Global Finance Report: Scylace Plc Expansion and Acquisition

This report provides a financial analysis of Scylace Plc, a supermarket grocery company, evaluating its expansion strategies. The report examines two primary options: opening new superstore locations and acquiring Helibeb Plc. It employs various financial methodologies, including cost of capital, rate of return, net profit margin, and operating profit ratio, to assess the financial viability of each option. The analysis includes calculations of net profit, average investment, and rate of return for potential superstore locations, as well as an evaluation of different financing options such as redeemable bonds and equity. Furthermore, the report assesses the financial performance of Helibeb Plc using financial ratios like return on equity and capital employed turnover to determine the attractiveness of a takeover bid. The report concludes with recommendations based on the financial analysis, suggesting the most profitable expansion strategies for Scylace Plc.

Global Finance

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................3
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
Methodologies..............................................................................................................................1
Evaluation of the proposed new superstore locations and prospective acquisition.....................3
Recommendations........................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCERS ...........................................................................................................................10

EXECUTIVE SUMMARY
Business philosophy and finance include an explanation of theory of economics and
actual business concerns. The report gathers Scylace plc financial data, that is a supermarket
grocery company and wants to expand business by opening new super store or acquiring
business of Helibeb plc. Different concepts and economic methodologies are being implemented
in order to identify the financial estimation of both project and profitability of acquisition
company. The different approaches such as cost of capital, rate of return, net profit margin ratio,
operating profit ratio assist in determining the overall return from different project investment as
well as profitability of Helibeb plc in future.
Thus, it has been recommended to Scylace Plc to make a take over bid over retailer
clothing company Helibeb Plc and select a option to build a store at location B. These option will
give better return in future and add huge profit in the context of respective firm.

INTRODUCTION
In present business world, the term of global finance is related to financial system that
consider regulators and different financial bodies that conduct business activities are
international scale (Gallagher, 2018). The main element of worldwide finance are basically the
large financial institutions like bank at international level which use to regulate the monetary
policies and settlement at global level. Managers use various economic standards and regulations
in each organization to identify and fix market problems and make scalar decisions for growth
and development. Business economic essence is broader as it is microeconomic theory where
regulations and norms are firmly established. Business economics is defined as the wider
concepts in which manager use to implement different economic theories and methodology in
making effective decision for the betterment in future period (Zhao and Huchzermeier, 2015).
The process of business financing is related with posting and communicating different crucial
financial points within annual statements such as cash flow statement, P&L account and balance
sheet.
In this report, methods of economic are used in order to assess the build new superstore
locations and
make a prospective acquisition with available financial resources are discussed. Valuable critical
evaluation is make to provide effective recommendation to Scylace plc in context to build a
superstore at specific location or make a takeover bid on Helibeb plc and make single store.
TASK 1
Methodologies
In business economics, manager use to apply different economic hypothesis and methods
in order to get the suitable outcome for different business circumstances within company
(Bassens and Van Meeteren, 2018). Some of these methodologies are discussed underneath that
applied by the manager of Scylace Plc in order to evaluate the total financial value of different
options. Company has two different option either to make superstore at specific location or two
take over the business of cloths retailer store Heibeb plc and make one superstore (Longlands
and Collier, 2018).
The proposed acquisition for and by each entity requires the correct use of the merger
agreement leading to the disputed offer and the payment of significant prices accompanying the
1

