Global Business Economics and Finance: Scylace PLC Case Study Report

This report analyzes the investment decisions of Scylace PLC, a grocery retail chain. The study evaluates two proposals: opening superstores at different locations and acquiring Helibeb plc. The methodology involves analyzing financial statements from 2017 and 2018, calculating annual profits, average investments, and accounting rates of return (ARR) for each superstore location. The analysis also includes key financial ratios for Helibeb plc, such as return on shareholder's equity, turnover of capital employed, net profit margin, and operating margin. The report concludes with a recommendation to open a superstore at location B, potentially acquiring Helibeb plc. The report emphasizes the importance of financial analysis and management consulting in making informed investment decisions, providing valuable insights for Scylace PLC's future strategy.

Running head: CASE STUDY ON SCYLACE PLC.
Case study on Scylace Plc.
Name of the Student
Name of the University
Author Note
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1CASE STUDY ON SCYLACE PLC.
Executive Summary
The report is designed to analyze the investment decisions taken by Scylace plc.,
which is a grocery company. One of the investment decision taken by the concerned
company was that at a new location, the company decides to open up two
superstores. Alternatively, the other investment decision includes that opening up a
superstore branch at either of the two places by means of taking a bid over Helibeb
plc, which is known to be another retail company. In order to implement the
appropriate investment decision, the company hired a management consultant. The
data has been gathered from 2017 and 2018 financial statement and reports.
Therefore, the outcome of the report suggests that the company should adopt the
investment decision, which includes that the company should open its new
superstore branch at location B by asking a bid over the Helibeb plc. Therefore,
being a management consultant of Scylace plc, I suggest buying the Helibeb plc and
building only a single superstore.

2CASE STUDY ON SCYLACE PLC.
Table of Contents
Introduction...................................................................................................................3
Discussion.....................................................................................................................3
Methodology..............................................................................................................3
Computation..............................................................................................................4
Conclusion....................................................................................................................7
Recommendation based on the Study.........................................................................8
References.................................................................................................................10

3CASE STUDY ON SCYLACE PLC.
Introduction
Scylace plc. Company is known to be a grocery retail chain. The report is
prepared to analyze the two schemes proposed by the management consultant,
hired by the concerned company. The first scheme of the investment decision
proposed was that whether the company should open two new superstores at two
different places or whether the company should open only one superstore at one of
the two locations. On the other hand, the second proposal states whether the
concerned Scylace plc. Company will take over the clothing retail, which is named as
Helibeb plc. by making a takeover bid for the company.
The concerned company's available resources are found not to be sufficient
for making investments. The second half of the report deals with the methodology
part. The methodology part will analyze the two proposals that are mentioned above
to give a clear view on the projects so that the company accepts the best proposal
between two of them with the help of the resources that are available. The evaluation
part of the report is done on the basis of the calculations, which were done in the
examinations. The data gathered from the financial statement as well as the records
of both the companies were considered in the calculation part. The financial reports
that were collected are for two financial years, which are 2017 and 2018.
Discussion
Methodology
The proposals that have been suggested by the concerned grocery retail
company are evaluated by me so as to perform the role of a management
consultant. The two proposals that are proposed are already mentioned above. The
cost acquired for building the superstore is evaluated and is found to be £30.0 million
(Easton, 2015). This mentioned cost is required to make the superstore at location A,
which is known to be the first location. On the other hand, to build the superstore at
location B, the cost required is found to be £15.0 million.
The other available data required for computation is that the cost of residual
value for option A is given as £10.0 million and for option B, it is £5.0 million. The
annual sales revenue for option A is given as £10.0 and £6.0 for option B. The yearly
cost of sales for option A and option B is specified as £8.1 and £4.8 respectively
(Caballero, Farhi & Gourinchas, 2017). The staff costs for both the location A and B

