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1. Ratio analysis
Profitability ratio
Board of Deliveroo plc’s profitability can be earned with the help of gross profit margin ratios. These gross profit margin ratios can be referred to as justification regarding profitability measures earned by the company within a consecutive year. In this regard, it can be mentioned that revenue earning capacity was lower in the year 2019 whereas it increased in 2020. Based on that, it can be measured that the company has a 53% of profit margin which is increased by 2% than the year 2019. Hence, it can be justified that the company has a better profit-earning capacity and its future capacity can be higher. [Referred to Appendix 1]
Liquidity Ratio
The liquidity condition of the company has denoted that it has a better situation of recovering any financial lack position in the future. In this regard, it can be determined that the liquidity ratios can be calculated by implementing the current ratio and quick ratios calculation. In this comparative discussion, it can be measured that the company has a good situation in 2020 at 0.23 of the current ratio with higher growth of the assets and liabilities (Haralayya, 2021). On the other hand, the quick ratios are also in a good position in 2020 than in 2019 due to having better assets and liabilities availability than in the year 2019. [Referred to Appendix 2]
Gearing ratio
The justification of gearing ratios can be formulated with the help of debt viability along with assets and equity availability. In this regard, it can be referred to that the gearing ratios are denoted by the solvency recovery possession of the company. In these terms, it can be mentioned that the gearing ratios can be better in the year 2019 than in 2020, as the debt availability was good in that year. Whereas, the justification of the assets and liabilities are also good in 2019, based on that justification it can be mentioned that 2019 was the better situation for the solvency recovery situation. [Referred to Appendix 3]
Assets Utilization ratio
The assets utilization can be calculated with the help of accounts receivable with the accounts payable justification. In these regards, it can be referred that the company has a situation to recover the debt by 37 days in the year 2020 and 32 days in 2019. This justification can be denoted that the year 2019 was in a better position for the accounts receivable recovery. Whereas, assets utilization payable can be recovered by the 7 months and 11 months in the consecutive years (HashemkhaniZolfani et al. 2018). Based on that justification it can be mentioned that 2020 has the better situation as it can be received within 7 months. It is justified that the company has the overall good situation of having the better efficiency terms in both years 2020 and 2019. [Referred to Appendix 4]
Investor's potential ratio
The investor's potentiality can be determined by implementing Earning profitability ratios. In these regards, it can be mentioned that it includes net income availability along with ordinary shares. These ratios of the investor's profitability can be good in the year 2020 than in 2019. It is resulting that the company has the same numbers of the ordinary shares in both years but the fluctuation of the ratio can be occurred due to the net income differentiation (Liang et al. 2019). In this regard, it can be associated that year 2020 has increased net income in the years 2019. This situation has denoted that the company's investors earning capacity can be higher and better in the year 2020 than in 2019. [Referred to Appendix 5]
BEP amounts and Units
The breakeven analysis can be referred to as there are fixed costs amounting to 120000 and variable costs of 600. In these regards, the company has revenue amounting to 10000 with 500 units of revenue. In these regards, it can be mentioned that the company has 119600 amounts profit condition. This situation denoted that the better BEP availability in that year, the banality of the BEP sales might be 120600. On the other hand, BEP in units can be calculated by implementing fixed costs and current sales levels with amounts. In these regards, it can be determined that the company has 240 units of BEP sales in that particular year (Sutarno et al. 2019). As per this table, the evaluation of the BEP analysis of amounts and units can be determined that it has the better position in terms of having better availability of revenue and cost positions.
|
Calculate your break-even in amount |
Amount |
|
Total variable costs + total fixed costs (A) |
120600 |
Table 1: BEP sales in the amount
(Source: Created by the learner)
|
Calculate your breakeven in Units |
Unit |
|
Fixed cost / (Revenue per unit - variable cost per unit) |
240 |
Table 2: BEP in units
(Source: Created by the learner)
Contribution margin ratio
The contribution ratios are evaluated with the help of net sales and contribution margin. This contribution margin can be determined by taking considered valuation of total revenue and variable costs (Walmsley et al. 2018). This discussion can be resulting from that the company has a 0.40 contribution margin ratio and it is determined that the company has in a good position of availability of the contribution.
