Financial Analysis & Decision Making to Attain Growth

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:

 

 

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.

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;

 

 

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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