,000£
Less
Module 1 432,600-£ 618,000-£ 824,000-£ 927,000-£ 1,133,000-£
Module 2 1,040,300-£ 1,442,000-£ 1,648,000-£ 2,163,000-£ 1,957,000-£
Overhead 236,900-£ 247,200-£ 339,900-£ 309,000-£ 309,000-£
Hours 1,300£ 1,274£ 1,249£ 1,224£ 1,199£
Per hour 130£ 134£ 138£ 142£ 146£
TE 1 169,000-£ 170,589-£ 172,192-£ 173,811-£ 175,445-£
Hours 1,300£ 1,261£ 1,223£ 1,186£ 1,151£
Per hour 115£ 118£ 122£ 126£ 129£
TE 2 149,500-£ 149,365-£ 149,231-£ 149,097-£ 148,963-£
Total cash flow 9,700,000-£ 1,553,700£ 3,758,846£ 5,312,677£ 4,827,093£ 6,988,593£
NPV 5,962,222
Capital Suite
The above figure provides relevant information regarding the Capital Suite
software that is proposed to Sports Limited. From the evaluation, it is mainly
detected that the after calculating the initial investment with the cash inflows and
outflows the relevant financial viability of the project is mainly detected. In addition,
the investment appraisal technique has indicated that the project will provide a total
return of £5,962,222 from an investment of only £9,700,000. On the other hand,
Harris (2017) mentioned that economic value added has been used when life of the
two mutually exclusive projects are not similar, as it helps in detecting the most
beneficial project for the organisation.

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Year 0 1 2 3 4 5
New software cost 8,600,000£
Working capital 500,000£ 672,590£ 830,180£ 987,770£ 1,145,360£
Change in WC 172,590-£ 157,590-£ 157,590-£ 157,590-£ 1,145,360£
Sales revenue 5,650,000£ 6,983,400£ 9,311,200£ 11,057,050£ 11,639,000£
Less
Module 1 351,230-£ 544,870-£ 834,300-£ 1,084,590-£ 1,484,230-£
Module 2 1,359,600-£ 1,931,250-£ 2,317,500-£ 2,804,690-£ 3,033,350-£
Overhead 191,580-£ 233,810-£ 278,100-£ 325,480-£ 370,800-£
Hours 1,300£ 1,274£ 1,249£ 1,224£ 1,199£
Per hour 130£ 134£ 138£ 142£ 146£
TE 1 169,000-£ 170,589-£ 172,192-£ 173,811-£ 175,445-£
Hours 1,300£ 1,261£ 1,223£ 1,186£ 1,151£
Per hour 115£ 118£ 122£ 126£ 129£
TE 2 149,500-£ 149,365-£ 149,231-£ 149,097-£ 148,963-£
Total cash flow 9,100,000-£ 3,256,500£ 3,795,926£ 5,402,287£ 6,361,793£ 7,571,573£
NPV 9,548,818
Capital Platform
In the above figure, investment appraisal technique has been used for capital
Platform, as it helps in detecting its financial viability. From the evaluation, it is
detected that a total NPV value of £9,548,818 is generated from an investment of
£9,100,000. Therefore, with the help of the investment appraisal technique the
current financial performance of the new proposed project is mainly detected for
understanding the level of income from investment. In this context, Schlegel, Frank
and Britzelmaier (2016) stated that investment appraisal techniques are mainly used
for understanding the financial performance of the new proposed project, which can
increase growth prospects of the company.
The above figures have provided relevant information regarding the two
different proposals that is presented to Sports Limited. From the evaluation, it is
mainly detected that Capital Suite and Capital Platform is providing mutually
exclusive benefits to Sports Limited. However, the analysis of the investment
appraisal technique has indicated that Capital Platform is the most viable investment
option, which can raise profits of Sports Limited. The higher NPV value is considered
as the selection process, which can increase profitability of Sport Limited in the long
run. Both the investment option is considered to be viable in nature, as Sports
Limited can eventually help in generating high level income from operations. Hence,
the company can use both the proposed investment options for raising its
profitability. Nevertheless, if only one project needs to be selected then Sports
Limited need to investment in Capital Platform.

