Analyzing Scylace Plc's Superstore and Acquisition Strategies

This report analyzes Scylace Plc's strategic decisions in global business economics and finance. It evaluates two proposals: building a new superstore at a new location and acquiring Helibeb Plc. The report details Scylace Plc's financial position, including total assets and liabilities. It explores methodologies for evaluating superstore locations and acquisitions, considering the company's available funds and financial ratios like ARR and profit margins. The analysis includes predicted yields on bonds, cost of equity capital, and a takeover bid valuation using an asset-based approach. The report provides a comprehensive financial evaluation of Helibeb Plc, including return on shareholders' equity, turnover of capital employed, net profit margin, operating margin, and gearing ratios. Ultimately, the report aims to guide Scylace Plc's decisions on expansion and acquisition strategies, offering valuable insights for business development.

Global Business
Economics and Finance

Executive summary
The project is related with global business economics and finance that is used to analyse
the wide circumstances and environment in which an organisation manage and operate different
factors which might impact the output growth, unemployment, interest and exchange rate of a
nation within globalized economy. This reports summarise the two different proposal for
building new superstore at one location by Scylace Plc. Respective company have total assets of
£312 million, including £14 million in
cash, with total liabilities of £98 million. The report also summarize the acquisition by
respective company on Helibeb plc and make a decision related to introducing new super store.
This report also covers methodology for evaluating the proposed new superstore locations and
prospective acquisition, in the light of total funds that are Scylace during an accoutring year. It
also sum up a detail evaluation of the proposed new superstore locations and prospective
acquisition

Table of Contents
Executive summary..........................................................................................................................2
INTRODUCTION...........................................................................................................................1
Methodology for evaluating the proposed new superstore locations and
prospective acquisition, in the light of available finance................................................................1
Evaluation of the proposed new superstore locations and prospective
acquisition.......................................................................................................................................2
CONCLUSION................................................................................................................................5
RECOMMENDATION...................................................................................................................5
REFERENCES................................................................................................................................8

