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    Financial Analysis & Decision Making to Attain Growth

    University: University Of Sydney

    • Unit No: 5
    • Level: Undergraduate/College
    • Pages: 10 / Words 2391
    • Paper Type: Essay
    • Course Code: SBLC7010
    • Downloads: 439
    Question :

    Description

    Business decision making is the procedure which implements in the organisation with the aim of generating objevtives through following professional processes. Decision making in the X plc covers both the  financial and non-financial aspects. X plc is the  reputed vehicle parts company.

    Questions

    This assessment will cover following questions:

    • Role of financial and non- financial factors in decision making in X plc company.
    • How decision making helps financially to an organisation.
    Answer :

    INTRODUCTION

    Business decision making is the important aspect that includes ascertainment of different nature of information to made decisions and strategies. The importance of same is ascertained from the point that help in attainment of large amount of benefits such as high productivity, employee engagement, optimum utilisation of resources etc. The main aim of this essay is related to ascertaining investment information through use of different financial and non financial techniques (Black, 2019). The organisation considered is named as X Plc., having operations in UK and Europe. The main aim of an organisation is about attainment of growth through investing in new businesses.

    The aspects covered in essay includes attainment of business decisions through the use of Payback period, NPV, financial and non-financial.

    MAIN BODY

    Net preset value is the technique that help to ascertain the time period within which an organisation is able to recover their amount of investment. This is also understood as time value of money that can be gathered from the performance of any specific project. The method which is basically used to calculate NPV includes subtraction of predicted cash inflows from overall outflows of cash related to project (Collier, 2015). In the present case, NPV will going to be use for evaluation Project A and B to determine the future profitability and viability attached with the projects. Project A is Technological and B is Mechanical. Use or application of NPV provides an opportunity to determine the profitability along with the viability of project which is presented below:

     

    PROJECT A: TECHNOLOGICAL PROJECT

    Year

    Net cash flow

    PV factor @ 10%

    Discounted cash flow

    1

    8000

    0.909090909

    7272.727273

    2

    10000

    0.826446281

    8264.46281

    3

    12000

    0.751314801

    9015.777611

    4

    15000

    0.683013455

    10245.20183

    5

    19000

    0.620921323

    11797.50514

    Total discounted cash flow

    46595.67466

    Less: initial investment

    20000

    Net Present value

     

     

    26595.67466

     

    PROJECT B: MECHANICAL PROJECT

    Year

    Net cash flow

    PV factor @ 10%

    Discounted cash flow

    1

    10000

    0.909090909

    9090.909091

    2

    15000

    0.826446281

    12396.69421

    3

    17000

    0.751314801

    12772.35162

    4

    19000

    0.683013455

    12977.25565

    5

    20000

    0.620921323

    12418.42646

    Total discounted cash flow

    59655.63703

    Less: initial investment

    30000

    Net Present value

     

     

    29655.63703

    It is determined from the above computation that present value depicted by the project B is higher as compared to project A. The amount attained from the project B is 29655.63703 but the amount ascertained from the project A is only 26595.67466. This aspect represents that if X Plc is going to invest in project B then able to ascertain the higher amount of returns as compared to project A. So, it is advisable to the management of organisation that must going to invest in project B.

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    Payback period also investment appraisal technique (Fry, 2019). This help to determine the time period required by an organisation to recover their actual investment from any project. In other words, the time period required to attain the situation of BEP along with attainment of significant amount of profits from their operations (Keren and Wu, 2015). The analysis of payback period of project A and B provides an opportunity to ascertain the viability along with their efficiency. Calculation in respect to the both projects is presented below according to which decision is made by X Plc;

     

    PROJECT A: TECHNOLOGICAL PROJECT

    Year

    Net cash flow

    Cash Flow

    1

    8000

    8000

    2

    10000

    18000

    3

    12000

    30000

    4

    15000

    45000

    5

    19000

    64000

    3

    -0.666666667

    Payback period

     

    2.333333333

     

    PROJECT B: MECHANICAL PROJECT

    Year

    Net cash flow

    Cash Flow

    1

    10000

    10000

    2

    15000

    25000

    3

    17000

    42000

    4

    19000

    61000

    5

    20000

    81000

    3

    -0.63157895

    Payback period

     

    2.368421053

    It is determined from the above ascertainment of information that the time period required to attain initial cost is 2 years and 3 months in case of both projects. This means the time period required to recover the investment from the both projects is quite same. Project A is much efficient as compared to project B because the few days difference is visible.

    These two Payback period and NPV are most common methods which are used for the purpose of investment appraisal. There are many other aspects that can be use for the purpose of evaluating profitability of projects (Kumar and Dash,  2016). These other methods are named as financial and non financial. Financial includes ascertainment of interest rates and economic growth aspects whereas non financial includes determination of stability of industry and future legislations (Zeng, Chen and Li, 2016).

    Interest rates are those which an organisation has to paid for ascertaining the amount of money from bank as debt.  This is so because for made investments within the new organisation, X plc has to borrow the funds. It is one of the financial factor (Wang and Byrd, 2017). In UK, government is linnet towards the new businesses and total support is provided in respect to their establishment and growth. This is the reason that loans are provided at less rates so, they can survive in market. So, according to this, project B is significant to made investment as high profitability is associated with the same and availability of fund at low interest provides an opportunity to set effective amount of profit margins. The other financial factor is economic growth of nation. UK is prosperous economy so, investment in business is good option to attain growth but project B evaluated and associated with high rate of return (Wieder and Ossimitz,  2015).

    The two main non financial factors are industry situation and associated rules and regulations. In any industry, UK government is strict regarding quality of product and service. This would be the reason that legislations are needed to follow properly. Manufacturing industry is the one that have stability in UK and project B of Mechanical also attached with high profitability. So, investment in same is profitable in nature (Mechanical and technological industry of United Kingdom. 2019).

    CONCLUSION

    It has been concluded from the above report that Pay back and NPV both are effective techniques to ascertain the viability of project. For X Plc. Investment in project B is profitable as compared to project A. Financial and non financial factors are also represents the favourable result in relation to project B.

     

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