financial analysis of a uae based organization

8/17/2019 Financial Analysis of a UAE based organization

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Name ID: Finance for Strategic Managers

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Table of Contents

ACTIVITY 1 4

NEED FOR FINANCIAL INFORMATION 4

ASSESS FINANCE REQUIREMENTS 4

OBTAIN FINANCES 4

REPORTING TO OWNERS/ SHAREHOLDERS/ STAKEHOLDERS 4

SETTING AND MEETING TARGETS 4

APPRAISING NEW PROJECTS 4

MANAGING RISK 5

INTERNAL VERSUS EXTERNAL NEED 5

BUSINESS RISKS RELATED TO FINANCIAL DECISIONS 5

STRATEGIC AND MARKET 5

COMPLIANCE 5

OPERATIONAL LOSSES 5

RISK MODELING 5

FINANCIAL INFORMATION NEEDED TO MAKE STRATEGIC BUSINESS DECISIONS 5

PROFITABILITY 6

CASH FLOW: 6

BUSINESS VALUE: 6

FINANCIAL STABILITY: 6

COSTS PROJECTIONS: 6

ACTIVITY 2 7

PURPOSE OF PUBLISHED ACCOUNTS 7

STRUCTURE OF PUBLISHED ACCOUNTS 8

DIRECTOR’S REPORT 8

AUDITOR’S REPORT 8

FINANCIAL STATEMENTS 8

WEAKNESS OF PUBLISHED ACCOUNTS 13

INTERPRETATION 13

COMPARISONS BETWEEN YEARS 13

COMPARISONS BETWEEN COMPANIES 13




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REASONS FOR USING RATIOS 16

DIFFERENCE BETWEEN CAPITAL AND REVENUE EXPENDITURE 16

RATIOS AND THEIR INTERPRETATIONS 16

FINANCIAL RATIOS 16

LIQUIDITY RATIO 18

EFFICIENCY RATIO 19

FINANCIAL STRUCTURE 19

ACTIVITY 3 20

LONG AND SHORT-TERM FINANCIAL REQUIREMENTS FOR BUSINESSES 20

SHORT TERM FINANCING 20

LONG TERM FINANCING 20

THE IMPORTANCE OF MATCHING FINANCE TO PROJECT 20

SOURCES OF FINANCE 21

SOURCES OF INTERNAL FINANCE 21

SOURCES OF EXTERNAL FINANCE 21

CASH FLOW MANAGEMENT TECHNIQUES 23

CASH FLOW FORECASTS 23

MANAGING INVENTORY 23TRADE PAYABLES 23

TRADE RECEIVABLES 23

STRONG CREDIT TERMS WITH SUPPLIERS AND CUSTOMERS 24

BUDGETARY CONTROL PROCESSES 24

WHY THE MANAGEMENT OF CASH FLOW IS SO IMPORTANT 24

ACTIVITY 4 25

OWNERSHIP STRUCTURES 25

SOLE TRADER 25

PARTNERSHIP 25

LIMITED COMPANY 25

CHARITIES 26

CO-OPERATIVES 26

METHODS FOR APPRAISING STRATEGIC CAPITAL OR INVESTMENT PROJECTS 27




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NET PRESENT VALUE 27

DISCOUNTED CASH FLOWS 27

ACCOUNTING RATE OF RETURN 27

PAYBACK PERIOD 27

INTERNAL RATE OF RETURN 28

COST BENEFIT ANALYSIS 28

REFERENCES: 29

BOOKS 29

JOURNALS/ARTICLES 29

WEBSITES: 30




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Activity 1

Need for financial informationThe financial information provides an understanding of what the company’s financials are and where the

company plans to go.

Assess finance requirements

The financial information helps to assess the financial requirements of the organization. It will to estimate the

amount required for the future projects (Berry, 1999).

Obtain FinancesThe financial information can be used to predict the amount as well as the resources that can be used to

arrange the required amount.

Reporting to owners/ shareholders/ stakeholders

Financial information is used to report the company’s financial strength to the owners, shareholders and the

stakeholders. This will help these individuals to determine the performance of the organization. Owner can

calculate their profits, shareholders and stakeholders can find out about their dividends. Creditors can predict

the future performance of the company and its ability to pay the current and future debts. Suppliers can see

the strength of business and expected growth in their orders. The government can estimate the collection of

taxes.

