Methods of Investment Appraisal and Financial Statement Analysis

Methods of investing Appraisal and Financial State handst AnalysisThe purpose of this report is to prize several(a) method of coronation appraisal and monetary bidding abbreviation and and finaly recommendation on choosing stratefic portfolio.Task 1Forcasting in that location ar sundry(a) to forecast from the past result and nonice out what is going to ascertain forthcomingThe simplest method for forcasting revenue and appeal through magazine serial publication analysis with simple travel average for exampleUsing moving average the forcast for next months leave alone be Forcast jan+feb..to dec divided by 12 months and answer is for July the forcast would be 31.58 or 32 and so on. slide is sys marginatic (gradual) increase or decrease in average oer time season seasonal forcasting is the predictable piteous term cycling demeanor for whatever reason day month week etcFor example demand the following market sh be of tesco in the next year seasonal FactorAverage Se asonal factorMonth2007200620072006Jan3130.61.021.021.02Feb3230.40.991.031.01Mar3530.60.911.020.96Apr33310.961.010.98May3131.41.020.991.01Jun2931.51.100.991.04Jul3031.61.060.991.02Aug31.431.41.010.991.00Sep33.131.20.961.000.98Oct32.231.40.990.990.99Nov32.3431.40.980.990.99Dec31.131.41.020.991.01Average31.7631.16Now if we want to find market sh be of tesco in January of 2008January forcast = Average forcast multiply by seasonal factor which is 1.02If average mothly forcast for the year is 30 then forcast for January pull up stakes be 30*1.02 =30.6Task 1 part 2Its in truth pick out and understandable fact that start a new business or growing it require a lot of hard work ,planning and powerful kind of pay with a squad of dedicated peoples.There ar all reference work of pay which nookie be enforced to finance exclusively each of them has some benefit or edge over in some way or former(a).Therefore deciding which cite of financing should we white plague is a lots place wor k in concert ability to face issues coming up and ability to take closes. specie (Capital) is life blood of any business and business fecal matter non survive without capital. interchange in ones chipsings plan flexibleThinking big and move troubled patronage should move on when raising capitalStrong management teamWhat amount capital required dep terminate what we want to achieve and our experience e and address worthiness and stage of growth at which we stand unneurotic general factor such market trends and economic condition.There are various sources of finance depend on business1) Self financeSelf FinancingFinancing through credit card and is the most(prenominal) riskiest weft and costly as interest rate on credit cards are truly high and amount available is normally low subject credit evaluation conducted by bevel.Start up Financing is some other method whereby a business foot countersink hard bills into the new business fatherd through various various source till it is reach to level to generate further financing itself.2) currencymaking(prenominal) Financing by BankBusiness toilette get coinmaking(prenominal) financing if they have track record or they have something to consider as security to bank.Commercial financing is very(prenominal) important and fundamental way to finance a specific sound projection and normally bank will agree to finance if in that respect is home work make with regards to feasibility.The disadvantage is participation has to bear risk of damage and bank will charge interest which is great costThough these are disadvantages facilitate commercial finance through bank most widely use to finance a specific project.3) Share IssueA new establish union spate issue Initial public pass to raise finance from public notwithstanding a lot of home work require. Private Companies fag issue new shares in the name rights issue or bonus issue tho quartert bear on them.Initially lodge can finance itself equity enthronization by investors. Later on merger or acquisition of limited bon ton is very well(p) source raising finance by event shares.Share issue is quite unusual way to raise gold for specific project its time consuming and lengthy process tho its one the less riskiest way.5) Finding Investor/PartnerFinding a person, aggroup or nerve to fund business is another form of financing to raising capital .the advantage if this method is risk is shared amid partners and disadvantage is worth generates from business is divided between one more(prenominal) peoples match partnership agreement.There are more other sources of finance for small business worry local government initiatives on lending program and commercial companies providing finance and so forthSome big companies are genuinely cash rich and because they look opportunities to invest cash and therefore they can act as strategic investors.Task 2There are vaious method rate fiscal knuckle unders on various competing project. The most important of them are1) Payback power point2) Net evince value1 Pay back periodLets take a example if there are two projects where initial investment is 60m while one give return as following course of study fundamental1 102 253 304 28While another project give returns asYear come in1 132 203 254 50SolutionProject OneYear Amount Remaining investing0 601 10 502 25 253 30 25 4 28Project TwoYear Amount Remaining Investment0 601 13 472 20 273 25 24 50 2 iniital investment returneThe first project here pay its total investment in three years while the here and now projecgt pay its entire investment four year time so according retribution period method project two should be selected.Payback period doesnt account for time value of money therefore not very effective method2. Net stick in ValueTaking the homogeneous example above if we try out them (we contract give the sack factor which cost of capital to discount future cash flows. Lets select it as 10%Year Amount Discount Factor Present Vaue01 10 0.909 9.092 25 0.826 20.653 30 0.751 22.53.4 28 0.683 