4CASE STUDY ON SCYLACE PLC.
has been noted as £0.5 and £0.3. Addition to this, it is also seen that the annual
costs for option A are given as £0.1 and for options B, it was £0.1. It has been found
that the depreciation method of straight-line basis has been followed by the
company.
Since the directors present in the Scylace plc Company, decided to take an
interest in buying the clothing retail company, namely Helibeb plc. The Helibeb plc.
Company’s financial statement is collected for both financial years, which is 2017
and 2018 (Penman, 2016). With the help of this financial statement, the takeover
decision is taken. The gross profit is found to be £189 million in the year 2017 and
£197 million in the year 2018. Further, it is found that £25 million was the amount of
operating profit in the year 2017. However, in the year 2018, it was changed and
found to be around £27 million. In the year 2017, the net profit before tax and after
tax is observed as £19 million and £16 million respectively. On the other hand, the
net profit before and after tax are £22 million and £18 million.
Addition to this, it is noted that the retained profit in the year 2017 was £10
million and for 2018, it was £11 million. The balance of the current assets is also
found in the last two years of financial reports (Amba, 2014). It is observed to be £29
million in 2018 whereas, in the year 2017, it is £22 million. The current liabilities for
the year 2017 was £37 million and £38 million in 2018. Even the non-current assets
and non-current liabilities show £209 million and £211 million in the year 2017
(Fernandez, 2019). Similarly, for the year 2018, it has been observed to be £80
million and £76 million. Thus, the shareholder’s equity in 2017 is witnessed to be
£113 million, and in the year 2018, it is £124 million.
According to the given information, I will take the appropriate decision of
whether building different branches in different places because the company has
appointed me as a management consultant. Additionally, based on the given
information, the decision of taking over the Helibeb plc will be taken.
Computation
The decision of building a new superstore at location A or location B or in both
the location will be taken by me. Thus, the feasible option will be taken based on
computing the annual profit, average investment and accounting rate of return for
both options A and option B. The cost of building superstore similar to the investment

5CASE STUDY ON SCYLACE PLC.
needed for building a new branch. Thus, the cost needed for building a new
superstore at location A is £30.0 million. On the other hand, the cost of building a
superstore at location B is £15.0 million (Kijewska, 2016). Furthermore, the financial
statement also provides that the annual sales revenue of the company at location A
will be £10.0 and at location B, it will be £6.0. By comparing the annual profits
earned at location A and B helps in making an investment decision.
Hence, to calculate the annual profit, the following formula is taken into
consideration.
Annual Profit= Annual Sales Revenue−Annual Staff Costs−Annual Sales Costs−Ot h er Annual Costs−Depr
Any company’s annual profit implies the companies success. The data
gathered from the financial reports helped in calculating the annual profit. Thus, the
estimated annual profit earned at location A is £0.9 million, and at location B it is
£0.6 million. Hence, the result states that the company earns more profit if it sets up
its new branch at location A.
The average investment was computed based on the given formula:
Average Invest ment=( Residual Value+Cost of new superstores) /2
In the case of option A, the average investment after the calculation is
observed to be £20 million, and for options B, it is £10 million. Even the accounting
rate of return (ARR) is also evaluated. A project is accepted only when the required
rate of return is below or equal to ARR (Berger, Chen & Li, 2018) . Thus, the ARR is
calculated by the formula given below:
Average Investment= Annual Pr ofit ÷ Average Investment
The average rate of return amounts to 4.5 per cent in case of option A,
whereas for option B, it amounts to 6 per cent.
The feasible decision of taking over the retail clothing sector, namely Helibeb plc., is
done by calculating the return on shareholders equity, turnover of capital employed,
net profit margin and operating margin.
The return on shareholder’s equity is mainly evaluated in order to measure
the profit earned in the business pertaining to the equity (Abraham, Harris &
Auerbach, 2017). This helps in analyzing the performance of the business and in

6CASE STUDY ON SCYLACE PLC.
other words, it can be said to be the net assets. Thus, the formula used for
calculating the return on shareholder’s equity is-
Returnon s h are h olde r❑ s equity =(Ne t Profit after Tax∗2)/¿
Based on the above equation, it was found that the return was found to be 14.81 per
cent in 2017 (Büchner, Hinz & Schreyögg, 2016). However, in the year 2018, the
return was observed to be 15.19 per cent.
Now, the turnover of capital employed is done because it plays an active role
in the investment decision of any organization (Kusmayadi, Rahman & Abdullah,
2018). Thus, the effectiveness of sales that are created from capital employed by
any company is evaluated by the turnover of capital employed (Ng & Rezaee, 2015).
The formula required for calculating the Helibeb plc. Company’s turnover of capital
employed is-
Turnover of capital employed=(Sales Income∗2)÷(Open i ng Total Assets+Closing Total Assets−Opening Cur
The outcome obtained after calculating the turnover of capital employed in the year
2017 is 3.6, and in the year 2018 is 3.5.
The net profit margin helps in evaluating the profitability of a company. The
net profit margin can also be termed as profit margin (Goel, Chadha & Sharma,
2015). Thus, with the help of this tool, the company strategies its pricing system and
also it indicates that the efficiency of controlling the costs. The net profit margin is
extracted below:
Net profit margin=Net profit afte r ÷ Sales income
Thus, the calculation indicates that the net profit margin was 2.3 per cent in
the year 2017, and 2.6 per cent in the year 2018.
Lastly, the operating profit margin, which is also known as the operating margin,
was computed. This is done in order to take the decision of purchasing (Kahl, Lunn &
Nilsson, 2019). This is known to be the proportion of operating income to the sales of
a company. This also helps in measuring the rates and levels of profitability
(Dhaliwal et al., 2016). The operating margin for the Helibeb plc. Company is
calculated by the given formula-
Operating Margin=Operating profit ÷ Sales income