Setting and meeting targets

The financial information helps to measure the performance of the organization. This will help the

organization to see if it has been able to meet the targets of the past year and then plan accordingly for the

next year(O'Regan, 2006).

Appraising new projects

Financial information helps to assess the viability of a project. It helps to calculate the appraising of the new

project: an estimate of whether it is feasible to continue of a project or not.




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Managing risk

Financial information provides an accurate estimate about the organization and its projects. The financial

statement provides a true and fair view of the profit and loss and cash flow. This helps to prevent fraud and

other irregularities, thus helps to manage risk.

Internal versus external need

Users of financial information are both internal (management, employees, owner) and external (creditors, tax

authorities, investors, customers). Each of these users can review the financial information and can assess if

the financial position of the organization is able to satisfy their needs.

Business risks related to financial decisions

A business risk refers to a business's cash flows that are not enough to cover its operating expenses like cost of

goods sold, rent and salaries.

Strategic and market

Strategic refers to the risks associated with an inefficient business plan. For example, this risk can arise from

poor business decisions, failure to respond to changes (BusinessDictionary.com, 2015). Market risks are the

risks associate with the changes in the market factor.

ComplianceThese are the risks that are associated with the need to comply with the rules and regulations of the

government. This risk is associated with the exposure to legal penalties. Organizations must therefore need to

operate fairly and ethically (Search Compliance, 2015).

Operational Losses

These are the monetary losses that result from internal losses, people and systems or from external events

(Lopez, 2002).

Risk modeling

Risk modeling is a technique to calculate the aggregate risk in a financial portfolio. This is a technique used by

the managers to assess the amount of capital reserves , and a guide in sales or purchases of assets.

Financial information needed to make strategic business decisions

The following financial information is required to make business decisions:




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Profitability:

Profitability is the survivability of the organization in the long term. This is the revenue that is gained after

deducting all other expenses. The manager therefore needs to calculate this amount for making business

decisions that may include buying or selling of assets.

Cash flow:

Cash flow is the amount of cash coming in to the business (inflow) and the amount going out of the business

(outflow)(Smith, 1998). The higher the cash inflow, the better the position of the organizations be. The

manager can then decide to do further investments, pay salaries, buy new assets or open another location etc.

Business value:

It refers to the health and well-being of the firm in the long run. However it does not provide any economic

profit to the organization. The components of business value are:

Shareholder value

Customer value

Channel partner value

Supplier value

Managerial value

Societal value

Financial stability:

Financial stability is important to support efficient allocation of resources, and distribution of risks. A

financially stable business relates to pay its overhead expenses, return capital to investors, pay off the debt. A

business with a stable finance will be able to take decisions for expansion and more profits(Keown, 2005).

Costs projections:

Cash flow projections identify the cash flows of the company. The cash is used to pay suppliers and employees.

By forecasting, we can identify the problems with customer payments (Cunningham, Nikolai and Bazley, 2000).

These projections are important for decisions of financial planning. It is also a necessary element for external

stakeholders to decide for their investments.




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Activity 2

Purpose of Published accountsPublished accounts provide information to shareholders/stakeholders. These stakeholders include:

Managers: Managers require these details for decision making and see the financial performance of the

organization.

Investors: Investors need to go through the accounts to assess the risk in investing in the company and an

approximate return on their investment.

Financial institutions: They need to see the financial health of the organization on the basis of what they may

or may not grant a loan or credit to the business.

Customers: Customers review the finances to ensure the steady supply of goods in the future.

Employees: Employees refer the published accounts to assess the profitability of the organization on the basis

of which they may get their remuneration.

Competitors: Competitors compare their performance against their rivals via the published accounts to see if

their performance has improved or needs a change in the strategy.

Government: Government needs to consider the published account to determine if the organization has

correctly declared its tax returns.




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Structure of published accounts

Published accounts or the annual report is an important document of the company to present the company’s

performance to its stakeholders. These are written records that provide the company’s vision, values and

financial position. It provides an overview of the company’s operations, new product plans, and research and

development activities.

A typical financial statement includes the following:

Director’s report

The director or the chairman will provide statements of the performance of the previous year. He will

comment on the initiatives implemented or discontinued, and on the overall position of the company. It will

also highlight the company's goals and strategies for the future.