19.12471.394Project TwoYear Amount Remaining Investment Present Vaue0 11 13 0.909 11.8172 20 0.826 16.523 25 0.751 18.7754 50 0.683 34.1581.262The Net defer value of second project is more than first one therefore e according to npv method second project is more makeable.Select appropriate and germane(predicate) financial reading for use in the process of making strategic decisions on investmentThere are vaious ways to analyse investment each has it own merit and demerit but mostly to analyse investment we required some basic l take a craping to make our decision on.If we are comparing two or more competing projects we can do by using investment appraisal techniques resembling net present value etcWe wish some basis data to calculate and appraise and finally take investment decision whichApproximate amount of total investment required for the projectThe future cash flow whether influx or outflow that can be generated from the project.The minimum required return .If we are going to invest in a order we need to instruction on two main factor which are how more dividend it pays through symmetrys called dividend cover and dividend yield and how much capital gain we can get by movement in share price applicable ratios are price earning ratio, earning per share etc.For the above calculation we need exact amount ofDividend paid during the yearShare price lucre after taxNumber of ordinary share issuedThis information can be drawn from the financial tale of targeted company.The future investment can be found on basis of past writ of execution of selected companiesThe investment in company to acquire needs other consideration which is based on various financial as well as non financial factors but mostly following factors are taken into account . social club financial health through calculation of various ratio favourableness, train , liquidity and capability etcThe vision, mission , goals and objectives of the acquiring company and strategies to achieve those and many more. Therefore decision regarding acquisition or mergers required comprehensive analysis. amaze recommendations based on a post- scrutiniseed account appraisal on the appropriateness of selected investment project decisionsThe payback period is simplest method to decide between competing project which one is the best but it ignore time value of moneyNet present value account for time value of money and is one of the mostly utilise way to appraise competing projects but it is interwoven and and require some figures to give correct answer like discount rate etcFor investment in the shares of company we need financial information such as share price dividend eps etc but selection of company to invest in its share depends on many other factors like if the investing entity want to invest for long term or short termFor long term investements share price moment is more important than dividend or vice versa.Task 3Financial Statements break up financial statements using relevant techniques to value the financial viability of an Tesco for 2008The financial statement of any organization can be analysed by calculation of ratio and each ratio has its own significance and importance. There is hard and extravagant rule and no parameters to judge accomplishment of each and every company against but its very subjective and depend on company and labor in which it operates.Let assume the following financial statement belong to company called Simon Sparks and analyse its financial statement.Simon Sparks acquire and Losss Accountthe period ended 30June 200XSales292,000.00 slight Sales returns13,800.00Net Sales278,200.00Carriage outward15,000.00263,200.00Less cost of good soldSOpening transport15,100.00Purchases135,600.00Less Purchase returns 5,200.00130,400.00Less Closing Stock16,200.00129,300.00Gross good133,900.00Bad debts2,200.00Advertising6,000. 00Electricity Gas11,100.00Salaries and salary37,200.00Insurance5,700.00 locomote expenses.16,600.00Postage stationery2,400.00Rent rates20,900.00102,100.00Net Profit31,800.00Less Drawings15,800.00Retained ProfitBalance Sheet as at 30 Juneas of 30 June 200XNon up-to-the-minute Asset( . Fixtures Fittings cost60,300.00Motor vehicle cost42,000.00 tote up Non Current Asset102,300.00Current Asset hard currency600.00Trade debtors24,000.00Closing stock16,200.00Total Current Asset40,800.00Total Asset143,100.00Liabilities and Owners EquityCapital83,800.00Retained Profit16,799.00100,599.00Non Current LiabilitiesCurrent LiabilitiesBank Overdraft5,600.00Trade Creditors36,901.00Total liabilities plus capital143,100126,699.00All businesses make it to make profit in some way or other and to measure profitablilty we have many ratio to analyse same selective information from different aspects. Retuen on capital employeed is a primary ratio to assess profitablitly of any orgnization and its one of most widly used ratio.It is calculated byDividing Profit before interest and tax with capital plus long term liability In the case of Simon spark it is 32% which can be assume as very good doing interims of profitability but ratio cant be analyses in standalone way they must be compared with some industry average competitor or past performance to evaluate and we dont ant information available here.Simon Park has managed to generate revenue deal of 292,000 which is really commendable as long as data is secure and comparable. The Gross profit ratio shows companys profit margin when merchandising price is compared with cost of sale. The GP ratio of Simon spark is 51% which is really commendable and appreciatable but remember we are assuming that data is not only reliable but trustable.The other factor to measure profitability is net profit 6% here we see how effectively and expeditiously day to day operation are run by management. astonishingly the net profit margin is just 6% it is definably not very good indication of good performance but due to point of accumulation of information for comparison we are unable to give conclusive remarks but 6% is very low and it shows though company is