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Capital Budgeting:
Particulars April May June Total
Total sales volume 420 420 420
Small Business Tool (SBT) 281 281 281
Corporate Business Tool (CBT) 139 139 139
Revenue
SBT 84,420.00£ 84,420.00£ 84,420.00£ 253,260.00£
CBT 56,826.00£ 56,826.00£ 56,826.00£ 170,478.00£
Total revenue 141,246.00£ 141,246.00£ 141,246.00£ 423,738.00£
Variable cost
SBT 53,466.00£ 53,466.00£ 53,466.00£ 160,398.00£
CBT 30,492.00£ 30,492.00£ 30,492.00£ 91,476.00£
Total variable cost 83,958.00£ 83,958.00£ 83,958.00£ 251,874.00£
Fixed cost specific to products
Marketing 50,000£
Administration 20,000£
Staff Salary 42,000£
Fixed cost
Rent 16,000.00£
Telphone 1,800.00£
Loan Interest 1,080.00£
Insurance 6,000.00£
Electricity and Gas 3,500.00£
Business Rates 4,000.00£
Total fixed cost 144,380£
Cash flow 27,484.00£
The above figure provides information regarding the budget, which is
prepared for three months, as it analyses the performance of Sports Limited. From
the evaluation, it is detected that the company will generate adequate return during
the period of three month, as anticipated in the budget. The profit that is generated
during the financial year is mainly at the levels of £27,484. The profit is detected by
accommodating all the relevant variable and fixed cost expenses from the
anticipated revenue generated from shop. The anticipated volume of sales for both
Small Business tool is 281 each for the three months, whereas the volume for
Corporate Business Tool is 139. Moreover, the selling price of Small Business tool is
anticipated to £300, while for Corporate Business Tool is only at £410. Williams and
Dobelman (2017) indicated that budget allows the organisation to determine the
expenses and income, which is generated from operations in the long run.
Cash Budget
Particulars April May June
Total revenue £ 42,373.80 £ 1,41,246.00 £ 1,41,246.00
Total variable cost £ 83,958.00 £ 83,958.00 £ 83,958.00

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Fixed cost specific to
products
Marketing £ 16,666.67 £ 16,666.67 £ 16,666.67
Administration £ 6,666.67 £ 6,666.67 £ 6,666.67
Staff Salary £ 14,000.00 £ 14,000.00 £ 14,000.00
Fixed cost
Rent £ 5,333.33 £ 5,333.33 £ 5,333.33
Telephone £ 600.00 £ 600.00 £ 600.00
Loan Interest £ 360.00 £ 360.00 £ 360.00
Insurance £ 2,000.00 £ 2,000.00 £ 2,000.00
Electricity and Gas £ 1,166.67 £ 1,166.67 £ 1,166.67
Business Rates £ 1,333.33 £ 1,333.33 £ 1,333.33
Total cash flow -£ 89,710.87 £ 9,161.33 £ 9,161.33
Opening cash 0 -£ 89,710.87 -£ 80,549.53
Closing cash -£ 89,710.87 -£ 80,549.53 -£ 71,388.20
The cash budget is mainly calculated in the above figure, which directly
indicates that level of total cash flow, opening cash and closing cash flow of the new
shop. The calculations have directly indicated that total cash flow during April is
negative, where the total cash outflow for the month is £89,710.87. On the other
hand, the total cash flow for May and June mainly increased to the levels of
£9,161.33. This has mainly indicated that closing cash flow of the company has
mainly changed during the three-month period, as cash inflow increased during the
two months. This change in the cash flow budget is due to the credit conditions of
the organisation, which has increased over the period of time. Therefore, the closing
cash during the month of June is mainly at the levels of -£71,388.20. This mainly
indicates that the cash conditions of the organisation will not be fruitful during the
three-month period. Hence, it can be understood that the cash position of the new
shop is not adequate, which in turn can negatively affect payments of cash reserves
of the organisation (Chang et al. 2014).
Breakeven analysis:
Particulars SBT CBT
Revenue £ 2,53,260.00 £ 1,70,478.00
Variable cost £ 1,60,398.00 £ 91,476.00
Contribution £ 92,862.00 £ 79,002.00
Contribution% 36.67% 46.34%