Auditor’s report

It is a requirement to audit a public company. Henceforth, the auditor will be required to comment on his

findings and calculations.

Financial Statements

This area will highlight the trends in growth in the previous year and summary of past years indicating the

company’s success. This includes various types of statements such as:

Statement of Financial Position

Also known as a balance sheet, which lists a company’s financial position such as assets, liabilities & equity at

a specific date (normally the end of the year). The following is the balance sheet of Next plc for the year




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2014.




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Income statement

It is also referred to as Profit & Loss account is one of the financial statements which presents the firms

revenues & expenses during a specific period. The income statement for Next plc (2014) is as follows:




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Statement of Cash flow

It displays how improvements in balance sheet accounts and income affect cash and its equivalents.

The search is broken down in to investing, financing and operating activities. The Cash flow of Next Plc is as

follows:

Statement of equity

These statements explain the amendments of the firm’s equity throughout the reporting period. They break

down changes in the owners' interest in the firm and in the application of retained profit or surplus from one

accounting period to the next. It includes profits or losses from operations, dividends paid, issue or

redemption of stock, and any other items charged or credited to retained earnings. Statement of equity for

Next Plc is given below:




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Weakness of published accounts

Some of the limitations of published accounts are as follows:

Human interpretations are prone to error.

Different ways of accounting relate to different comparisons.

Published accounts are backward looking rather than forward looking.

The information contained is ‘out of date’ rather than current values.

They do not report to all assets and liabilities of companies.

Interpretation

Comparisons between years

A comparison of Next plc over a period of ten years is as follows:

Comparisons between companies

A comparison between Nextplc and Marks and Spencer

By considering the profitability ratios, it can be noted that the ROCE for Nextplc is 55.1% as compared to

Marks and Spencer which is 12.5% in 2014. This shows that Nextplc is making better use of its capital and is




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able to squeeze more earnings out of every penny of capital it employs. The shareholders can also gain benefit

by re-investing back into the Next plc.

The return on equity for Next plc is 165% (2014) as compared to Marks and Spencer’s which is 18.6% in 2014.

This ratio shows that Next plc is increasing its ability to generate profit without needing as much capital. It

also indicates the efficiency by which the management of Next plc is giving better returns to its investors.Net profit percentage is a ratio that determines a company’s performance. When this is compared between

the two companies, Next plc has 13.3% as compared to Marks and Spencer which is 4.9%. This shows that Next

plc has made more money in 2014 than it has spent and is able to control its costs that buy inventory at prices

significantly higher than it costs to produce or provide them.

Liquidity ratios are another metrics to determine the performance of the organization. This is the company's

ability to pay off its short-terms debts obligations. The current ratio for Next is 1.7 : 1 while that for Marks and

Spencer is 0.5 : 1. As the ratios for Next plc is higher, this indicates that Next has a larger margin of safety to

cover its short-term debts. However, Marks and Spencer would be unable to pay off its obligations and is not

in good financial health.

Marks and Spencer has a negative cash conversion cycle of -38 days while Next has a conversion cycle of 51

days. From a business perspective, the negative figure is desirable as company is effectively managing its

working capital.

The leverage for Next is 78% while for Marks and Spencer it is 50%. Next plc is highly geared which should be

a concern for its management. This might impact its reputation for future investments and borrowings and it

will be hard for it to get further loans.




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Next Marks and Spencer

2014 2013 2012 2014 2013 2012

Profitability Ratios:

Return on capital

employed

55.1% 64.5% 54.1% 12.5% 14% 14.1%

Return on

shareholders funds

165 % 178% 213% 18.6 % 17.6% 17.6%

Net profit percentage 13.3% 14.2 % 13.79% 4.9% 4.4% 4.9%

Gross profit

percentage

31.4% 31.5% 30.3% 37.5% 37.9% 37.8%

Operating profit

percentage

20.3% 19.5% 17.4% 6.7% 7.5% 7.5%

Liquidity Ratios:

Current Ratio 1.7 : 1 1.4 : 1 1.5 : 1 0.5 : 1 3.4 : 1 7.2 : 1

Quick Ratio (acid test) 1.2 : 1 1.07 : 1 1.03 : 1 0.2 : 1 3.05 : 1 6.9 : 1

Efficiency Ratio:

Stock holding period 57 Days 49 Days 56 Days 47 Days 45 Days 40 Days

Debtors paying period 83 Days 73 Days 74 Days 11 Days 9 Days 9 Days

Creditors paying

period

89 Days 80 Days 83 Days 96 Days 88 Days 85 Days

Cash conversion cycle 51 Days 42 Days 47 Days -38 -34 -36

Financial Structure

Gearing 0.78 0.73 0.79 0.5 0.5 0.47

Interest cover 25.5 23.9 20.8 4.99 3.45 5.45

Price/Earnings Ratio 18.6% 20.9% 15.6% 14.09 12.23 10.86

Dividend yield 1.89 1.68 2.25 3.70% 4.40% 4.50%




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Reasons for using ratios

There are a number of reasons for using ratios(Bonner, 2008). These reasons are as follows:

Comparison – Ratios are used to compare the performance of different companies.

Trend Analysis – Ratios are used to forecast the trends which can be used to identify deficiencies.

Planning and performance – Ratios provide guidance to investors and management for business plans.

Difference between capital and revenue expenditure

Capital Expenditure – This is the amount that is spent on improving or acquiring a long term asset such a

plant, machinery or property. These will then be depreciated over the course of their life.

Revenue Expenditure – This is the amount that is charged immediately such as maintenance and repair

expense.

Ratios and their interpretations

Financial Ratios

Financial ratios are the most common tool to analyze a company’s financial standing. Ratios help to identify a

company’s strengths and weaknesses. Financial ratios are classified in the following categories:

Profitability:These ratios give an understanding of how well the company utilized its resources in generating profit and

shareholder value. The various types of profitability ratios are:

Ratio What does it tell Formula Next

2014

Working

Calculation

Return on capital

employed

A ratio measuring the

company's

profitability and

efficiency with which

its capital isemployed.

(Profit before

deducting interest &

taxation x 100) /

(Equity + Debt)

55.1 % 722.8 x 100

(286.2+1023.9)

Return on equity The amount of net

income returned as a

percentage of

shareholders equity.

(Profit after taxes x

100) / Equity

165 % 473.1 X 100

286.2

Operating profit

%

It measures the

amount of profit the

company is generating

from their main

operations

(Operating profit

before interest &

taxes x 100) /

Revenue (sales)

20.3 % 722.8 x 100

3547.8




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Gross profit % It calculates the

amount of sales

including the costs

straight away related

to either the goods

sold or services

provided in order toget sales.

(Gross Profit x 100) /

Reveue (Sales)

31.4 % 1116.7 x 100

3547.8




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Liquidity Ratio

This is the ratio that measures the capability of a company to pay off its short-term liabilities when they are

due.

Ratio What does it tell Formula Next 2014 Working

Calculation

Current

Ratio

Pay back short-term

liabilities (debt and

payables) with short-

term assets (cash,

inventory, receivables)

Current Assets

Current

Liabilities

1.7 : 1

1468.1

(834.5)

Quick Ratio

(Acid Test)

It records a firm’s

capability to target its

short-term

requirements with its

most liquid assets.

(Current Assets

less Inventory)

Current

Liabilities

1.2 : 1

1468.1-385.6

834.5




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Efficiency Ratio

They evaluate how effectively companies utilize their assets to generate income and determine the time it

takes a company to collect its cash from customers or the time it takes companies to convert inventory into

cash.

Ratio What does it tell Formula Next 2014 WorkingCalculation

Holding Period of

Inventory

It tells us the duration

between a product’s

purchase and sale

(Inventory x 365) /

Cost of Sales

57 Days 385.6 x 365

2431.1

Receivables

payment period

It is used to measure how

effective a company is in

extending credit as well as

collecting debts.

(Trade Receivables x

365) / Revenues

83 Days 808 x 365

3547.8

Trade Payable

days

Measures how long it

takes for a company topay its creditors

(Trade Payables x

365) / Cost of Sales

89 Days 594 x 365

2431.1

It measures how quickly

companies convert their

products into cash

through sales.

Inventory

Outstanding Days +

Sales Outstanding

Days – Payable

Outstanding Days

51 Days 57+83-89

Financial Structure

Ratio What does it tell Formula Next 2014 Working

Calculation

Leverage (gearing) Calculates the

financial leverage of a

company to evaluate

the company's

methods of financing

or to measure its

ability to meet

financial obligations.