|
Contribution margin ratio |
|
|
Net sales |
1000 |
|
contribution margin |
400 |
|
CM =Total revenue - variable cost / Total revenue |
0.4 |
Table 3: Contribution margin ratio
(Source: Created by the learner)
Operating leverage
The operating leverages can be evaluated by taking considering the help of percentages change of operating income along with the percentages change of the revenue. Based on both 2020 and 2019, it is determined that in 2020 it is a 0.14 level of percentile change and it has a 0.15 level in the year 2019. This comparative discussion can be determined that the company has a better situation of the operating leverage in the year 2020.
|
Operating leverage |
2020 |
2019 |
|
Percentage change in operating Income |
3760 |
3020 |
|
Percentage change in Revenue |
25300 |
19800 |
|
OL = Percentage change in operating Income /Revenue |
0.149 |
0.153 |
Table 4: Operating leverage
(Source: Created by the learner)
1. Investment appraisal techniques
The Payback Period
This investment appraisal method is simple to calculate and understand the recovery time to take for their initial value of investment. The payback period can be calculated as divided by unrecovered investment cash to recover cash flow in the market and get the recovery time for the business. As cited by Goman et al. (2021), it can help to analyse the recovery time where the business can be able to recover their initial costs. Therefore, it has shown that for machine A PerriPerri sauce ltd. can take 1 year for recovering the initial cost/ however, for machine B the business can take within 1 years to recover their initial cost in the business (Refer to appendix 1).
The Discounted Payback Period
It is used to analyse the profitability in time for the business to get a better analysis for the company in the market. It can adjust the time value of money in the business which can be better for a company.
The Accounting Rate of Return
ARR is useful to justify future investment in the market (Bawaneh, 2018). ARR can be calculated as average net profit divided by initial investment that is multiplied by 100. In this case, both projects have the same ARR in the business to make a proper decision for the business in the market. Therefore, the ARR for both projects are 19% where it can be difficult for the business to make a prior decision in the market whether it invests in the new project or not.
The Net Present Value
A higher net present value can be better off for the business to invest in the new machinery where Perri-Perri invests (Knokeet al. 2020). In this report there were both machines A and B having different NPV in the business which is 349,295.39 and 243,812.90 in the market. Therefore, it has been shown that machine A has a higher NPV in the market as the company should invest money on machine A to get a better result at the end. Therefore, it can be stated that machine A can be beneficial for this business where they can get a better rate of return from the market (Refer to appendix 2).
The Internal Rate of Return
IRR is similar to the technique of NPV where it also takes into account the time value of money to make a better decision at the end. A higher IRR can be stated better off for the business to invest in the new machine in the company to get a higher rate of return from the market. It can be calculated as future value divided by the present cash flow in the market to get a better IRR in the business. The investors can make a proper decision by analysing IRR and NPV in the business where in Machine A has 25.96% and in machine B has 10.66% to get benefit from the market. Therefore, it can be stated that the Perri-Perri should invest in the machine A to get a higher rate of return from the market (Refer to appendix 3).
Benefits
This method is easy to calculate and understand and it can be a very quick solution to make a proper decision for a business. As cited by Abuseif et al. (2018), this investment appraisal method is useful to do in uncertainty situations where the business can be better in the market. The investors can make a choice easier by analysing this in the market.
It can help the business to make a proper decision rather than a payback period in the market. It can help to determine the payback period in an effective way where it can take the time value of money in the market. It is the best way to calculate rather than the payback period in the market.
This investment appraisal method gives a rough guide to the investment whether they invest in the new project or not. As cited by Bawaneh (2018), it is easy to understand where it can be computed easily in the business. A higher ARR can be beneficial for the investor to make a proper decision for the new project in the market.
Net present value is a better way to calculate the investment appraisal in the business which can make the investor innovative to make a proper decision in the new project. As cited by Marchioni et al. (2018), it takes time values of money and takes all the cash flows into the account and gives a better result in the market. As a result, the investors can make a proper decision by analysing NPV in the market in an effective way. It can calculate the simpler way to develop the investment decision in the market.
These appraisal techniques are taking into account the time value of money in the market to get a better result at the end of the result. As cited by Pascual et al. (2019), it is not linked with the rate of return for the business, which can be easier to calculate the investment appraisal in the market.
Limitation of these methods
It ignores the time value of money, which is necessary in the business to make a proper decision in the market. As cited by Zhang et al. (2021), it does not take all cash flow in the calculation therefore; it can be difficult for the business to get a better result. Therefore, the business cannot be able to make a proper decision regarding the investment in the new project.
The major disadvantage of this payback period is in the market where it ignores the cash flows after analysing the payback period in the business. Therefore, it can be difficult for the business to analyse it in an effective way.
