Equity Investment Report: Financial Analysis of Caffyns PLC, MBA

This report provides a financial analysis of Caffyns plc to assess its investment potential. It covers the company's overview, strategies, operating policies (including Porter's 5 forces, SWOT analysis, business model, and KPIs), and accounting quality issues. The analysis includes horizontal analysis, trend analysis, and ratio analysis to evaluate the company's financial performance. The report critically evaluates the company's strengths and weaknesses, opportunities and threats, and accounting practices, ultimately providing a recommendation on whether to buy, sell, or hold Caffyns plc stock. The analysis considers the company's annual report, financial statements, and market position to inform the investment decision. The report also addresses accounting quality, disclosure policies, and auditor's findings to ensure a comprehensive evaluation of the company's financial health.

Running Head: Accounting Financial Analysis Report
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Accounting Financial Analysis Report 2
Contents
Introduction.......................................................................................................................3
Company overview...........................................................................................................3
Strategies and operating policies of the company............................................................3
Accounting quality issues.................................................................................................6
Financial analysis..............................................................................................................7
Horizontal analysis.......................................................................................................8
Trend analysis...............................................................................................................8
Ratio analysis................................................................................................................9
Notes to the accounts..................................................................................................10
Critical analysis..............................................................................................................10
Recommendation............................................................................................................10
Task 2..............................................................................................................................11
References.......................................................................................................................14
Appendix.........................................................................................................................16

Accounting Financial Analysis Report 3
Introduction:
The report has been prepared to brief about the investment opportunity of Caffyns plc.
It would brief that whether the stock should be sold or it must be held. For evaluating the
investment opportunity and sell and buy options of Caffyns stock, financial reports and the
annual report of the company has been evaluated so that a better conclusion could be made on
the “sell” option. The report would lead on a better conclusion. It describes about the
strategies and operating policies of the company which includes, KPIs, SWOT, business
model, markets etc. Further, accounting quality issues would also be described in the report
which would explain about the accounting quality, red flags, disclosure policies, auditor’s
areas etc of the company.
Company overview:
Caffyns plc is a retailing company which retails the motors. The company is basically
based in United Kingdom. The company has been listed at London stock exchange. The
company has dealership of various big motor brands. The company has dealership in Lewes,
Brighton, Eastbourne, Worthing and Tunbridge Wells. The company has been founded in
1865 and from that time, various changes have occurred into the company (History, 2018)
The Company has never failed to attract and offer various profits to its stakeholders. Current
annual report (2017) explains that the return on equity return of the company could be seen
well from last year (appendix).
Strategies and operating policies of the company:
Strategies and operating policies evaluates the internal and external environments of
the company and depict that what changes are required to be done in the performance of the
company. Firstly, strategic analysis of industry has been evaluated on the basis of current
environment and the changes into the industry. The strategic analysis of motor industry is as
follows:
Porter’s 5 forces model:
Porter’s 5 forces analysis is a strategic management tool which evaluates and
understands the trend in the industry. Porter’s 5 forces model of car sales industry is as
follows:
Threat of new entrants:

Accounting Financial Analysis Report 4
New entrants in retail industry always bring innovation such as product
diversifications, new technology etc. The threat of new entrants in the industry is quite higher
and thus it has been found that the position of Caffyns plc is quite moderate and company is
required to be managing all the challenges and effectiveness.
Bargaining power of suppliers:
Numerous suppliers are there for the industry and thus suppliers are not in a position
to dominate the supplies price. It expresses that Caffyns plc is managing its operations in an
effective manner (Macintosh and Quattrone, 2010).
Bargaining power of buyers:
Numerous buyers are there in the industry in southeast area and thus buyers are not in
a position to dominate the supplies price. It expresses that Caffyns plc is managing its
operations in an effective manner through enhancing the total turnover.
Threat of substitute services or products:
Various substitute products such as airways, public transportation, commercial
vehicles etc are there in the industry and thus buyers have many options in front of them. It
expresses that Caffyns plc is required to manage a good position.
Rivalry among the existing competitors:
Lastly, it has been found that there are various competitors available in the market and
thus Caffyns plc is required to manage a good position and a competitive place in the
industry.
The above analysis explains that the industry position is good as well as the Caffyns
plc is also performing well in the market (Kaplan and Atkinson, 2015).
Activities, business model and market:
Activities, business model and market of Caffyns plc have been studied further to
evaluate the current position of the company and the operating design of the company. Main
activities of the company includes the maintenance and the sales of the motor vehicles of
different brands and the parts of the motor vehicles which includes the oil paint, sales of
tyres, accessories etc. The company’s growth rate is 5%. The company has earned and
generated huge profits through these activities (Annual Report, 2017). It basically works as a
mediator among the buyers and the manufacturers.