(Long Term

Borrowing)

(Long Term

Borrowing +

Equity)

0.78

1023.9

(1023.9

+286.2)

Interest cover It is used to see how

easily a company can

pay interest on

outstanding debt.

(Profit before

interest & Tax)

/ (Interest

Expense)




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Activity 3

Long and short-term financial requirements for businessesBoth provide organizations with temporary or long term support during financial crisis.

Short term financing is moderately easier to receive and is normally utilized by small and large

organizations alike. Short term financing is for shorter durations and is normally utilized to attain relief from

shortage of funds

Long term financing in contrast, is extra tough and riskier to receive; consequently larger

organizations or the ones with strong collateral can receive long term loans. Long term financing is utilized for

bigger projects or undertakings for that large sum of funds are needed for a longer duration (Kpodar and

Gbenyo, 2010).

The financial requirements for business can be considered from internal and external perspective.

The importance of matching finance to project

Finance is managing the funds of a business. A business ventures is required to provide a positive outcome.

This is possible only if the business investments match with the commercial returns with the payback period.

This can be done by Keep track of project payment plans and supporting high impact projects with appropriate

strategies. The financial statements can be reviewed to analyze the income and the expenses incurred by the

organization. Based on these details, the organization can plan how to fund its projects in the future.




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Sources of Finance

Sources of internal finance

Short Term Advantages Disadvantages

Reduced inventory levels Use revenue that could be used

to expand business.

Difficult to meet the needs of

future demands

Delayed payment to trade payables Cheap method Difficult to take credit in future

Long Term

Retained profits No interest charges May not be sufficient.

Less availability.

Sources of external financeShort term Advantages Disadvantages Example

Bank overdrafts Only borrow when and as

much needed

Very expensive

Debt factoring Available immediately

% of the debt collected

will be paid to the debt

factor

Overdraft facility Suitable for companies with

minor cash flow problem.

Flexibility for business that

may face cash flow problems

from time to time.

Repayable without notice Hang Seng

Bank

Sponsorships Reduce cost of company.

Compete more effectively.

Exert social responsibilities.

Individual company

issues. Difficult to obtain

World Cup

Long term

Debentures Receive annual interest Not sure how the

business will run.

Depends on the success

of the business.

Football

clubs

Preference shares Yield Fixed amount.

Cumulative payment

No Voting rights

Mortgages better cash flow

retain ownership

High risk




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low interest rate

Hire purchase agreements Not a lot of money to buy Interest rates are very

high. Cash deposit need

to be paid in the

beginning

Government Grants Not need to be paid back.

Increased demand. Reduced

prices

May not be sufficient.

Hard to obtain

Grants to

hospitals




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Cash flow management techniques

Cash flow management is a technique in which a balance between income and expenses in needed.

Companies need to plan their expenses, bill payments, investments and purchases depending on their cash

inflows.

Cash flow forecasts

Companies need to anticipate and devise strategies to forecast the amount they will receive to meet their

expenses. This can be done by reviewing the previous year’s checkbook based on which they can factor

changes like increase in pricing, new programs offered, change in interest rates etc.

Managing inventory

Cash flow can be improved by managing the stock and quantity in the inventory. Get rid any outdated

inventory. Management of several types of inventories, including not only finished goods but raw materials,

work-in-process, partner inventories and more, truly sits at the juncture of demand and supply.

Trade payables

Organizations need to review their expenses if they are growing faster than sales. This can be improved by

managing the trade payables.

Do not pay earlier than the creditor payment term.

Retain your funds till the end and use electronic fund transfer for the last minute payment.

Communicate, build trust and understanding with suppliers for situations when you may need to

change your date of payment.

Review the vendor offers as it might amount to expensive loans.

Trade receivables

Companies can improve their cash flow by getting their sales paid instantly. Unfortunately that doesn’t happen

at all times. However this can be improved by adopting the following techniques:

Provide discounts for customers who do their payments instantly.

Request customers to pay as soon as the order is placed.

Conduct credit check on customers who are noncash

Follow up with payments which are slow in coming.

Avoid slow paying customers.