earning profits but its not working efficiently and effectively.The most significant expenses are salaries and wages followed by rent and rates. We dont know if its inefficient management but definitely I think there is enough room for improvement liquidLiquidity ratios are very important as company can be profitable but if not liquid enough can run to insolvency or at least find it self in big problems.Liquid assets are those which can easily convert in to cash with in short duration of time. The examples are cash, debtor, stock etc.The most important of liquidity ratio is rate of flow ratio which shows current assets as number of generation to current liabilities and it is very widely used in business world.There is no specific ratio which can be said as good en ough or blue as it varies from industry to industry and company to company.Simon Sparks current ratio is 1.5 multiplication it mean it has 50% more liquid asset to meet it present(prenominal) needs. Its not bad but considering limitation of information we can assume its up to standard of industry.But there is more important ratio coming out of current ratio it is tender ratio. In quick ratio we dont consider stock as quickly convertible into cash asset and therefore remove it.The quick ratio of simpn spark is 0.94 times which cant be said either good enough or bad for the reason mention above.Carry out a performance audit of an organisation including reference to internal and external factorsPerformance audit is audit of mainly(management operations ,function or procedures of) not for profit or political organization to ensure value for money (economy aptitude and effectiveness ) in utilization of resource by using systematic professionally knowing and conduct methodologies wh ich are generally accepted and well structured.Few benefits of performance audit isImproving organisational performanceA tool to increase efficiencyPolicy and performanceLegal imperativePerformance audit whitethorn include detection of fraud and error but its not include everytime there fore scope of permance audit must define and prone in writing prior to start of workPerformance audit using internal factors might be for example in mathematical product it may number of units produce in a one arcminute compare with standared or ideal performanceFor financial performance profit can be compare from period to another with cost of sale and revenue to ensure resource are used properly and generate value for moneyExternal factors to consider for performance audit are comparision of per unit cost with major competitor to ensure VFM (value for money economy, efficiency and effectiveness is achieved .Comparision of number of staff with equivalent or similar company or employee productivi ty with similar organizationPerformance audit is not define in any standered and can include anything but it is different from performance measurement.Use appropriate calculations to improve the quality of financial information usedThe quality of information is very important because its not reliable and relevant than its useless most business try to spend m to avoid the lost of money but unfortunately lack of focus on right cause more loss.The reliable and timely financial information is essential for success and to avoid loss and making untimely decision on the basis of misleading information.Financial in itself is very vast and full of useful information but its generall and everyone has to take this information and use it assess their own purpose for example a company can generate huge profits sayCompany A has revenue of 100 million while gross profit is 50 million and net profit 25 million.A lay men can conclude fromthis information that companys is performing really well and generating good profits but what if we got data the competitor of same size earn profit 1000 m with Gross profit ratio of 70% unlike our 50%.Even worse can happen like company is generating huge profits but its running out of cash to pay its immediate liabilities . Creditors have right to appeal in mash and prove company as defaulter and therefore cease its existence.So calculation of various ratio from the broad set of financial statement help in understanding actual position of company regarding its competitors.IMake recommendations on the strategic portfolio of an organisation based on the recitation of financial and ancillary informationThe world is moving very fast and there is increasing competition with increasing globalization and opening of borders therefore organization need to update themselves with latest information and predict future and do for itOrganizations have many reason to believe that they have to prepare themselves before the storm and therefore they are r equired to identify, find and use the required information whether financial or other to prepare themselves for the future.There are various strategies an organization can follow to achieve its objectives. A company should diversify if they have access to adequate resource (financial or other)and technical capability to achieve success.Diversification bring combative advantages as with mergers as economies of scale and information asymmetry can achieved .Strategic portfolio may include developing and investing in new technologies to achieve competitive advantage as technology as key to success.The factor which can be consider for strategic portfolio is to develop new products and or improve exsiting one to compensate those products whose lifecycle is about to finish .Partnership with international companies or local companies to enter new ventures is also a great option and by doing this organization can not diversify but loss in case of failure is share between partners and there will be access to new and usesful information by working with another organization.These are the few reformation which an organization should consider to develop there strategic portfolio and its quite subjective and can vary from one organization to another.30.630.430.63131.431.531.631.431.231.431.431.4