pre-merger valuation of the targeted company. From the case scenario, it is evaluated by the
manager uses various methods for evaluating the total valuation of both project that Scylace
wants to open. They also apply various economic method in order to determine the overall
business value and profitability of Helibeb plc at specific time period (McNay, 2015). It is
noticed that, to make valuable effective decisions net profit margin, Average rate of return on
invested amount on certain projects. This will also be essential for Scylace managers to assess
which option is best and attractive in the coming years, based on the firm's potential over an
accounting period. The total assets of Scylace Plc is £6,312 million, where £144 million in cash,
with total liabilities of £2,148 million. To maintain the accessibility of funding across the
company's service, Scylace plc has been analysed by forecasting the yield value of bond
redemption and equity price. Manager also apply the concept of capital investments in order to
assess the profitability and long term productivity of two superstore options and make decision
which is better or both are economical (Kynge, 2016). The dividend yield is primarily the
proportion of total company dividend as compared to the real share price for a respective year. It
is majorly the predicted amount of the dividend return on specific stock investment. From the
answer sheet it has been analysed that, managers expect the firm to pay dividends of 24.75 for
every share throughout the coming year and also assume that there will be continuous increase in
the dividends for the immediate future (Young, 2015).
The case scenario, also discuss that company is willing to acquire the ongoing business of
retailer clothing store Helibeb Plc to expand business in future (Mazzucato and Penna, 2015). To
draw better outcome for the analysis real figures for the annual balance sheet are extracted and
different approaches of profitability analysis are performed such as Net Profit Margin, Turnover
of Capital Employed, Operating Margin, Book Gearing and Return on Shareholders' Equity to
get better understanding of overall financial strength. At the very first stage of planning purchase
like as Scylace plc usually determine the possible potential growth and liquidity of monetary
funds. This stage help Scylace plc to make their own prescribed plans to reach the overall goals
and objective (Jacque, 2019). The second stage is relevant to research and screen of different
elements of business such as Helibeb plc. At this stage manager of Scylace plc will look into
different policies as standard implemented by the Helibeb plc in order to determine the total
impact on these policies on employees and profit margin. The final stage is connected to the
financial analysis, which involves the buying firm's self-assessment and the calculation of the
2

company's particular activity considered for acquisition. Different type of financial statements
are analysed with the support of ratio analysis in order to get the insight about the total financial
stability of business (Mercan and Karakaya, 2015).
Evaluation of the proposed new superstore locations and prospective acquisition.
Resource allocation and business goals
Option A (Location A) £ million Option B (Location B) £ million
Cost of new superstore 40 25
Residual value 10 3
Annual sales 13 10
Annual cost of sales -9.1 -7
Annual staff costs -1.2 -1.1
other annual cost -1.1 -0.8
Q1
Formula= Yearly total sales earning – annual Cost of golds sold.
Q2
Option A
Particular (Location A) £ million
Sales... ... 13
cost of sales... ... -9.1
Annual profit 3.9
The net profit for option A is £ 3.9 million.
Q3
Option B
Particular (Location B) £ million
Sales.... …. 10
cost of sales.... … -7
Annual profit 3
3

In the context of option B the net profit is £ 3 million.
Q4
Formula= (Cost of new superstore + Residual value) / 2
Q5
Option A
(Location A) £
million
Cost of new superstore 40
Residual value 10
50
Average investment 50/2=25
The sum of average investment for option A is £ 25 million.
Q6
Option B
(Location B) million
Cost of new superstore 25
Residual value 3
28
Average investment 28/2 = 14
The total of average investment in the context of option B is £ 14 million.
Q7
Formula for rate of return= Annual profit / average investment
Q8
For Option A the actual rate of return on investment is 4%.
Q9
Similarly on the other side the rate of investment return for option B is 4.71 %.
The above calculation, define that opening of superstore at specific location will be
beneficial for Scylace Plc (Naifar, 2016). As the net profit margin for option A is £ 3.9 million
4

and from option B it is £ 3 million, thus opening of store at location A give more profit results to
company. From the average investment it is calculated that superstore A requires £ 25 million
for establishment, while store B requires £ 14 million. The average rate of return for store to be
opened at location A is 4% which is consider to be lower than the rate of return from option B
which is 4.71%. This means that average investment on opening store at location B is lower and
the rate of return is higher for option A, so Scylace can select the this project (Dixon, 2016.).
Business finance
From the above case scenario, it is observed that Scylace plc have few extra financial
proposal in order to generate financial resources that help in expanding business (Oseni and
Ahmad, 2016). The following are discussed below:
A) Redeemable bond to be issued for around 20 years period.
B) Redeemable bond issued for 50 year
C) New share issued to shareholders.
20- years
bond
50-years
bond
Face value of each bond £100 £200
Nominal interest rate 8% 6.50%
Predicted market price of bond £150 £120
Q10
Formula to determine yield=
(Normal interest rate * Face value) / Market price + ((year to redemption) √ Face value ÷ Market price) -
1
Q11
Approximation of yield for bond issued for 20 years
= (8%*100)/150 + (20√ 100 ÷ 150) – 1 = 3.33%
Q12
Approximation of yield for bonds issued for 50 years
= (6.50%*200)/120 + (50√ 200 ÷ 120) – 1 = 5.05%
Q13
Formula for cost of Equity
=(Dividend / share price) ÷ Dividend growth
5

