Fresh It Plc: Business Analysis and Report on Health Food Segment

This report analyzes Fresh It Plc's potential venture into the health food segment, a strategic move for the established food manufacturer. The report provides a comprehensive business analysis, examining the current financial status, research methodology, and investment appraisal techniques, including cost sheet, cash flow analysis, and internal rate of return (IRR), payback period, and net present value (NPV). The analysis is based on projected data and assumptions regarding costs, sales, and market trends. The report projects a cost sheet, cash flow analysis, and calculates an IRR of 55% and a payback period of 2 years and 7 months, indicating profitability and efficient capital utilization. The conclusion emphasizes the viability of the new venture, supported by a positive NPV and the ability to overcome initial losses. The report includes references to financial and investment resources.

BUSINESS REPORT
Executive Summary:
Fresh It Plc, food manufacturer have been going steady in the business for past 15 years with a
modest growth rate of 4%, which speaks volume of its attained stability and market share in the
corporate world.
Having independent retailers across the country, the company has good command in its
respective segment, but acknowledges the growing trend towards more nutrias way of living and
is looking forward to bifurcate into this segment of the industry.
Venturing into a new segment will pose its’ won difficulties for the company, but the goodwill
achieved over the span of 15 years and having precise knowledge of the changing economic
conditions, the company should fare well into the new venturing.
Aims of the report:
 The laid down report showcase the projections towards the health food segment that the
company is interested in venturing.
 Report shows projections with assumed details with regard to the profitability of the new
segment for the company.
 The report tries and formulates decision based on the collected data as to whether the
project deemed to be undertaken by the company.
 The report tries to convene ways and methods by which true and fair financial position of
the company can be obtained.

Business Analysis:
Current Status:
The company at present enjoys a steady moderate growth rate of 4%, over the year and its return
on capital employees i.e. 25% is greater than cost of capital at 12% indicating that the company
has the capacity to earn more profits and is utilizing the capital employed efficiently.
The above status is the basis for venturing into the new segment as the company will have back
up from the main segment and raising debt will be impacted by the same. The profit increasing
indicators will motivate the stakeholders of the company to continue their interest with company,
which will have the organization to slide easily into the new segment.
Research Methodology:
The current report has utilized the tools of Investment appraisal technique, Cost Sheet and Cash
Flow analysis to showcase and forecast the route and viability of the new project to be
undertaken. Cost Sheet and Cash Flow analysis are based on certain assumptions and investment
appraisal technique consists of Net present value, internal rate of return and payback period. All
the calculations are made in pounds.
Cost Sheet:
Advantages:
Managers appreciate cost accounting because it can be adapted, tinkered with and implemented
according to the changing needs of the business. Labor costs are easier to monitor and control
through cost accounting. Depending on the nature of the business, wage expenses can be taken
from orders, jobs, contracts, or departments and sub departments. This means management can
pick and choose how it determines efficiency and productivity. This is very important when
estimating marginal productivity of individual employees.
Disadvantages:
The benefits of cost accounting come with a price. Since costing methods differ from
organization to organization, it's not clear how these costs might manifest themselves until a
specific firm is examined.
Generally speaking, complex cost accounting systems require a lot of work on the front end, and
constant adjustments need to be made for improvements. This complexity consumes time and
resources and leaves room for misinterpretation.

Even if the rigidity of financial accounting creates some inherent disadvantages, it does remove
the uncertainty and misapplication of accounting guidelines of cost accounting. Uncertainty
equals risk, which always comes at a cost. This means additional, and often more vigorous
reconciliation to verify accuracy.
Cash Flow:
Advantages:
1. It shows the actual cash position available with the company between the two balance
sheet dates which funds flow and profit and loss account are unable to show and therefore
it is important to make a cash flow report if you want to know about the liquidity position
of the company.
2. It helps the company in making accurate projections regarding the future liquidity
position of the company and hence arrange for any shortfall in money by making
arrangements in advance and if there is excess than it can help the company in earning
extra return out if idle funds.
3. It acts like a filter and is used by many analyst and investors to judge whether company
has prepared the financial statements properly or not because if there is any discrepancy
in the cash position as shown by balance sheet with cash flow statement than it means
that statements are incorrect.
Disadvantages:
1. Since it shows only cash position, it is not possible to arrive at actual profit and loss of
the company by just looking at this statement alone.
2. In isolation this is of no use and it requires other financial statements like balance sheet,
profit and loss etc…, and therefore limiting its use

