Case -Study Analysis

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Introduction

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Task 1:

a) Break-even point table and Graph

As per the evaluation of BEP sale of Coffee delight PLC, it has total revenue of 17000 million, along with a variable cost of 18500 million. The evaluation of break-even point sales can be 23500 million. As per the graphical representation, it has denoted that company’s BEP point must be 0.5 along with having a fixed cost proportion of 5000 million.

As per the graphical representation of BEP units, it can denoted that the company’s condition is in good position. In this terms, it measures that the company has better return after sales and based on that BEP proportion can be relating with the current level of sales. In this terms, the BEP proportion can helps to create the better relation among the current sales level with the future return from the sales.

b) MOS (Amount and unit)

The margin of safety can be calculated with the help of sales value along with a break-even valuation. This calculation can help the company to justify the margin amount from the investing proportion. As per the table of margin of safety, the values are 9995 million, and the unit is 16999 units. This margin of safety can be figured out by calculating its percentage value which has been 59% after having a sales proportion of 10000 and BEP of 47000 units.

c) Analysis of break-even by using marginal costing

In the breakeven analysis after taking the value of 1.90, 2.65, and 1.95 pounds as the variable cost the values of BEP can be segregated from the previous one. After the value addition, the BEP sales must be increased to 70000 and the BEP point must be 7.

d) Summary

It is summarized that the company has a lower profitable condition it takes the higher variable cost rate. In these terms, it can be justified that the company might be reducing its costs and trying to increase the revenue value for caving the more profitable condition at the end of the financial year.

Task 2:

Evaluation of break-even analysis as a decision making tool:

Based on the above calculation of the break-even analysis it can be seen that there is a total amount of 23500 and the contribution margin is 0.5. In association with this margin of 50 amount display as there are current sales levels of 17000 and BEP of 23500. The current value of sales in this company is 16999 and their MOS is 59. On the other hand it can be said that their fixed rate in this part was 2.35 which can be considered as a good profit of this company (Junaini et al. 2021).

In addition to this their total fix cause was 5000 where as they are variable cost was 18500 along with these their total cost was 23500 and they have gained the revenue of 17000 in this company. Analyzing this part of the calculations of break-even point it can be said that this company has faced a loss of 6500 amount in this company (Saleh et al. 2021).

As per the analysis of the company it can be said that this company is going through losses and in terms of implementing their financial stages of this company the leaders must take some initiative to get relieved from the losses and gain huge profit in upcoming days.

Increment of average contribution:

It can also be said that the break-even could be decreased by the increment of average contribution and it can be based on each sales (Safitri, and Muhammad, 2021). In contrast with this it can be said that the variable cost of this company can be reduced to decrease the breakeven factors in the company.

Reduction of prices of the products:

Addition to these the products of the company may be reduced to get relieved from the breakeven point. As per the views of LYZANETS and KABATSI, (2021) the leaders of the company should take these initiative to reduce the breakeven point and increase the sales of the company on the other hand the diminishing cost of the products can help this organization to get relief from the breakeven analysis issues.

Determining the future sustainability:

Along with this it can be said that the leaders of the organization firstly analyze the break-even point of the company to know its financial position and the stability that it will sustain in the competitive market or not (Mandala and Ivan’s, 2022). On the other hand it help to determine the key areas that need to be developed and based on the reports of the breakeven analysis the leaders get to know which financial steps must be taken in order to resolve the issues in the organization. In order to resolve these issues in the organization the leaders and shareholders focus on the breakeven analysis of the company.

Further mode it helps to determine whether the company will generate a minimum revenue in the further year or not. Similarly the best practices are taking to resolve the issues and increase the financial performance of the organization.

Task 3:

a) Analysis of payback and ARR for UK option

As per the table, it denoted the UK options NPV, ARR, and payback period calculator after having the 4 years investment. The initial investment was 10.60 million based on that the cash inflows were 18.04 million. This evaluation can be denoted that company has a net present value of 24.13 million along with 43% of ARR. it is being justified that the company can receive its investment money within 3 years.

b) Analysis of payback and ARR for Romania option

As per the evaluation of NPV, ARR, and payback period of the Romania option, it can be showing the result of 37% of ARR which has been lower than the UK option, NPV has 17.32 million. The initial investment can be 8.10 million along with a cash inflow amounting to 11.86 million. On the other hand, this Romania option can be recovered within 2 years.

c) Comparison between best initial investment methods

The comparative discussion of the UK and Romania can be discussed along with evaluating NPV, ARR, and payback periods. In these terms, those two investment options can be taken for 4 years, and the initial amount is lower for the Romanian option than for the UK. Based on that it is also being seen that the final result of NPV, ARR, and payback can be lower for Romania than in the UK.

d) Interpretation of results

As per the evaluation of the investment appraisal techniques, it can be justified that Romania has lower values than the UK but that particular option amount can be recovered earlier than the UK (Silva, 2021). As per this comparative result, it can be suggested that it should be beneficial if the invest in the UK option.

e) Recommendation on Qualitative and quantitative factors

The company Coffee delight PLC can have various risks if it invests in the Romania option than the UK. Hence, if the investor should invest in the UK option it can have a lower risk regarding quantitative and qualitative factors.

Task 4:

1. Uses and limitations of the Payback period

The payback period can be used by investors and financial professionals in business organizations. This payback period process evaluation can help to calculate the financial operations along with returns after investing.

The payback period did not take considered the time value of money and it will not help to solve the complex issues regarding cash flows (Okolelova et al. 2018). It can provide higher values of the project which might be accurate. This process cannot be calculated in a similar way hence, it is a time-consuming process of calculating the investing application.

2. Uses and limitations of the ARR

Accounting rate of return can be the process used by financial professionals for evaluating capital budgeting and investment profitability. In the business application and finding the about of profit margin after investing, ARR can be the best process of finding the values as return from investment in the future (Warren and Seal, 2018). This accounting rate of return can help in taking the investment decision based on the previous acquisition or investment.

The accounting rate of return ignores the primary requirement of the investment techniques such as it not taking considered the alternative and multiple valuations of the cash flows. It is a not preview of the calculating result of the investment appraisal processes (Marttonen-Arola and Baglee, 2019). Hence, these will not be going to help the investors in calculating the investment decision and future returns.