...Financial decision making Contents Introduction: 1 Task: 1 1 (a) Ratio analysis on the basis of AstraZeneca Annual Report and Form 20-F Information 2012: 1 (b) Business structure and financial structure (comparison and relative advantages of the chosen organization) 5 (c) Compare and comment on the finances of business: 7 (d)Recommend potential investor for the investment decision: 8 (e)All possible Sources of finance for 500000 and best source 8 (f) Management of working capital: 10 Task 2: 11 (a)Preparations of a cash flow forecast and comment on budget and cash flow: 11 (b)Recommendation for managing cash flow: 12 Task 3: 12 (a)Assessment of projects by financial techniques: 12 (b) Recommendation from the above calculations and reason behind the choice: 13 Conclusions: 14 Reference: 15 Introduction: Finance is the paramount part of every organization. Whatever the size of the company, financing plays a vital role in the business organization. Ratio analysis is an important tool for the business decision as well as for the interpretation of the financial statements. We have selected AstraZeneca Annual Report & form 20-F information 2012. All the ratio analysis and decision in respect of the business structure as well as financial structure are based on this particular company. Investment appraisal techniques like- NPV, internal rate of return, payback period, accounting rate of return are based on the given data. This report suggests appropriate decision...
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...of the firm and tax rate (t). To calculate cost of debt we chose the long term interest rate on U.S. government bond and added debt rate premium (From Table A debt premium = 1.3%) for Marriott Corporation to it. We chose long term US govt bond rate (Rf = 8.95%) majorly because of their lodging business which contributes more than 50% of the profit and has assets of a very long useful lives The target capital structure is provided in Table A of the case study which is 60% debt and 40% equity. We will use the same while calculating WACC. From exhibit 1 of case study the Tax rate in the year 1987 for unlevered beta = 44% = (Income tax / Income before income tax)*100% To Calculate cost of equity we have followed the below process (See Appendix for calculations): 1) Calculated unlevered beta (βu) using the given debt to equity ratio and given equity beta from Exhibit 3 of case study βu= βl(1+1-t*DE) 2) Levered the βu with the targeted capital structure and tax rate = 35% βl = βu*(1+1-t*DE) 3) To determine the risk premium (Rm – Rf) we have used 1926 -87 Spread between S&P 500 composite return and long term U.S. govt bond return (Exhibit 5 of the case study) to have a reasonable measure of long term riskiness. 4) Using CAPM model we then determine the cost of equity Ke=Rf+β*(Risk Premium) Hence the Firm level WACC is Ke*D(D+E)+1-t*Kd*D(D+E) (See Appendix for calculation) WACC = 12.2677% Q2 what are the appropriate hurdle rates for the 3 divisions:...
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...Explanation of the components of Profit and Loss and Balance Sheet Profit and Loss A profit and loss allows a business to work out whether they have made a profit or loss after taking away all the expenses from their sales revenue. Purpose and Use: The purpose of a profit and loss account if correct is to be able to show how much profit or loss a business has/ will make. It includes the sales, costs and profit over a set amount of time normally yearly. Its use is that it could help measure the performance of a business and with possible decision making in the long term on perhaps decisions like whether to take trade credit or not. Trading account and calculations of gross profit: This involves the trading account which is the beginning part of the calculation of gross profit. It has three parts which are as follows: 1. Sales turnover – this is the money that a business has coming in by providing a trade for e.g. providing a service in Denise's case. It is worked out by the following calculation quantity sold x selling price. 2. Cost of goods sold – this involves the costs that are directly connected to providing a certain trade for e.g. the cost of buying raw materials used to produce the goods/ service for e.g. with Denise her cameras etc. This is calculated in the following formula opening stock + purchases – closing stock. 3. Gross profit – this is the amount of money or surplus which is left once the cost of goods sold have been taken away from the sales...