COST SHEET
PARTICULARS YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Opening stock of raw
materials 42500 45500 48073 50413 27727
(-) closing stock 19125.045 20475 21632.85 22685.85 12477.2175
PRIME COST 23375 25025 26440 27727 15250
Supervisor salary 30000 30300 31209 32145.27 33109.6281
WORKS COST 53375 55325 57649 59872 48360
office expenses 30000 30300 30906 31524.12 32154.6024
25000 25250 25755 26270.1 26795.502
depreciation 12000 8400 5880 4116 2881.2
COST OF GOODS SOLD 120375 119275 120190 121783 110191
Cost of branding 8000 8040 8361.6 8696.064 9043.90656
cost of packaging 14166.7 14237.5335 14522.28417 14812.72985 15108.98445
marketing cot 10000 5000 3000 1000 1000
distribution cost 8000 8040 8200.8 8364.816 8532.11232
sales tax 34000 37000 40000 39000 36000
COST OF SALES 194542 191593 194275 193656 179876
PROFIT -24542 -6593 5725 1344 124
SALES 170000 185000 200000 195000 180000
INTERNAL RATE OF RETURN

PARTICULARS YEARS CASHFLOW
0 (293542)
1 170000
2 185000
3 200000
4 195000
5 180000
INTERNAL RATE OF RETURN 55%
PAY BACK PERIOD
PARTICULARS YEAR CASH FLOW CUMULATIVE
CASH FLOW
1 170000 170000
2 185000 355000
3 200000 555000
4 195000 750000
5 180000 930000
PAY BACK PERIOD 2YEARS
7MONTHS
CASH FLOW ANALYSIS

PARTICULARS YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
operating income 228542 228593 234275 232656 215876
(+) depriciation expenses 12000 8400 5880 4116 2881.2
(-)increase in stock 42500 3000 2573 2340
(+) decrease in stock 22686
CASH FLOW FROM
OPERATING ACTIVITIES 198042 233993 237582 234432 241443
CASH FLOW FROM
INVESTING ACTIVITIES
(-) purchase of equipment 50000
CASH FLOW FROM
INVESTING ACTIVITIES 148042 233993 237582 234432 241443
CASH FLOW FROM
FINANCING ACTIVITIES
(-) interest paid 4500 4590 4681.8 4775.436 4870.945
(-)taxes paid 34000 37000 40000 39000 36000
CASH FLOW FROM
FINANCING ACTIVITIES 177542 270993 277582 273432 277443
CASH AT BEGNING 15000 192542 463534 741116 1014548
CASH AT END 192542 463534 741116 1014548 1291991
Conclusion:

Assumption: Closing stock is maintained at 45% of the opening stock inclusive of the purchase of raw
materials.
 Supervisor salary is increased by 1% over the period of years.
 Office expenses are increased by 1% over the period of years.
 Depreciation rate for the machinery is 30% and the method used is written down value
method.
 Cost of branding, packaging and distribution are subjected to an increase of 0.5% over
the period of 5 years.
 Initial investment for internal rate of return, payback period and net present value
included cost of sales, sales tax, investment in machinery and working capital.
 Interests paid for cash flow analysis are assumed at 4500 subjected to an increase of 2%
over the years.
Outcome:
 The projected cost sheet depicts that the company will enforce minimal loss in the first
and second year which is understandable as the product will be entering into a new
market by the company and initial cost will recovered through consecutive years, earning
the highest in 3 year which will be its peak season.
 The company based on the forecast obtains a healthy internal rate of return, showing the
profit making ability of the company in the future and significant utilization of capital
employed.
 The company has payback period of 2 years and 7 months which is very satisfactory,
considering that it’s a new venture undertaken by the company.
 Company earns a positive Net present value over the projections which aides to the fact
that the new avenue is very viable and profitable for the company.
References
Investopedia - Sharper Insight. Smarter Investing. (n.d.). Retrieved March 8, 2017
Pike, R., Neale, B., & Linsley, P. (2012). Corporate finance and investment: decisions and
strategies. New York: Pearson Financial Times / Prentice Hall.
Selected Further Applications of Investment Appraisal Methods. (n.d.). Investment
Appraisal, 111-166.
VanOosting, J. (1983). The business report: writer, reader, and text. Englewood Cliffs, NJ:
Prentice-Hal