To- From- Due date- 4.5.21 Subject- strategic financial management 1. Introduction The current topic is based on strategic financial management. In the current memo, Tesco and Marks and spencer group plc (MKS.L) has been selected to describe all data. The current memo shows the financial position of those two companies. In the current memo, critical analysis will be discussed on those two companies’ financial position. Debt equity ratio will be taken to describe those two company’s financial positions. The recommendation also will be provided based on the debt-equity ratio. Here, in the current memo, financial appraisal and strategic decisions also will be mentioned. The financial statement refers balance sheet, profit and loss statement, trading account. There are four main financial ratios. The current ratio of any company can review the current asset and current liabilities position. Companies’ debtor’s positions can be possible to know through the debt-equity ratio. 2. Financial performance of the business. 2.1. Analyze Financial position It has been found that the company Marks and spencer group has a total current asset of 1215 and the total current liabilities is 1849 during 2020. The current ratio is calculated by current assets and current liabilities (Mulyadi and Sihabudin, 2020). The current ratio of the Marks and spencer group company has given below. Current ratio= current asset/ current liabilities= 1215/ 1849= 0.657 % The result shows that the company has no capability to run for long term. Here, Here, the company Marks and spencer group’s total liability is $ 2060, and total shareholders’ equity is 2710.7. Hence, the debt-equity ratio has been calculated based on those data. The calculation has been given below. Debt equity ratio= total liability/ shareholders equity. = 2060/ 2710= 0.76 Tesco companies have a current asset of $ 13608 and current liability is $18656. The current ratio is 0.73%. 2.2. Recommendation From the financial analysis of the Marks and spencer group plc (MKS.L) company, it has been noticing that the company is incapable to pay its short-term debt. The company cannot pay its short-term debt on an immediate basis. They will suffer if they plan for the long term. They are incapable to handle the company on a long-term basis. The other company Tesco has a current ratio of 0.73% which is also indicating the bad position of the company. The ideal current ratio of a company is considering as 2:1 but the current ratio of Tesco is 0.73 which is very low than standard. The company has to take some action to solve those problems. 2.3. Managerial recommendation The management of those companies can increase their working capital cycle to manage the current ratio.They have to sell those assets which are unable to give them any return.They can increase their sale and also they have to decrease their collection period. Hence, the cash flow can be possible to maintain. 3. Investment options 3.1. Financial appraisal method There are three types of investment methods through which an organization can identify the attractiveness of the investment. The current memo is based on the two companies such as Tesco and Marks and spencer group plc (MKS.L). The appraisal techniques are the payback period, net present value, and initial rate of return. 3.1.1 Payback period- In financial appraisal methods, the payback period has come. The payback period refers to the time period in which the cost of investment can recover (Bin et al., 2019). At first, it is important to calculate cash flow per year. The payback period is calculated by initial investment and cash flow per year. The formula of the payback period has been given below. Payback period = initial investment/ cash flow per year. 3.1.2 Net present value In any organization net present value refers to the present value of the cash flow statement (Zativita and Chumaidiyah, 2019). The present value is compared with the initial stage value of any organization. 3.1.3. Initial rate of return. It has been noticing that the initial rate of return is a calculate on investment by using its percentage (Nagares and Sison, 2020). The percentage is taken for a specific period. 3.2 Strategic decision It can conclude that investment decision is taken those two company’s management. It is one type of financial decision. In the financial decision, the company takes NPV, IRR, and payback period. Those three methods help to calculate the investment of any organization. Here, in the memo, it has been found that the Tesco company has $ 532809 net present value. This value helps the company to understand their present value and through this, they compared the value with their initial value. It also has been found that the company has a negative value at the position of 20 % discount. It has been analyzing that Tesco company which is under the London stock exchange has an initial rate of return of 3.5 %. The Marks and spencer group companies net present value is $ 272.4m. from those values the company’s management can make a decision. They take their decision in that way they can achieve their highest possible return. 3.3 Critically analyze strategic investment decisions. Here in the current memo, two company has been selected. Here, it has been found that the company Tesco has a net present value of $ 532809. It refers to the company has a good investment. It has been found that any net present value or NPV has a positive value, then the company shows a good result. In the other case, the Marks and spencer group plc (MKS.L) has 271.4 million net present value. From the analysis, it has been showing that those two company’s investment is wrathful. 4. Conclusion The current memo has been done on two companies which are come under the London stock exchange. In this memo, financial analysis has been done. Here, the analysis uses the current ratio to describe the company’s financial condition. From the analysis, it has been analyzing that both the company have a poor current ratio. It has been recommended that they have to take any action to solve their ratio problem. The idle current ratio is 1:1. It has been analyzing that the company cannot reach the idle current ratio. If they are planning for a long-term period, then they would be suffering for this. In the current ratio, the analysis has been given some solutions for both the company to recover those problems. In this current memo, the financial appraisal method also has been mentioned and the analysis critically explains the investment policy of both the company. Reference Bin, L., Shahzad, M., Bing, Q., Shoukat, M.U., Fahal, N.A., Simiyu, P. and Islam, R., 2019. Probabilistic analysis of payback period for AC–DC transmission and distribution asset expansion projects. The Journal of Engineering, 2019(16), pp.680-685. Mulyadi, D. and Sihabudin, O. S. (2020) ‘Analysis of Current Ratio, Net Profit Margin, and Good Corporate Governance against Company Value’, Systematic Reviews in Pharmacy, 11(1), pp. 588–600. Nagares, N. and Sison, A. (2020) ‘A High Performance Computing of Internal Rate of Return Using a Centroid Based Newton Raphson Iterative Algorithm’, International Journal of Advanced Trends in Computer Science and Engineering, 9(2), pp. 1–9. Zativita, F. I. and Chumaidiyah, E. (2019) ‘Feasibility analysis of Rumah Tempe Zanada establishment in Bandung using net present value, internal rate of return, and payback period’, in IOP Conference Series: Materials Science and Engineering. IOP Publishing, p. 12007.
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