The key aim of this assignment is to evaluate as well as analyze the present financial position of BNM, and analyze how it will be effective to expand its business in the new market of Germany. BNM is showing poor performance in 2018 in comparison to 2017. It has gained 16.76% of revenue growth in 2018 that has, in turn, has increased the gross profit, operating profit. However, BNM could not increase net profit due to high interest/finance costs of $15 million, where it paid $9 million interest in 2017. The financial ratio analysis of BNM shows that its gross profit, operating profit and net profit has decreased in 2018 from 24.76% to 23.68%, 20.13% to 17.57%, and 15.22% to 13.04% respective. The key reasons for this profit decline are the high cost of sales, high operational costs, and high interest paid in 2018. Among the three market segments, it is performing better in England and Scotland, but it is struggling in Wales. Now, BNM is considering expanding its market in Germany. BNM should use several management forecasting techniques and investment appraisal techniques before investing £400 million in Germany. As the financial source for this £400 million, BNM can seek loans from commercial banks and venture capital funding.
Table of Contents
Part 1: Business Performance Analysis.
1.1 Statement of Profit or Loss.
1.2 Statement of Financial Position.
1.3 Statement of Cash Flows (SOCF)
1.4 Segmental analysis.
2.0 Investment appraisal
3.1 Management forecast
3.2 Payback periods.
3.3 Accounting rate of return ARR.
3.4 Net present value (NPV)
4.0 Sources of finance.
Venture Capital funding.
Loans from commercial banks.
5.0 Non-financial factors.
Appendix A: Statement of Profit or Loss for BNM plc for the year ended 31 December
Appendix B: Financial Ratios for BNM Plc.
Part 1: Business Performance Analysis
1.1 Statement of Profit or Loss
According to Investopedia (2018), revenue means the income which is generated from products or services’ sales, or other use of assets that are related to a business organization’s main operation. BNM Plc’s profit or loss statement reveals that the total sales revenue increased by 16.76% from £1,038 million in 2017 to £1,212 in 2018. Two key reasons were found against this revenue growth. The fluctuation of sales provides an effective change in its business operation in 2018. In addition, if BNM Plc needs to achieve more sustainable growth, it should increase its sales revenue by improving the sales figure. Furthermore, BNM Plc has achieved great sales revenue in 2018 by increasing its sales units.
Chart: Total sales revenue of BNM Plc in 2017 and 2018 Source: BNM case study
As Virgillito (2018) notes, market segmentation means dividing a business organization’s target market into several groups or segments. The target markets of BNM Plc are Scotland, Wales and England. The sales revenue of Scotland increased from £313 in 2017 to £398 in 2018. This means BNM’s business is doing better in the Scotland market. In addition, the sales revenue of Wales decreased from £227 in 2017 to £169 in 2018. Thus, BNM’s business in the Wales market is showing poor performance. Furthermore, the sales revenue of England increased from £498 in 2017 to £645 in 2018. The following chart is showing the contribution to group sales in 2017 and 2018:
Chart: Sales revenue in different market segments of BNM in 2017 and 2018
Source: BNM case study
The sales revenue in several market segments of BNM discloses that BNM is achieving more sales revenue from its England market in 2018. Different market segments of BNM including Scotland achieved about 3.13% sales revenue, Wales achieved 2.27% sales revenue and England achieved 4.98% sales revenue in 2017. On the other hand, in 2018, Scotland gained 3.98% sales revenue, Wales gained 1.69% and England gained 6.45% sales revenue. Both Scotland and England’s sales revenue increased from 2017 to 2018. However, Wales’s sales revenue decreased from 2017 to 2018. The following charts are showing the sales revenue contributed by the market segments of BNM in 2017 and 2018:
Chart: Sales revenue contributed by different market segments of BNM-2017
Chart: Sales revenue contributed by different market segments of BNM -2018
BNM Cost of sales and overhead
According to Csiszar (2017), the cost of sales has accumulated the total of costs which is used to make products or services of a business organization. The costs of sales figures are different in different market segments including Scotland, Wales and England. The cost of sales in Scotland was about 2.50%, Wales was 1.81% and 3.50% in England in 2017. On the other hand, in 2018, Scotland’s cost of sales was 3.20%, the cost of sales in Wales was 1.40% and the cost of sales in England was 4.65%. Both costs of sales in England are high in comparison to other segments of BNM. The following charts are showing the cost of sales in different market segments of BNM in 2017 and 2018:
Chart: Cost of sales in different market segments of BNM in 2017 and 2018
BNM Plc’s overhead costs are also increased in 2018 because of many issues including the global recession. The global recession has pushed up the overhead costs as well as the cost of sales of BNM.
1.2 Statement of Financial Position
BNM profitability analysis
Lee (2017) disclosed that gross profit is a profit that a business organization makes after subtracting the costs connected with producing as well as selling its products or services. Gross profit margin is calculated to divide gross profit by the sale revenue of a company. According to the BNM case study, BNM’s gross profit margin ratio decreased 24.76% in 2017 to 23.68% in 2018. Thus, the gross profit margin ratio is showing the poor performance of BNM………….