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Strong credit terms with suppliers and customers

Negotiate for payment terms with your suppliers that are the same or longer than those that is for the

customers. There are many possible options ranging from due in advance and payment on delivery to 10, 15,

30, 60, and even 90 day terms. For certain suppliers that require you to pay on delivery, try to negotiate 10 to

15 day terms. For those that allow you to pay in 30 days, see if you can delay them up to 45 or 60 days. These

changes will have a big impact on your bank balance by having more cash available in your account for an

extra two to four weeks.

Budgetary control processes

This is a technique which forces a company to look ahead, plan for the future, set targets and anticipate the

direction in which the organization needs to move (Fao.org, 2015). The budgets should be managed to ensurethe future projections of the organization are smooth and that the expenses incurred can be easily paid.

Why the management of cash flow is so important

Cash is the life blood of every organization. It is required for any purchase of raw material, equipment or

machinery, it is required for the payment of salaries to the employees, pay off debts or for any further

investment opportunities. The management of cash flow is really important for the business organization and

following are some of the reasons:

Meeting daily commitments

Dealing with uncertain cash flows

Exploiting profitable opportunities

Making company acquisitions

To purchase large investments to increase productivity

To determine the market value of the company

When an organization has less cash inflow than its cash outflow, the company will face severe issues. The

future of any organization depends on its cash projections.




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Activity 4

Ownership Structures

Sole trader

A sole trader is a person who takes responsibility of all phases of the business. It is easy to setup and

inexpensive. The owner should have a well-documented system of the company’s procedures, policies and

processes.

A company’s policy defines the company’s position on various issues and provides guidelines. You need to

have a name for the business to be used on official paperwork (Qu and Yang, 2012).

The owner is responsible for the following:

1. Keep a record of sales & expenses

2. Self-Assessment Tax Return

3. Income Tax on Profits

4. Business debts

5. Bills for anything you buy for your business

Partnership

There are two kinds of partnerships. One is a general partnership and the other is a limited

partnership. In general partnership, the partners are responsible for managing the company, whereas in

limited partnership it has both the general & limited partners. General Partners operate the business while

Limited Partners are investors only and do not have the authority to operate the business. Tax is filed by

reporting the income & loss to the IRS. In the agreement you need to mention how the business decisions will

be made, how disputes will be resolved & how to handle a buyout (Takahara and Mesarovic, 2004).

Limited company

There are two kinds of limited company; one is Public Limited company and the other is Private Limited

company. In a limited liability company, any business dealing is done on behalf of the company rather than the

individual. In a limited liability company there should be at least one director & one secretary to make sure the

rules are followed & records maintained. Profit & Loss belongs to the company so it can continue even if the

people operating the company are no longer available.




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Charities

Charities are not-for-profit organizations that raise money from public to support the society. Their structure

differs from for-profit organizations because it includes many unpaid positions in which volunteers carry out

the work. Because the charity raises funds from the public, the structure must include governance

mechanisms to ensure that money raised supports the mandated purpose.

Co-operatives

A cooperative is a business or organization owned by and operated for the benefit of those using its services.

Profits and earnings generated by the cooperative are distributed among the members, also known as user-

owners.




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Methods for appraising strategic capital or investment projects

Capital investment is an important consideration for any organization. Identification of the opportunities

should be done regularly for consistent and efficient investment proposals. Objectives should be clearly

outlined to have a clear understanding of the future organizational projections and what is expected by eachstakeholder (Icaew.com, 2015). Projects need to be assessed and accordingly budget will be allotted. By

considering the capital investments, owner can ensure that proper resources are being used to accomplish the

desired goals.

There are a number of methods to assess the investment proposals. These are estimated by the following

terms:

Net Present Value

It is the difference between the present value of cash inflows and the present value of cash outflows.

Capital budgeting uses net present value to study the effectiveness of an investment or

project. However this method does not help identifying the project size

Discounted Cash Flows

It is a method to valuing the value of a company. It is a method to determine the worth of a company today by

projecting the cash that would be available to investors in the future. However it has a disadvantage that a

change in an input can impact the output result.

Accounting Rate of Return

Amount of profit or the expected return is based on the investment that is made. Accounting rate of

return divides the average profit by the initial investment in order to get the return that can be

expected (Baker and Powell, 2005). Though this method is simple in terms of understanding and

calculation but overlooks time value of money and cash flow from investment.