Q14
Calculation for cost of capital of equity =
The statements of financial position for Scylace plc shows value of assets as £ 312
million as cash is £ 14 million and liability is £ 98 million approx (Prys and Wojczewski,
2015).
 Dividend = 24p
 Share price = 570p
 Growth rate = (24.75-24) / 24 *100 = 3.125%
 Cost of capital = (24p / 570p) + 3.125% = 3.17%
From the above computations the actual yield percentage for issuing bonds redeemable
after 20 years is 3.33 %, while in case if Scylace issue 50 years redeemable bonds than yield
percent would be 5.05%. Similarly, if manager of respective company issue new share to
existing or new shareholders than cost of capital will be 3.17% (Cohn, 2017). Thus, it is
determined that cost of capital and yield on bonds have a major impact on the capital phenomena
of respective firm. The calculation above define that company must issue bond redeemable after
50 years which would be a better option because it gives higher return as compared from other
two option (Peaucelle, and Guthrie, 2015).
Financial reporting
As case study suggest that Scylace is making a choice to make a takeover bid over
Helibeb plc, thus they need to properly analyses the current financial statements to understand
the overall profitability (Trevino and Nelson, 2016). It also support manager to get insight
whether takeover bid will be helpful in future growth and development or not. Assessment of
different annual ratio aids in calculating the crucial parameters which shows the actual efficiency
of Helibeb Plc in 2017 and 2018.
Q15
Return on equity = (Net profit after tax * 2) ÷ (opening shareholders’ equity + closing
shareholders’ equity)
Q16
In year 2018 for Helibeb plc.
Shareholders' equity in 2017= 103 million GBP
Shareholders' equity in 2018= 113 million GBP
6

Net profit= 16 million GBP
Return on shareholders’ equity = [(16) / (103+113)] * 100 = 7.41%
Q17
In year 2019 for Helibeb Plc
Shareholders' equity in 2018= £ 113 million
Shareholders' equity in 2019= £ 124 million
Net profit= £ 18 million
Return on shareholders’ equity = [(18) / (113+124)] * 100 = 7.59%
Q18
Capital employed formula= (Sales income * 2) ÷ (opening total assets + closing total assets –
opening current liabilities – closing current liabilities.
Q19
Capital employed turnover for Helibeb Plc in 2018
Sales = £ 681 million GBP
Assets for year 2017 = £ 222 million
Assets for year 2018 = £ 231 million
Total Current liability in 2017 = £ 37 million
Total Current liability in 2018 = £ 38 million
(681*2) / (222+231-37-38) = 3.53%
Q20
Capital employed turnover for Helibeb Plc in 2019.
Sales = £ 697 million
Assets (2018) = £ 2321 million
Assets (2019) = £ 240 million
Current liability (2018) = £ 38 million
Current liability (2019) = £ 40 million
(697*2) / (231+240-38-40) = 2.90%
Q21
Net profit ratio formula= Profit after tax / sales income * 100
Q22
Net profit margin in 2018
7

Profit after tax = £ 16 million
Sales income = £ 681 million
Net profit margin = 16 / 681 * 100 = 2.35%
Q23
In year 2019
Profit after tax = £ 18 million
Sales income = £ 697 million
Net profit margin = 18 / 697 * 100 = 2.58%
Q24
Operating profit margin formula= Operating profit / sales income * 100
Q25
Operating margin in 2018
Net profit after tax = £ 19 million
Sales = £ 681 million
Operating margin = 29 / 681 = 2.35%
Q26
In 2019
Net profit after tax = £ 22 million
Sales = £ 697 million
Operating margin = 22 / 697 = 3.16%
Q27 to 30
Gearing ratio formula= total debts/ total assets
The computation of gearing ratio in the context of Helibeb plc in three respective year
such as 2017, 2018, 2019 is 79.61 %, 70.80 % and 61.29 % respectively (Gearing ratio, 2019).
Recommendations
From the overall discussion, it has been suggested to the manager of Scylace plc is that
they must make a choice to option to build a store at location B and make a take over bid on
Helibeb plc in order to grow their business in future. The following is the estimate of different
option in case of respective company make a choice to build a store and make a takeover bid
such as:
 Situation 1: Option A + Takeover Bid = £40 million + £124 million = £164 million
8