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...Financial Ratio Analysis By 107,108,109,158,159,161 Group 3 MBA (Tech) IT 4Th Year Table of Contents 1.0 Liquidity Ratio…..……………………………………………..………………………………………………………..……………3 1.1 Current Ratio 4 1.2 Quick Acid Test 5 2.0 Debt Ratio…..…………………………………………………………………………………………………………………..………9 2.1 Debt to Equity Ratio 6 2.2 Total Debt to Equity Ratio 6 2.3 Debt to Total Assets Ratio 7 2.4 Capital Gearing Ratio 8 2.5 Proprietors funds to total assets 8 2.6 Long term debt-total capitalization 9 2.7 P-E ratio 9 3.0 Coverage Ratio…..……………….…………………………………………………………………………………………………14 3.1 Interest coverage ratio 11 3.2 Dividend coverage ratio 11 3.3 Debt-Service Coverage ratio 12 4.0 Turnover Ratio…..……………….…………………………………………………………………………………………………16 4.1 Receivable Turnover Ratio 13 4.2 Receivable Turnover Ratio in days 13 4.3 Payable turnover ratio 14 4.4 Payable turnover ratio in days 14 4.5 Inventory Turnover ratio 15 4.6 Inventory Turnover ratio in days 15 4.7 Operating cycles 16 4.8 Cash Cycle 16 4.9 Total assets turnover ratio 16 4.10 Fixed asset turnover ratio 17 4.11 Total capital turnover ratio 17 4.12 Working capital turnover ratio 18 5.0 Profit & Loss ratio….………………………………………………………………………………………………………………22 5.1 Gross Profit Margin 19 5.2 Operating Profit Margin 19 5.3 Pre Tax Margin 20 5.4 Net Profit Margin 20 6.0 Expense Ratio…..……………………………………………………………………………………………………………………24 6.1 Cost of goods sold ratio 21 6...
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...P7 - ILLUSTRATE THE FINANCIAL STATE OF A GIVEN BUSINESS. I would be illustrating the use of budgets as a means of exercising financial state of Phelps plc. Ratio analysis is a form of financial statement analysis used by businesses to obtain an indication on the business’ financial performance. Phelps use ratio analysis to help them monitor how they are doing financially. There are three types of ratio analysis and they are: Profitability Ratio: Profitability ratio is a type of ratio used by businesses to see how profitable they are. Investors also use profitability ratio to see if they should invest into a business and also to see if they could benefit and make profit out of the business. Below is the calculation of Phelps plc profitability ratios for year ended 31.03.02 and 31.03.01: |Profitability Ratio |Formula |Calculation |Percentage | |Gross profit for year ended |Gross profit |12,600 |52.72% | |31.3.02 |Turnover |23,900 | | |Net profit for year ended 31.3.02 |Net profit |6,600 |27.62% | | |Turnover |23,900 | | ...
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... It means ‘to calculate’. We all are familiar with calculations in our day to day life. We apply mathematical operations like addition, subtraction, multiplication, division. and many other formulae for calculations. Simpler calculations take less time. But complex calculations take much longer time. Another factor is accuracy in calculations. So man explored with the idea to develop a machine which can perform this type of arithmetic calculation faster and with full accuracy. This gave birth to a device or machine called computer. The computer we see today is quite different from the one made in the beginning. The number of applications of a computer has increased, the speed and accuracy of calculation has increased. You must appreciate the impact of computers in our day to day life. Reservation of tickets in Air Lines and Railways, payment of telephone and electricity bills, deposits and withdrawals of money from banks, business data processing, medical diagnosis and weather forecasting are some of the areas where computer has become extremely useful. What is Information System? An information system (IS) or application landscape is any combination of information technology and people's activities that support operations, management, and decision making. In a very broad sense, the term information system is frequently used to refer to the interaction between people, processes, data, and technology. In this sense, the term is used to refer not only to the information and communication...
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... development, and production of which production was the dominant operation according to operating results reported in 2006. Also E&P is the most profitable division of Midland. On the other hand, R&M is the largest division in terms of revenue. Midland had ownership interests in 40 refineries all over the world. In the field of this division, there was stiff competition. Midland’s technology is advanced and with the vertical integration it makes Midland market leader in this business. The smallest division of Midland is petrochemicals. Midland’s financial and investment strategies for 2007 was built on four pillars, which are to fund overseas growth, to invest in value-creating project across all divisions, to optimize its capital structure, and to repurchase undervalued shares. Midland used estimates of cost of capitals in many analyses such as asset appraisals for both capital budgeting and financial accounting, performance assessments, M&A proposals, and stock repurchase decisions. THE ROLE OF JANET MORTENSEN IN MIDLAND Janet Mortensen was senior vice president of project finance for Midland and responsible for preparing her annual cost of capital estimates for Midland and each of its divisions. Some of her estimates was performed at business or division level, while others were performed at corporate level. She was first asked to estimate Midland’s...
