Financial Decisions Assignment Help (GC01337)

Executive Summary

The aim of this paper is to analyze the performance and investment appraisals of the Dining Group. The finding of this paper shows that Dining Group is maximizing returns for shareholders by creating good food and a great dining experience for its customers. Although the demand for Dining Group’s products increased at a total level, it faced challenges in 2016 because of inflationary pressure on its food costs. This means although the total revenues of Dining Group increased by 3.70% from £685,381,000 in 2015 to £710,712,000 in 2016, the cost of sales increased significantly because of inflation and global weather effect on harvesting. This reduced gross profits of Dining Group by 44.1% from £126,890,000 in 2015 to £70,958,000 in 2016 that ultimately affected the operating and net profit of Dining Group.

However, Dining Group declared 17.7 p per share in 2016 and sees opportunities for its business expansion. Therefore, it has decided to expand its products according to customer feedback. The financial director’s review of Dining Group discloses that it has decided to invest £120 million in two existing restaurant chains applying acquisition and re-branding strategies to create a new Value Division. Dining Group is expecting a positive contribution with a 107.7% of increase at the end of the fifth year. The payback period is about 4 years and 3 months for the proposed investment. As the Dining Group target criterion is 12% for the proposed investment, and the NPV/Io is 16%, and the estimated ARR is 11.2%, the investment can be approved. Finally, for the proposed new investment of 100 million, bank loans and investors can be two effective sources of finance for Dining Group. Along with these financial issues, Dining Group should consider several non-financial issues including stakeholder management, technical and technological issues, social and cultural issues.

Table of Contents

Executive Summary.

1.0        Introduction.

Part 1: Business Performance Analysis.

1.1        Statement of profit or loss.

1.2        Statement of Financial Position.

1.3        Statement of Cash Flows.

1.4        Market Segment Analysis.

Part 2: Investment Appraisal and Sources of Finance.

2.1 Investment Appraisal

2.2 Source of finances.

2.3 Non-financial factors.

3.0 Conclusion.

References.

Appendix: Financial Ratios for Dining Group.

1.0  Introduction

Analyzing performance and investment appraisals are essentials for a business to make effective decisions and develop fruitful strategies for the business. This paper, first, analyses the performance of a business, called Dining Group Ltd. In this part, this paper analyses the statement of profit or loss, the statement of financial position, statement of cash flows, and market segments of Dining Group. Then, this paper analyses the investment appraisal and source of finance for Dinning group. This part analyses investment appraisals, sources of finances, and several non-financial issues for the Dining Group.

Part 1: Business Performance Analysis

1.1  Statement of profit or loss

(Exhibit 1)

According to the Dining Group chairman’s statement, the mission of Dining Group is to maximize returns for shareholders by creating good food and a great dining experience for its customers. Although the demand for Dining Group’s products increased at a total level, it faced challenges in 2016 because of inflationary pressure on its food costs. However, Dining Group declared 17.7 p per share in 2016 and sees opportunities for its business expansion. Therefore, it has decided to expand its products according to customer feedback. The financial director’s review of Dining Group discloses that it has invested £120 million in two existing restaurant chains applying acquisition and re-branding strategies to create a new Value Division. For this purpose, it has trained up more than 2000 employees and increases their wages, and improve the kitchen to increase quality and productivity.

Sales revenue

Sales revenue refers to the income that comes from sales of goods and services (Schoen, 2017). The profit/loss statement shows that the total revenues of Dining Group increased by 3.70% from £685,381,000 in 2015 to £710,712,000 in 2016. However, the cost of sales increased significantly because of inflation and the global weather effect on harvesting. This reduced the gross profits of Dining Group by 44.1% from £126,890,000 in 2015 to £70,958,000 in 2016. The higher cost of sales ultimately affected the operating and net profit of the Dining Group.

Cost of sales

Cost of sales is a key metric for businesses to gauge profit or loss. Cost of sales is subtracting the number of costs from money received from sales (Csiszar, 2016). The cost of sales of Dining Group increased by 14.55% from £558491, 000 in 2015 to £639, 754,000 in 2016.  The main reason for the increasing cost of sales is the inflationary pressure on its food costs. The financial director of Dining Group reviewed that global weather affected harvests that caused inflation in food costs increasing the cost of sales for the business. In this case, the Dining Group did not have a hand to control.

Overheads/operating expenses

According to Shopify (2017), overhead costs refer to expenses that are associated with business operations but not related to product or service creation or production. Overhead costs can be classified as fixed costs, variable costs, and semi-variable costs. Some examples of overhead costs are rent, insurance, utilities, office equipment and supplies…………………………………..

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