 Situation 2: Option B + Takeover Bid = £25 million + £124 million = £149 million
Thus, it is clear from the above equations for Scylace Plc, the situation is more cost
effective an d will deliver better results in future. It is also suggested that building two store at
different location requires lower cost, but at the same time will not give the appropriate results as
there are slow return on investment. So company will make a proper takeover bid over Helibeb
Plc and open a supermarket store at location B.
CONCLUSION
In the end of this report, it is founded that global finance is the wider concept that help
company to acquire other companies, makes a settlement or expand business at international
level. Business economic analysis is effective to determine the importance of financial and
economics components of business activities which support in making decision. In the study, the
company is recommended a better option for more capital and the funding of business
development and growth. So when the business wants to evaluate the other business's total worth
to make a successful purchase, managers must then pursue several main levels like proper
planning, research and testing and effective financial evaluation. This analysis will be useful in
determining both the supermarket's profit margins and enabling them to make effective decisions
with regard to different investment and overall return from these respective new supermarkets.
The methodologies of profit analysis has been implemented by the manager of Scylace Plc in
order to ascertain the real business value of Helibeb Plc to make decision either to make a bid or
move to other option. As well as they make sure that the respective company they are going to
purchase must have equitable plans that do not hamper the climatic, social, political and
technological environment in meanwhile.
9

REFERENCERS
Books and Journals:
Bassens, D. and Van Meeteren, M., 2018. 18. Geographies of finance in a globalizing
world. Handbook on the Geographies of Globalization, p.248.
Coe, N. M. and Yeung, H. W. C., 2015. Global production networks: Theorizing economic
development in an interconnected world. Oxford University Press.
Cohn, T. H., 2017. Governing global trade: International institutions in conflict and
convergence. Routledge.
Dixon, A. D., 2016. Finance and development. International Encyclopedia of Geography:
People, the Earth, Environment and Technology: People, the Earth, Environment and
Technology, pp.1-8.
Gallagher, K. P., 2018. China’s global energy finance: Poised to lead. Energy research & social
science. 35. pp.15-16.
Jacque, L. L., 2019. International corporate finance: Value creation with currency derivatives in
global capital markets. John Wiley & Sons.
Kynge, J., 2016. China becomes global leader in development finance. Financial Times, 17.
Longlands, H. and Collier, R., 2018. Interrogating transnational masculinities, fatherhood and the
institutions of men: 24Rethinking gender equality in global finance and large
international law firms. In Unsustainable Institutions of Men(pp. 25-40). Routledge.
Mazzucato, M. and Penna, C., 2015. Mission-oriented finance for innovation: New ideas for
investment-led growth. Policy Network and Rowman & Littlefield International.
McNay, L. 2015. Agency. In The Oxford handbook of feminist theory.
Mercan, M., and Karakaya, E. 2015. Energy consumption, economic growth and carbon
emission: Dynamic panel cointegration analysis for selected OECD countries. Procedia
Economics and Finance. 23. 587-592.
Naifar, N., 2016. Do global risk factors and macroeconomic conditions affect global Islamic
index dynamics? A quantile regression approach. The Quarterly Review of Economics
and Finance. 61. pp.29-39.
Oseni, U. A. and Ahmad, A. U. F., 2016. Towards a global hub: the legal framework for dispute
resolution in Malaysia’s Islamic finance industry. International Journal of Law and
Management. 58(1). pp.48-72.
Peaucelle, J. L., and Guthrie, C. 2015. Henri Fayol. In The Oxford Handbook of Management
Theorists.
Prys, M. and Wojczewski, T., 2015. Rising powers, NGOs and north–south relations in global
climate governance: The case of climate finance. Politikon. 42(1). pp.93-111.
Rosenman, E., 2019. The geographies of social finance: Poverty regulation through the ‘invisible
heart’of markets. Progress in Human Geography. 43(1). pp.141-162.
Trevino, L. K., and Nelson, K. A. 2016. Managing business ethics: Straight talk about how to do
it right. John Wiley & Sons.
Young, K., 2015. Not by structure alone: power, prominence, and agency in American
finance. Business and Politics. 17(3). pp.443-472.
Zhao, L. and Huchzermeier, A., 2015. Operations–finance interface models: A literature review
and framework. European Journal of Operational Research. 244(3). pp.905-917.
Zukin, S., 2017. The city as a landscape of power: London and New York as global financial
capitals. In The Globalizing Cities Reader (pp. 113-119). Routledge.
10

Online
Gearing ratio. 2019. [Online] Available Through:
<https://www.accountingtools.com/articles/2017/5/5/gearing-ratio>.
11