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Fixed cost specific to products
Marketing £ 24,000 £ 26,000
Administration £ 8,000 £ 12,000
Staff Salary £ 18,000 £ 24,000
Fixed cost
Rent £ 8,000.00 £ 8,000.00
Telephone £ 900.00 £ 900.00
Loan Interest £ 540.00 £ 540.00
Insurance £ 3,000.00 £ 3,000.00
Electricity and Gas £ 1,750.00 £ 1,750.00
Business Rates £ 2,000.00 £ 2,000.00
Total Fixed cost £ 66,190 £ 78,190
Breakeven sales required £ 1,80,518.18 £ 1,68,725.79
Breakeven sales units required 602 412
Breakeven sales units required per
month 201 137
The above calculation provides an in-depth analysis of the breakeven sales
and sales per unit that is required by the organisation for maintaining no profit no
loss conditions. This analysis is conducted for providing adequate information to
Sports Limited regarding the minimum number of revenue or sales that needs to be
conducted in the new shop. From the analysis, it can be detected that the breakeven
sales required for Small Business Tool is mainly at the levels of £180,518.18 for the
period of three months. Hence, total revenue that needs to be generated by Small
Business Tool for three-month period. Further evaluation has indicated that
Corporate Business Tool requires a sales amount of £168,725.79 for achieving no
profit no loss. There is a separate calculation conducted for both Small Business
Tool and Corporate Business Tool, which can help in deciding the minimum amount
of revenue that needs to be generated by the new shop for achieving no profit and
no loss (Morano and Tajani 2017).
The calculation also provides information regarding the sales unit that is
required by Small Business Tool and Corporate Business Tool to achieve
sustainability in business during the financial year. From the evaluation, it has also
indicated that minimum of 602 units needs to be sold in three months for Small
Business Tool, where at least 201 unit sale in required per month. Moreover, the
calculation for Corporate Business Tool indicates that minimum total sales of 137
needs to be conducted for achieving no profit no loss. Hence, the breakeven

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analysis indicated volumes and sales that need to be achieved for the new shop for
successfully operating without any kind of loss. Lee et al. (2018) mentioned that
analysis of breakeven units and sales value allows the organisation to conduct
marketing strategies that can increase profits from operations.
Evaluation:
After evaluating the cash budget and break even analysis the organization
can select the proposal for a new shop, as it would eventually help in generating high
level of income for the management. In addition, the break-even analysis would
provide relevant information regarding the measures that needs to be taken by the
management to survive the competitive environment and increasing profitability in
the long run. Moreover, from the investment proposal the Capital Platform needs to
be selected by the organization for increasing the profitability from its operations.
Conclusion and recommendation:
The assessment has adequately evaluated all the relevant options that was
presented to sports Limited for increasing its performance in the long run. the
adequate analysis of the available sources of finance for sports limited has been
identified which can be used by the management to support its future acquisition and
projects. The analysis has also been conducted on investment appraisal project
where capital platform Selected to be the most effective investment option for the
organization. This selected option for sports Limited would eventually help the
organization to increase its revenue in the long run as the NPV value is higher in
comparison to other project. Furthermore, the capital budgeting has directly
indicated a positive cash flow for the new shop of the organization. The break-even
analysis and the cash flow created for the new shop as indicated a positive attributes
of the new opportunity, which can increase profitability of the organization. The break
has stated the minimum amount of revenues or units that needs to be produced by
the new shop for achieving no profit no loss. However, the cash flow analysis
indicators and negative closing cash balance for the new shop.

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