INTRODUCTION
In business world, international or global business economic is defined as the field of
practical economics which really explores organizations, market related, financial and ecological
issues (Acs, Szerb and Autio, 2015). In general term, business Economics is the practice for
applying economic principles and techniques to company. Business finance utilizes this data to
assist manager of company handle its cash and increase the profitability of company during a
year. Business financing involves posting financial statements and communicating the points
respectively their statement of profit and loss, balance sheet and cash flow. In this report Scylace
plc one of leading retail store chain is planning to open new superstore at different location. They
also have an option that is either to open one new store and acquire business of Helibeb Plc.
In this report, different methodology have been used in order to evaluate the proposed
new superstore location and prospective acquisition by using available finance. In addition
evaluation of the proposed new superstore locations and prospective
acquisition have been discussed. Furthermore proper recommendation have been given in the
context of Scylace plc so that they can either open both superstore at new location or to open a
single superstore and make a takeover bid for famous clothing retailer Helibeb Plc.
Methodology for evaluating the proposed new superstore locations and
prospective acquisition, in the light of available finance
In resent time, it has been observed that maximum number of acquisition are attained
with cash rather than acquiring with the packages of securities which was very common in past
time. In general, current merger for and by any firm majorly includes the adequate usage of
tender offer which lead to contested bid and to make the payment of considerable premiums
preceding the pre-merger market worth of the target business (Adekola and Sergi, 2016).
In the given case scenario, it has been evaluated that different methodology have been
used by Scylace Plc while making decision for opening new stores and different location and
making a bid to acquire Helibeb Plc. To make a decision related to opening either single or both
store at various location management used net profit method, Average investment and rate of
return method. This analyse would be beneficial to determine the profitability of both the
superstore and enables them to make meaningful decision considering their investment and
return from both of the new superstore. This would also significant for management of Scylace
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to ascertain which option is best and desirable in nearby future depending upon the finance
capacity of company during an accounting period (Ardalan, 2016). To ensure the availability of
funds throughout the functioning of company have been evaluated by predicting yield value of
redemption of bonds and cost of equity capital for Scylace plc. It has been observed that manager
are expecting the company to pay dividends of 24.75 per share over the next year and expect
dividends to grow at a constant percentage rate for the foreseeable future.
In the case scenario it has been also mentioned that directors of Scylace plc have also
expressed an interest in in making a takeover bid for a clothing retailer, Helibeb plc. In order to
determine the current business valuation of Helibeb Plc manager of Scylace plc have used
methodology of profit analysis. In this analyse they have extracted number of important results
such as Return on Shareholders' Equity, Turnover of Capital Employed, Net Profit Margin,
Operating Margin, Book Gearing for Helibeb plc for the balance sheet date September 30th
2018. It is noticed whenever company wants to analyse the valuation of company to make
impressive acquisition, then manager have to follow three main stages such as planning, search
and screen and financial evaluation. In the phase of planning buying firm such as Scylace plc
must identify its prospective corporate development and liquidity paths in relation of corporate
advantages and disadvantages and the social, financial, political and technological climate of the
business. This assessment generates a set of goals and requirements for the purchase. The second
step related with search and screen which defines that search centres on how and where to look
for making an acquisition and the screening method chooses some of the finest applicants from
probably hundreds of opportunities based on the goals and criteria established during the
planning stage.
The last stage is related with financial evaluation that majorly includes self assessment by
the purchasing company and the measurement of the respective operation of company that are
consider for acquisition. While conducting an assessment of the respective targeted business it is
essential to make a in depth self assessment that is consider to be the best and productive method
(Martin and Pollard, 2017).
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Evaluation of the proposed new superstore locations and prospective
acquisition.
In context of making any decision regarding launching or developing new stores at
different location manager are needed to calculate net profit or annual profit so that profitability
of option can be determined and decision are made. Annual profit is a concept of company
financing that engages with the quantity of cash that comes from providing a service around a
year. It is essential for a business firm to keep track of its annual profit to evaluate whether it is
worth selling a specific item. The ARR or accounting rate of return is also referred as the
investment return which is a proportion of the finance made considering an annual accounting
profits resulting from an investment (Mazzucato and Penna, 2015). Based on their comparative
profitability, the capital expenditure suggestions are evaluated as per this technique. To this end,
capital employed and linked earnings are defined across the overall economic life of the scheme
in accordance with widely accepted accounting standards and procedures and afterwards the
average yield is estimated.
Option A
£ million
Option B
£ million
Annual Profit 1 0.66
Average Investment 25 14
Accounting Rate of Return 4 4.71
From above table it has been evaluated that annual profit in option A is 1 million where
as annual profit 0.66 million. Which indicates that option A is more profitable. However through
analysis of accounting rate of return it is clear that Option B is more profitable at given average
investment figures and profit.
Business Finance
Business finance relates to company cash, liquid funds and loan. It includes the
acquisition and use of resources so that company companies can efficiently and effectively carry
out their activities. Business financing is needed for each company organization to be
established. Financial demands also expand with activity development. Business finance is an