A main disadvantage of ARR is that it does not take into account all the cash inflows in the profit and taxes in the calculation. Therefore, it can give a rough calculation for the business, which gives a narrow result for the business.
The quality of inputs is dependent on the accuracy in the business where it can be difficult for the business to get a conclusion at the end. As cited by Ahmad et al. (2018), this investment appraisal is not beneficial for those who have a different size of products and the firm wants to compare between the different projects. As a result, it can be difficult for the business to compare different sizes of projects.
This investment appraisal method can provide an incomplete picture in the future period in the market. As cited by Xie (2021), it ignores the overall project size and purpose of the project. This investment appraisal does not account re-investment in the calculation to get a better result for the firm in the market.
The business always seeks to borrow funds from the other resources in the market to get a higher rate of return from the market. As a result, the business can grow positively where the fund increases well in the business. The financing can be included in the short-term goals and long-term goals in the business. Three sources of finance is as follows which can be described in this assessment:
Retained earnings
The company has a major aim to maximise their profit by selling products with a higher price to get a better-retained earnings in the market. As cited by Yusra et al. (2019), the retained earnings can distribute their product to investors as a dividend in the market. The business can increase their retained earnings to make the business better off in the market.
Debt capital
The debt capital can be known as bank loans in the market where it can be better financing sources for the business to increase their sales in the market. As cited by Thu et al. (2018), the other sources also can be identified by the business from the other resources. The debt capital is a major source of finance in the business to borrow some loan from the other resources in the market.
Equity capital
The business can raise the financing sources from the public resources where they can get a higher rate of return from the market. As cited by Bui et al. (2020), the money is needed by the business to invest in the new project and make a proper decision in the business. Therefore, it can be shown that the equity capital is also better for the business to borrow funds from the other resources.
Budgeting process
Evaluation of the budgeting process: in finance management, the budget plays a crucial role in managing the financial resources of the company. As stated by Hidayah and Syahrani (2022), in addition, financial budgets are the bases of the different other budgets that are proper for different domains such as purchase budget, sales budget, production budget and other types of budgets. It can be said that without preparing a proper and well-structured budget it becomes impossible for the management to survive in the long term business environments. As opined by Graham et al. (2020), the budgeting process is one of the critical processes within an organization and must be evaluated after considering all the aspects under which a business operates. The budgeting process involves various stages such as: assessing the financial resources, determining the expenses, setting goals and objectives, tracking the progress, and monitoring the variation.
The budgeting process is divided into different stages, each step is connected and interdependent. It can be said that organizations following the proper stages can draft a well efficient and well drafts budgets. The assessment of the financial resources assists the company to make the budgeting process and reviewing the available financial resources. The next step is to evaluate the expenses that are incurred or about to be incurred in fulfilling the organizational goals, after this stage businesses are required to set the goals and objectives that are to be fulfilled by making the budget. The final stages of the budgeting process involve tracking and monitoring of the budget, in case there is any variation management can take suitable actions to rectify the variations.
Interrelationship of budgets, strategic objectives and strategic plans:
Budgets are the crucial statements most useful in managing the finances. Financial budgets are the most important part that plays a bigger role in making informed business decisions. Budgets are directly related to the strategies, as most of the strategies require a base that states the retirement of the finances or other resources within the organization. Strategies objectives are the objectives that can be understood as the statements that state the vision and goals which a company strives to achieve. This is directly associated with the strategic plans, as no objectives can be set up without proper planning. It can be said that strategic objectives, as well as strategic plans, are interrelated as one supports another in the completion of the requirements of another. At the same time, static plans support the preparation of the budgets. As opined by Smoke (2019), finances are governed by the budget and well-structured strategies that can be either a strategic objective of the business or strategic plans.
Both help the business in the development of the budget, budget preparation requires major aspects that combine the overall objectives of the company. In addition, strategies combine the different factors that are associated with the organizational performance, organizational objectivity, and requirement of the financial resources, inputs and raw materials within the organization. The budget considers the income and expenses that are also associated with the objectives and plans of the company in the form of strategies. It can be said that in budget preparation the trio are interconnected and help in the preparation of the budget.
Books
Graham, J., Adam, C. and Gunasingham, B., (2020). Corporate finance. Australia Cengage AU.
Journals
Abuseif, M. and Gou, Z., 2018. A review of roofing methods: Construction features, heat reduction, payback period and climatic responsiveness. Energies, 11(11), p.3196.