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...Nature of the Task This is your last homework task for IB Business & Management. It is also your comprehensive review sheet of the entire course for this subject. You have more than1 month to complete this extended homework task and significant time will be provided in class. This homework task includes simple definitions from the textbook, extended responses, calculations and practical exercises. QUESTIONS Marking Issues • Unless otherwise indicated, each question is worth 2 marks. • Extended response questions of 120 words (5 marks) • Extended response questions of 250 words (10 marks) MARKING CRITERIA Mastery of Key Facts & Concepts (Weight 10) (Short Answer 2 mark questions) 7 6 5 4 3 2 525-500 499-460 459-400 399-260 259-150 149-0 Analysis of Key Facts & Concepts (Weight 10) (Extended Responses & Calculations) 7 6 5 4 3 2 380-359 358-335 334-285 284-190 189-100 99-0 Dedication to the Learning Process (20%) 7-6 Range 5 Range 4 Range 3-2 Range * HW is submitted on time. * Every question is attempted. * All questions meet the word requirements/expectations * There are no spelling and grammatical errors. * Calculation questions include all the workings and formulas. * HW is submitted up to 3 days late * Almost all questions are attempted. * Most questions meet the word requirements. * There are some minor spelling and grammatical errors. * Calculation questions include most workings and formulas * HW is...
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...ANZ Small Business - Breakeven Analyser 13-01-01 12:34 PM ANZ Tools, Forms & Guides Breakeven Analyser The breakeven analysis calculator allows you to examine some of the critical profit drivers of your business including- sales volume, average cost of production and the average sales price. The calculation indicates the average number of units your business has to sell to cover set up costs (in a start up business), to cover fixed costs in an established business, or to achieve a desired profit level. For information on using this calculator see below. Number of product units to be sold to breakeven or result in nominated profit Total sales income Gross profit margin 1000 units $ 18,000.00 66.67 % Input desired Net profit (whole dollars) or leave at zero for breakeven $ 0 Input startup or fixed costs (whole dollars) Input average variable cost of production of units Input average unit sales price $ $ $ 12000 6 18 A red star indicates a mandatory field. Fill in the required values based on the following information: Leave profit at zero for breakeven or input a desired profit amount in whole dollars. The start up or fixed costs of your business are the costs that are payable even if your business did not sell anything (for example rent, rates and finance costs). Input in whole dollars. The average variable cost is the cost of producing each "unit" sold by your business (such as variable labour, production or raw material costs). This could be $2 per...
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...Version 1.0: 0110 HIJ General Certificate of Education Business Studies 2131 BUSS3 Strategies for Success Post-Standardisation Mark Scheme 2010 examination – January series Mark schemes are prepared by the Principal Examiner and considered, together with the relevant questions, by a panel of subject teachers. This mark scheme includes any amendments made at the standardisation meeting attended by all examiners and is the scheme which was used by them in this examination. The standardisation meeting ensures that the mark scheme covers the candidates’ responses to questions and that every examiner understands and applies it in the same correct way. As preparation for the standardisation meeting each examiner analyses a number of candidates’ scripts: alternative answers not already covered by the mark scheme are discussed at the meeting and legislated for. If, after this meeting, examiners encounter unusual answers which have not been discussed at the meeting they are required to refer these to the Principal Examiner. It must be stressed that a mark scheme is a working document, in many cases further developed and expanded on the basis of candidates’ reactions to a particular paper. Assumptions about future mark schemes on the basis of one year’s document should be avoided; whilst the guiding principles of assessment remain constant, details will change, depending on the content of a particular examination paper. Further copies of this Mark Scheme...
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...percentage | 48% | 44% | 40% | Net profit percentage | 76% | 4% | 75% | Stock turnover | 92 days | 4 days | 90 days | Debtor collection period | 58 days | 60 days | 55 days | Current ratio | 2.6:1 | 2.4:1 | 2.5:1 | Acid test | 1.5:1 | 1.3:1 | 1.4:1 | Return on capital employed (ROCE) To be able to work out the return on capital employed I had to calculate the net profit before tax / Capital profit * 100 and it will give you, your answer. Net profit before interest and taxCaptial employed ×100 Mainwaring engineering year ending March 2012 the Return on capital employed was 8% 69850×100 Mainwaring Engineering is going to be interested to see how well a company uses its capital employed as well as seeing the company’s long-term financing plans. Mainwaring Engineering returns should always be high than the rate at which they are borrowing to fund the assets. If Mainwaring Engineering borrow at 10% and can only aim to return 5%, they are going to be losing money. The return on capital employed in the ending of March 2011 was 7.8% and the Industry averages of year march 2012 was 8% and the company achieved 8% in the ending of March 2012 which means they have made an improvement from the year before and achieved their target for 2012. As the company achieved 8% this is a huge benefit as they are paying back what they have borrowed and this will allow the company to be able to gain other investors trust. This can also help a company that deliver’s above-average...