significant instrument for planning and development, offering your predictions and projects with
the economic basis. The acquisition of property and buildings, equipment and other fixed assets
requires funds (Schaper, 2016).
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Predicted yield to redemption on the 20-year bond 4.24
Predicted yield to redemption on the 50-year bond 5.34
Cost of equity capital for Scylace plc. 7.33
From above calculated figures it has been evaluated that for 50-year bond is most
appropriate source of business finance, because as compare to cost of equity and 20year bond it
is better option for financing. As yield of 20-year bond is 4.24 where as 50-year bond will
provide yield of 5.34 which is batter than 50 year bond. On other hand issuing equity share
would lead to cost of 7.33% which is more than yield percentage. So adopting 50 year bond is
best financing option among all other alternatives.
Takeover bid:
A takeover or purchase bid is a form of corporate action where an purchasing firm
provides an appeal to shareholders of the aim organisation to purchase the stocks and securities
of the aim or targeted company to obtain ownership of the company. Offers for taking over can
be either sympathetic or aggressive (Naifar, 2016). For calculation of takeover bid most
appropriate approach is asset based approach, in which net asset value is calculated. By
deducting total debts from total assets, the net asset value is recognized. There may be some
space for analysis as to which assets and liabilities of the company should be included in the
valuation and how to assess the value of each. Often, owing to timing and other variables, the
price of investments minus liabilities may differ from the amounts recorded on the equilibrium
sheet. Asset-based valuations can make it possible to use business characteristics rather than
balance sheet numbers. In asset-based valuations that might or might not be in the financial
statements, managers can also include certain intangible assets.
In order to make decision relevant to acquisition of any company the manager of buying
company have the main responsibility to make complete financial valuation. This would help
them to make sure the total availability of funds which must be required by acquiring company
so that acquisition can take place effectively. To determine the entire profitability of Helibeb plc
different analyses of ratio have been made that are as follows:
Return on Shareholders' Equity: Is a profit margin ratio that calculates a business's
capacity to produce earnings by its stock holders' company assets. In certain words, the equity
return demonstrates how much revenue each investment produces from the equity of important
stockholders (Rugman and Verbeke, 2017).
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Turnover of Capital Employed: It indicates how effectively the company's investment
are able to produced sales. This percentage enables shareholders or creditors ascertain a
company's capacity to produce revenue from the resources invested and behave as a main choice
factor in giving the requesting company more cash.
Net Profit Margin: It is also one of the valuable financial ratio that is basically used by
company to evaluate the percentage of a total profit that is produced from total income during a
specific accounting year. The assessment revels the actual quantity of profit which can be extract
by its business from total sales.
Operating Margin: This analyses how often income a business produces on a dollar of
revenues, since accounting for varying manufacturing expenses, including salaries and raw
materials, and just before making payments or tax.
Gearing ratio: This ratio is used to assess the proportion of the borrowed money to the
capital of the corporation (Gearing ratio, 2019). The percentage shows the economic danger a
business faces as unsustainable debt can cause economic problems. A advanced gearing ratio
demonstrates a high equilibrium of debt to assets, while a depressed gearing ratio shows a low
percentage of debt to equity. This ratio is related to the obligation to equity ratio, excluding that
there are many difference about gearing ratio formula that can yield slightly assorted outcome.
Particular
2018
£m
Non-Current Assets 211
Current Assets 29
Total Assets 240
Current Liabilities 40
Non-Current Liabilities 76
Total Liabilities 116
Net Asset 124
2018
Return on Shareholders' Equity 15.18
Turnover of Capital Employed 3.54
Net Profit Margin 2.58
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Operating Margin 3.87
Book Gearing 38
From above calculation it is clear that takeover bid for making acquisition would be 124
million as calculated from net asset value. Which implies that in order to acquire Helibeb plc
minimum amount of 124 million is required to be paid by Scylace plc to make acquisition.
CONCLUSION
From above report it has been articulated that economics and finance are two different
terms but closely linked with each other. Analysis of variables associated with economics and
finance are crucial for achieving organisational goals. Such analysis is also helpful in evaluating
more than one investment alternatives to select most profitable option. Evaluation of investment
is a broad concept covering many various aspects of capital asset, market and trend assessment.
It may include reviewing past returns to predict future performance, choosing the form of
investment option which best fits the requirements of an investment manager, or reviewing
securities like stock and bond, or a equities classification, for risk, yield capacity, or market
movements.
RECOMMENDATION
As evaluation done in study report it has been analysed that cost of building both
superstores is 65 million ( 40 million + 25 million). While acquisition cost of Helibeb plc is 124
million. If company choose the option of making one superstore and acquisition then possible
alternatives are:
 Case 1. Option A + Takeover Bid = 40 million + 124 million = 164 million
 Case 2. Option B + Takeover Bid = 25 million + 124 million = 149 million
As per above option case 2 is more cost effective proposal as compare to case 1. But from
overall evaluation proposal of building both supermarkets is most cost effective alternative
among all other. Combination of two or more investment alternatives may also be considered if
they are cost effective. Company can build both supermarkets in 65 million funding where as
choosing of mixture options and takeover bid would lead to cost in excess of such alternative. In
case company is unable to make heavy investment than managers identifies and select
appropriate investment appraisal. So it is recommended to make investment in building both
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supermarkets should be taken on priority if resources are not sufficient to make all investments
together.
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