7CASE STUDY ON SCYLACE PLC.
The operating profit and sales income for the year 2017 was seen £25 million
and £681 million. As a result, the operating margin is 3.7 per cent. However, in the
year 2018, the given sales income is £697 million, and operating income is £27
million (Teixeira & Queirós, 2016). Hence, the operating margin was found to be 3.9
per cent.
In the last part of the study, the book gearing is evaluated. This type of tool is
used to study the company’s financial leverage. Hence, the book gearing is done in
order to provide a clear instance of those activities that involve the creditors as well
as the shareholders' funds (Grant, 2016). Even if both the company operates under
the same market, then the book gearing helps in comparing them. Therefore, book
gearing formula is given below:
Book Gearing=( Total Assets−Current Liabilities−Equity) ÷(Total Assets−Current Liabilities)
Thus, with the help of this formula, the book gearing applied for the company
named Helibeb plc, is that in the year 2017, it is 41.5 per cent. On the other hand, it
is observed that the book gearing is 38 per cent in the year 2018 (Williams &
Dobelman, 2017).
Conclusion
The company named Scylace plc. , which is a grocery retail company has
provided two proposals under which it stated that either two different branches would
be open at two different locations or only a single branch will open at any of the two
locations by taking over the Helibeb plc. The concerned since appointed me the
management consultant, therefore, my role was to take the decision by computing
the data gathered from the last two years of financial statements. The years that
were taken into consideration were 2017 and 2018. Thus, in order to take the
decision of building a new superstore, the comparison of the two locations was made
by anticipating the values of annual profit, average investment, annual sales and
accounting rate of return.
The data from financial reports were gathered in order to compute the
turnover of capital employed, net profit margin, return on shareholder’s equity,
operating profit margin and book gearing. These things were calculated in order to
find out whether the directors of Scylace plc. Company should take over the Helibeb

8CASE STUDY ON SCYLACE PLC.
plc. Company, which is also known as the retail company (Antoniou, Doukas &
Subrahmanyam, 2015). Thus, on the basis of all the financial calculation, the
following suggestion was provided by me being a management consultant of Scylace
plc. Company.
Recommendation based on the Study
Thus, based on the financial data and calculation, the suggestion given by me
as a management consultant was that the Scylace plc Company should build a
single superstore at the location B, which is known to be the second location. In
addition to this, the company should take over the clothing retail company, which is
known to be the Helibeb plc. Company. After gathering the financial reports of the
year 2017 and 2018, it was seen. Even the sales amount and the annual profit was
found to be higher in location A than in location B, but still, it needs a greater value of
investments. Thus, the investment is found to be more in case of option B compared
to option A.
Similarly, it was observed that the accounting rate of return is lower in location
A, when compared to location B. In order to attract the project more, the accounting
rate of return should be higher. The financial report helps in taking the decision
whether to take over the Helibeb plc. Company or not. After evaluating the data from
the financial report, it was seen that there was an advantageous balance in return on
shareholder's equity. The balance showed in the year 2018 around 15.19 per cent
and 14.81 per cent in the year 2017. The value of the return on shareholder's equity
varied between 14 per cent to 15 per cent, and it also is seen that there was a rise in
the value from 2017 to 2018. The rise was around 0.38 per cent. Thus, it can be said
these results indicate that the growth in the company shows a positive trend. In other
words, the company can continue to achieve success in the coming years.
The net profit margin showed an increase from 2017 to 2018, and a similar
thing happened in the case of the operating margin. The rise of the net profit margin
and the operating margin was around 0.3 per cent and 0.2 per cent, respectively.
Based on the above outcomes, it can be concluded that the business of Helibeb plc.
Company is showing a positive sign.
On the other hand, it was found that the turnover of capital employed
decreased in the year 2018 from the year 2017. The reduction is found because the

9CASE STUDY ON SCYLACE PLC.
turnover ratio was found to be higher. Hence, the greater the turnover ratio, the
better the capital employed is utilized. In addition to this, the book gearing has also
decreased in the year 2018 compared to the year 2017. Thus, higher gearing ratio
and decrease in the book gearing implies that the greater financial leverage of the
company makes it more susceptible to the economic recessions. Thus, the Scylace
plc. Company should take over the clothing retail sector named as Helibeb pl.
Company.

10CASE STUDY ON SCYLACE PLC.
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