Payback Period

It is a term of capital budgeting. The payback period can be defined as the time period which is

required for the amount invested in an asset to be repaid by the net cash outflow generated by the

asset. It is usually expressed in years. This limitation of Payback period is its ignorance for time value

of money ultimately impacting the profitability.




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Internal Rate of Return

This return is a term at which the NPV of all the cash flows (both +ve & -ve) from a project or

investment is considered as equal to zero. IRR (Internal rate of return) is used to assess the attraction

of a project or investment. The bright side of IRR is identifying the return on real investment of

money but sometimes it leads to conflicting answers or multiple IRR problem in comparison with Net

Present Value.

Cost Benefit Analysis

It is also known as Benefit Cost Analysis. It is a technique to determine the best approach from the

available options in terms of cost, labor and time. This helps in determining the feasibility and good

investment option. It provides an opportunity to compare projects.

Each of the above methods gives different results. So care should be taken while assessing the

results. The company can use any of the above elements to understand the worth of the

organization.




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References:

Books

Qu, X. and Yang, Y. (2012). Information and business intelligence. Berlin: Springer.

Bonner, S. (2008). Judgment and decision making in accounting. Upper Saddle River, N.J.:

Pearson/Prentice Hall.

Baker, H. and Powell, G. (2005). Understanding financial management. Malden, MA: Blackwell Pub.

Takahara, Y. and Mesarovic, M. (2004). Organization Structure. Boston, MA: Springer US.

Keown, A. (2005). . Upper Saddle River, N.J.: Pearson/Prentice Hall.

Agar, C. (2005). Capital investment & financing. Amsterdam: London.

Berry, A. (1999). Financial accounting. London: International Thomson Business.

O'Regan, P. (2006). Financial information analysis. Chichester: John Wiley.

Cunningham, B., Nikolai, L. and Bazley, J. (2000). Accounting. Fort Worth: Harcourt Brace.

Kpodar, K. and Gbenyo, K. (2010). Short-versus long-term credit and economic performance.

[Washington, D.C.]: International Monetary Fund.

Journals/Articles

Lopez, J. (2002). What Is Operational Risk?. Economic letter. [online] Available at:

http://www.frbsf.org/economic-research/publications/economic-letter/2002/january/what-is-

operational-risk/.

Duncan, R. (1985). What Is the Right Organization Structure?. IEEE Engineering Management Review,

13(3), pp.53-72.

Conine, T. (1979).BUSINESS RISK DETERMINANTS OF MARKET RISK MEASURES. Financial Review, 14(4),

pp.26-26.

Conine, T. (1979).BUSINESS RISK DETERMINANTS OF MARKET RISK MEASURES. Financial Review, 14(4),

pp.26-26.

Battersby, A., Bursk, E. and Chapmen, J. (1964).New Decision-Making Tools for Managers. OR, 15(1),

p.45.

Krainer, R. (n.d.). Financial Aspects of Business Cycles: An Analysis of Balance Sheet Adjustment of U.S.

Financial Enterprises over the Twentieth Century. SSRN Electronic Journal.

Gibson, C. (1987). How Chartered Financial Analysts View Financial Ratios. Financial Analysts Journal,

43(3), pp.74-76.

Smith, J. (1998). Evaluating Income Streams: A Decision Analysis Approach. Management Science,

44(12-part-1), pp.1690-1708.

http://www.frbsf.org/economic-research/publications/economic-letter/2002/january/what-is-operational-risk/







Websites:

SearchCompliance, (2015). What is compliance risk ? - Definition from WhatIs.com. [online] Available

at: http://searchcompliance.techtarget.com/definition/compliance-risk [Accessed 18 Oct. 2015].

BusinessDictionary.com, (2015). What is strategic risk? definition and meaning. [online] Available at:

http://www.businessdictionary.com/definition/strategic-risk.html [Accessed 18 Oct. 2015].

Fao.org, (2015). Chapter 4 - Budgetary control. [online] Available at:

http://www.fao.org/docrep/w4343e/w4343e05.htm [Accessed 19 Oct. 2015].

Icaew.com, (2015). Carrying out investment appraisals | Business resources | ICAEW. [online]

Available at: http://www.icaew.com/en/members/business-resources/business-management-and-

strategy/investment-appraisal/carrying-out-investment-appraisals [Accessed 31 Oct. 2015].

financial analysis of a uae based organization

Documents