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Further, the business model of the company has been evaluated and it has been
recognized that the company is one of the most leading motor retail companies in south east
of England (Annual Report, 2017). The business model of the company has been changed
various times due to the different goals and the objectives of the company. Though, the main
principle of the company is “to enhance more market share and enhance the revenue” which
has not been changed in so many years.
Lastly, the market performance of the company has been evaluated and it has been
recognized that the company is one of the largest comapny in south England as well as it has
diversified its market into various new countries such as USA, Ireland etc. (Weston and
Brigham, 2015).
Objectives and policies:
The main objectives and the policy of the company are to manage the turnover of the
company and enhance the market share of the company. The company is trying to diversify
its market into new countries and various plans have been prepared by the company for that.
KPIs:
KPIs stand for key performance indicators (DRURY, 2013). The key performance
indicators of the company is its stock price which briefs the positive market position of the
company, market worth of the company which also explains about the stockholder’s interests
in the company, total market share in the industry which has been enhanced from last year
and in comparison with the competitor, Pendragon plc, of the company, underlying profit
before tax which has been enhanced from last year, EPS, bank overdraft and loans, profits,
gearing position etc. the Above all the key performance indicators of the company briefs that
the performance of the company has been better and it is quite attractive for the purpose of
investment.
SWOT:
SWOT analysis explains about the internal and external environment of a company. It
briefs that how the company is performing and what changes could be done by the company
for the better performance. Following is the study of SWOT analysis:
Strengths:
1. Main strength of the company is the
motor vehicle brands.
Weakness:
1. Small business units

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2. Financial position of the company is
strong.
3. Market share of the company is
enhancing.
4. Growth rate is quite higher (5% in
current year)
5. Labour cost has been reduced.
2. The activities of the comapny are less
competitive
Opportunity:
1. New markets (annual report, 2017)
2. New motor vehicle brands
Threat:
1. Rising cost of raw material (Simply
Wall, 2018)
2. Price changes of motor vehicle
rapidly
3. Technological issues such as robotic
cars.
Strategic report:
Annual report (2017) explains that the financial and non financial performance of the
company is getting better day by day. The current KPIs brief that the financial performance
of the company has been better from 2016. And on the other hand, the new strategy of the
company is also helpful for the company. New strategy express that the company should
focus on the premium volume market so that the greater resilience could be maintained to
deliver a strong sales. The current strategic report of the company briefs about various
positive changes such as diversification of market in the company which has been very
helpful for the company to manage the performance and meet the goals (Annual Report,
2017).
Critical evaluation:
The above evaluation on the industry and the company explains that the position of
the company has been better and thus the company is a good choice for the purpose of

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investment. It would offer huge dividends and the return to the investor due to better position
in the market as well as better performance in terms of finance.
Accounting quality issues:
Accounting quality is an extent which briefs that the accounting and financial
transaction of an organization should be recorded. It measures the underlying performance of
an organization without any error. It is required for the auditors, shareholders and other
stakeholders of the company to evaluate the accounting quality of the organization. The
accounting qualities of Caffyns plc have been evaluated and it has been recognized that the
company is using the proper accounting standards to record the financial and accounting
transactions of the company.
Accounting quality:
Double entry accounting system has been followed by the company as well as the
accounts have been prepared by the company after evaluating all the accounting standards. It
explains that the accounting quality of the company is quite good and it would brief about the
exact details and the performance of the company (Financial Times, 2018).
Company disclosure:
Disclosure policies have been adopted by the company through GAAP and IASB. The
disclosure policies of the company are quite strong. Annual report (2017) of the company
briefs that the company has mentioned all the relevant figures and the notes about the
financial figures. The disclosure policies of the company have built the accounting quality of
the company stronger. It expresses that the company has not involved in any fraudulent
activities (Annual report, 2018).
Auditor’s areas:
Auditor area has also been studied to evaluate the accounting qualities of the company
in better way. Auditor evaluation report of the company has been studied and it has been
found that external and internal auditors of the company have completed their jobs in a better
way. The auditor report briefs that the company has disclosed all the relevant figures and no
accounting issues and mistakes have been done by the company.
Red flags:

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Red flags explain about the danger signs. The annual report and current financial and
non financial position of the company brief that there is no danger in the company. The
growth rate of the company has been higher and comapny is performing well in term of
finance as well as non finance.
Financial analysis:
Financial analysis is another way to evaluate about the performance of the company.
For analyzing the performance of the company, annual report of the company has been
evaluated and the final financial accounts of the company have been measured. It expresses
that the company is a good option for the purpose of investment or not. The financial analysis
of the company is as follows:
Horizontal analysis:
Horizontal analysis is a way to evaluate the financial performance of an organization.
It takes the concern of last year and evaluates the final performance of the company on the
basis of that. It makes it easy for the management of the company to evaluate that whether the
company’s performance has been enhanced from last year or any decrement has taken place
into the performance of the company (Drury, 2005).
The study and the calculations of horizontal analysis brief that the total turnover of the
company has been lower from last year and due to it, the gross profit of the company has also
been lowered. Further, it has been found that the operating income of the company has also
been lower by 30.23% because of lower sales turnover and gross profit. Though, the net
profit of the company brief about the positive changes into the company and the performance
of the company express that the company has enhanced the level of the net profit. It expresses
about better financial position of the company (Morningstar, 2018).
Further, the financial performance of the company has been evaluated. Financial
performance statement of the company expresses that the company has enhanced the level of
total resources from the debt amount as well as equity amount. The analysis briefs better
performance of the company.
Trend analysis:
Trend analysis is a way to evaluate the financial performance of an organization. It
takes the concern of main figure (total assets, liabilities and stockholders’ equity and total
revenue) and evaluates the final performance of the company on the basis of that. It makes it

Accounting Financial Analysis Report 9
easy for the management of the company to evaluate that whether the company’s
performance has been enhanced from last year and how the company is performing in context
with the industry or the competitors of the company (Davies and Crawford, 2011).
The study and the calculations of trend analysis brief that the gross profit level of the
company has been lower from last year and due to it, the position of the company has been
affected. Further, it has been found that the operating income of the company has also been
lower. Though, the net profit of the company brief about the positive changes into the
company and the performance of the company express that the company has enhanced the
level of the net profit. It expresses about better financial position of the company (Simply
wall, 2018).
Further, the financial performance of the company has been evaluated. Financial
performance statement of the company expresses that the company has reduced the level of
current assets to manage the liquid position and working capital of the company as well as the
from the debt amount has been lowered to manage the capital stricture position of the
company. The performance of the company briefs about better performance of the company.
Ratio analysis:
Ratio analysis is a way to evaluate the financial performance of an organization. It
takes the concern of financial figures and evaluates the final performance of the company on
the basis of that. It makes it easy for the management of the company to evaluate that whether
the company’s performance is good or not. The ratio analysis of Caffyns plc has been
compared with the Pendragon as it is the main competitive company of Caffyns plc.
The study and the calculations of ratio analysis brief that the total profitability
position of the company has been lowered from last year. On the other hand, the profitability
level of competitor has also been lowered which explains that the reduction were due to
external issues. Further, the profitability performance of the company brief that the good
level has been managed by the company (Bromwich and Bhimani, 2005). Though, the ratios
brief about the positive changes into the company and the performance of the company
express that the company has enhanced the level of the net profit. It expresses about better
financial position of the company.
Further, the asset efficiency performance of the company has been evaluated. It
expresses that the company is required to maintain the proper credit policy to manage the cost
and the performance of the company. The asset efficiency ratios of competitive company are