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...August 20, 2015 Choose one of the ratios presented in the readings and apply research material to the discussion of that ratio. Businesses come in different sizes with different growth capacities. It would be difficult to compare financial statements of two companies, in the same industry, that are of varied proportions. Financial ratios allow a more simplified calculation of measure to compare these business entities. “Financial ratios are relationships determined from a firm’s financial information and used for comparison purposes” . There are several financial ratio methodologies that are used for interpretation. To name one category, short-term solvencies are calculations that measures a company’s short run, or current assets. “As the name suggests, short-term solvency ratios as a group are intended to provide information about a firm’s liquidity (liquidity measures). The primary concern is the firm’s ability to pay its bills over the short run without due stress” (pg. 57). Some of the short-term solvencies are: Current Ratio, Quick Ratio, and Liquidity Ratios. When a business requires cash quickly, a creditor would be interested in the organization’s current ratio. The current ratio measures the company’s sense of the efficiency in its operating cycle or its ability to turn its product into cash, such as the inventory. “The current ratio is mainly used to give an idea of the company's ability to pay back its liabilities (debt and accounts payable)...
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...analyse the monetary issues of the business in order to make proper financial decision within a specified period of time. Thus ratio analysis is a technique of financial analysis that determines trends and exposes strength and weakness of the firm with meaningful comparisons. Some of the importance of ratio analysis is as mentioned below * It helps in evaluating the firm performance * It helps in inter firm comparison * It simplifies financial statement * It helps in determining financial position of the concern * It is helpful in budgeting and forecasting * Operating efficiency of the business * It helps in investment decision making Types of ratio analysis There are various types of ratio analysis which are as mentioned below 1. Profitability ratio 2. Liquidity ratio 3. Efficiency ratio Here is the real published account of Liberty Medical Group from which I am going carryout the ratio analysis for year 2008 and 2007 Liberty Medical Group Balance Sheet - Two-Year Comparison Transaction | Year 2008 (£) | Year 2007 (£) | Cash and equivalents | 336,818 | 319,978 | Trade account receivable | 134569 | 127841 | Inventory | 12985 | 13657 | Other current assets | 98323 | 94325 | Total Current Assets | 582695 | 555801 | Long term investment | 81197 | 77137 | ...
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...petrochemicals. Midland has proven to be a very profitable company, with reported operating revenue of $248.5 billion and operating income of $42.2 billion. The company has been in business for over 120 years and employed more than 80,000 individuals. Janet Mortensen, the senior vice president of project finance for Midland Energy Resources, has been asked to calculate the weighted average cost of capital (WACC) for the company as a whole, as well as each of its three divisions as part of an annual budgeting process. Midland’s Three Divisions: Exploration & Production Oil exploration and production (E&P) is Midland’s most profitable business, and its net margin over the previous five years was among the highest in the industry. With oil prices at historic highs in early 2007, Midland anticipated heavy investment in acquisitions of promising properties, in development of its proved undeveloped reserves, and in expanding production. They also needed to account for competition from areas such as the Middle East, Central Asia, Russia, and West Africa. Refining and Marketing Midland had ownership interests in forty refineries around the world with distillation capacity of five million barrels a day. Measured by revenue, this side of the business was Midland’s largest. The relatively small margin was consistent with a long-term trend in the industry. Margins had declined steadily over the previous twenty years. Petrochemicals Petrochemicals is Midland’s smallest but most promising and undervalued...
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...Midland has proven to be a very profitable company, with reported operating revenue of $248.5 billion and operating income of $42.2 billion. The company has been in business for over 120 years and employed more than 80,000 individuals. Janet Mortensen, the senior vice president of project finance for Midland Energy Resources, has been asked to calculate the weighted average cost of capital (WACC) for the company as a whole, as well as each of its three divisions as part of an annual budgeting process. Midland’s Three Divisions: Exploration & Production Oil exploration and production (E&P) is Midland’s most profitable business, and its net margin over the previous five years was among the highest in the industry. With oil prices at historic highs in early 2007, Midland anticipated heavy investment in acquisitions of promising properties, in development of its proved undeveloped reserves, and in expanding production. They also needed to account for competition from areas such as the Middle East, Central Asia, Russia, and West Africa. Refining and Marketing Midland had ownership interests in forty refineries around the world with distillation capacity of five million barrels a day. Measured by revenue, this side of the business was Midland’s largest. The relatively small margin was consistent with a long-term trend in the industry. Margins had declined steadily over the previous twenty years. Petrochemicals Petrochemicals is Midland’s smallest but most promising and...
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