Ahmad, J.N., Mushtaq, R., Ahmad, S.J.N., Maqsood, S., Ahuja, I. and Bones, A.M., 2018. Molecular identification and pathological characteristics of NPV isolated from Spodopteralitura (Fabricius) in Pakistan.
Bawaneh, S.S., 2018. Management Accounting Practices: a case of Jordanian Manufacturing Companies. Asia-Pacific Management Accounting Journal, 13(3), pp.25-53.
Bui, B., Moses, O. and Houqe, M.N., 2020. Carbon disclosure, emission intensity and cost of equity capital: multi?country evidence. Accounting & Finance, 60(1), pp.47-71.
Goman, V.V., Prakht, V.A., Kazakbaev, V.M., Dmitrievskii, V.A., Valeev, E.A. and Paramonov, A.S., 2021. Analysis of the payback period of a modernized pump unit with induction electric motors of advanced energy efficiency classes. Electrical Engineering &Electromechanics,(1), pp.15-19.
Haralayya, B., 2021. Ratio Analysis at NSSK, Bidar. Iconic Research And Engineering Journals, 4(12), pp.170-182.
HashemkhaniZolfani, S., Yazdani, M. and Zavadskas, E.K., 2018. An extended stepwise weight assessment ratio analysis (SWARA) method for improving criteria prioritization process. Soft Computing, 22(22), pp.7399-7405.
Hidayah, A. and Syahrani, S., 2022. Internal Quality Assurance System Of Education In Financing Standards and Assessment Standards. Indonesian Journal of Education (INJOE), 3(2), pp.291-300.
Knoke, T., Gosling, E. and Paul, C., 2020. Use and misuse of the net present value in environmental studies. Ecological Economics, 174, p.106664.
Liang, W., Zhao, G. and Hong, C., 2019. Selecting the optimal mining method with extended multi-objective optimization by ratio analysis plus the full multiplicative form (MULTIMOORA) approach. Neural Computing and Applications, 31(10), pp.5871-5886.
Marchioni, A. and Magni, C.A., 2018. Investment decisions and sensitivity analysis: NPV-consistency of rates of return. European Journal of Operational Research, 268(1), pp.361-372.
Pascual, N.S., Sison, A.M. and Medina, R.P., 2019. Enhanced Newton-Raphson Algorithm in Estimating Internal Rate of Return (IRR). Int. J. Eng. Adv. Technol, 8(3S), pp.389-392.
S Bawaneh, S., 2018. Management accounting practices: a case of Jordanian manufacturing companies/Shamsi S. Bawaneh. Asia-Pacific Management Accounting Journal (APMAJ), 13(3), pp.25-53.
Smoke, P., 2019. Improving subnational government development finance in emerging and developing economies: Toward a strategic approach.
Sutarno, S., Mesran, M., Supriyanto, S., Yuliana, Y. and Dewi, A., 2019, December. Implementation of Multi-Objective Optimazation on the Base of Ratio Analysis (MOORA) in Improving Support for Decision on Sales Location Determination. In Journal of Physics: Conference Series (Vol. 1424, No. 1, p. 012019). IOP Publishing.
Thu, P.A., Khanh, T.H.T., Ha, N.T.T. and Khuong, N.V., 2018. Perceived audit quality, earnings management and cost of debt capital: Evidence from the energy listed firms on vietnam’s stock market. International Journal of Energy Economics and Policy, 8(6), pp.120-127.
Walmsley, T.G., Walmsley, M.R., Varbanov, P.S. and Klemeš, J.J., 2018. Energy Ratio analysis and accounting for renewable and non-renewable electricity generation: A review. Renewable and Sustainable Energy Reviews, 98, pp.328-345.
Xie, M., 2021. Research on the modified internal rate of return. Turkish Journal of Computer and Mathematics Education (TURCOMAT), 12(11), pp.4087-4090.
Yusra, I., Hadya, R. and Fatmasari, R., 2019. The effect of retained earnings on dividend policy from the perspective of life cycle. Advances in Social Science, Education and Humanities Research, 203, pp.216-220.
Zhang, C., Hu, M., Laclau, B., Garnesson, T., Yang, X. and Tukker, A., 2021. Energy-carbon-investment payback analysis of prefabricated envelope-cladding system for building energy renovation: Cases in Spain, the Netherlands, and Sweden. Renewable and Sustainable Energy Reviews, 145, p.111077.
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