Accounting Financial Analysis Report 10
quite competitive (Annual Report, 2017). So it is suggested to the management to manage the
assets of the company.
Further, liquidity ratios describe that the company is required to enhance the level of
the current assets to manage and enhance the level of short term debt obligation. In addition,
the capitals structure position of the company is competitive and it is better than Pendragon
plc. (Morningstar, 2018). Lastly, the investment ratios of the company briefs that the
company is a good opportunity for the purpose of investments.
Notes to the accounts:
Notes to accounts have been managed and stated by the company properly and
through using the GAAP and IASB. The notes to accounts of the company are quite strong.
Annual report (2017) of the company briefs that the company has mentioned all the relevant
figures and the notes about the financial figures in its notes to accounts. The disclosure
policies of the company have built the notes to accounts of the company stronger. It expresses
that the company has not involved in any fraudulent activities
Critical analysis:
The above evaluation on the industry and the company and its competitor explains
that the position of the company has been better and thus the company is a good choice for
the purpose of investment. It would offer huge dividends and the return to the investor due to
better position in the market as well as better performance in terms of finance as well as non
financial factors.
Recommendation:
On the basis of the above study, it is recommended to the stockholder to not to sell the
shares in current scenario as the industry has been broken down in recent year because of
financial crisis. The stock must be hold for now to manage and enhance the return from the
stock and in next year, the stock could be sold. At that time, the stock position of the
company would be better and thus the investor would be able to make better profits.

Accounting Financial Analysis Report 11
Task 2:
Introduction:
The given case briefs that if the Hammond Electronics which wants to invest into a
new project “SuperZip”. The report explains that whether the investment would be profitable
for the company or not.
Analysis:
The evaluation on the case has been done on the basis of capital budgeting techniques.
The calculations are as follows:
Project A
Year 1 Year 2 Year 3 Year 4 Year 5
Initial Outlay 700000
Revenues 480000 480000 480000 480000 480000
Material expenses 115000 120000 120000 120000 120000
Labour expenses 90000 90000 90000 90000 90000
Rent expenses 25000 25000 25000 25000 25000
Rent of warehouse 10000 10000 10000 10000 10000
Loss of contribution 35000 35000 35000 35000 35000
Other fixed cost 23000 23000 23000 23000 23000
EBDT 182000 177000 177000 177000 212000
Less: Depreciation 126000 126000 126000 126000 126000
EBT 56000 51000 51000 51000 86000
Less: Taxes 0 0 0 0 0
EAT 56000 51000 51000 51000 86000
ADD: Depreciation 126000 126000 126000 126000 126000
ADD: Scrap value 70000
ADD: working
capital 60000 60000
cash flow 795000 182000 177000 177000 177000 342000
Total cash flow -795000 182000 177000 177000 177000 342000
Calculation of Net Present Value
Yea
rs
Cash
Outflow
Cash
Inflow Factors
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

Accounting Financial Analysis Report 12
3
£
1,77,000.00 0.751
£
1,32,982.72
4 £
1,77,000.00
0.683 £
1,20,893.38
5 £
3,42,000.00
0.621 £
2,12,355.09
Total £
7,77,966.73
£ 7,95,000.00
NPV= Total Cash Inflow-Total cash outflow -£
17,033.27
Calculation Of IRR
Yea
rs
Cash
Outflow
Cash
Inflow
Net cash
inflows
0 -£
7,95,000.00
-£
7,95,000.00
1 £
1,82,000.00
£
1,82,000.00
2 £
1,77,000.00
£
1,77,000.00
3 £
1,77,000.00
£
1,77,000.00
4 £
1,77,000.00
£
1,77,000.00
5 £
3,42,000.00
£
3,42,000.00
IRR 9.23%
Calculation Of Payback period
Yea
rs
Cash
Outflow
Cash
Inflow
Cash flows CF
0 $ -
7,95,000.00
$ -
7,95,000.00
$ -
7,95,000.00
1 $
1,82,000.00
$
1,82,000.00
$ -
6,13,000.00
2 $
1,77,000.00
$
1,77,000.00
$ -
4,36,000.00
3 $
1,77,000.00
$
1,77,000.00
$ -
2,59,000.00
4 $
1,77,000.00
$
1,77,000.00
$ -
82,000.00
5 $
3,42,000.00
$
3,42,000.00
$
2,60,000.00
4.46