Accounting And Finance For Decision Making Case Study

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Introduction of Accounting And Finance For Decision Making Case Study

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1: Executive Summary

1.1: Company Background

The concerned organisation Amcor Plc is mostly associated with the packaging and labelling of key commercial products and its headquarters in the UK is situated in Bristol. The packaging and labelling services provided by Amcor Plc mostly includes the packaging for food, pharmaceutical and day care products within the domestic boundaries of the United Kingdom (amcor.com, 2022). The operational environment of Amcor Plc mostly consists of growing its current share of market dominance in the packaging industry. Moreover, the operational environment is designed in a dynamic pattern to enable the company to achieve a higher sustainability and market longevity in the current operational scenarios. 

1.2: Purpose of Report

This report shall provide a detailed discussion on the financial and non-financial dynamics for Amcor Plc with respect to proposing a feasible investment appraisal. The additional emphasis of this report shall be provided on a healthy discussion concerned with financial calculations as well as mentioning the risks associated with the decision-making patterns for investment.

1.3: Conclusion:

This report has provided a detailed analysis regarding the investment appraisal and financial performance of Amcor Plc. According to the financial ratios, it can be slated that the profitability ratios are far better in 2020 and the liquidity ratios are better in 2020. A detailed discussion has been provided on Pestle analysis, in which the major emphasis has been provided to the company adhering to legislative norms as per HMRC, 2005.

1.4: Recommendation

R1: It is recommended for integrating cost saving software

The major features of integrating cost saving software mainly consider the need of the company to comply with the reduced cost features in the project.

R2: It is recommended for proposing a suitable project location

This recommendation is being provided to suitably find a new project location to successfully find the best returns possible from the investment appraisal.

2: Motivation of the proposed investment

2.1: Purpose

The major drivers responsible for the investment proposal for Amcor Plc includes the implementation of a new software, which would energise the billing and invoice generation activities in a more influential manner. The implementation of new software would also lead to the accurate tracking of packing items and the expected date of delivery to customers. As per opinions and explanations of Okolelova, Shibaeva and Trukhina (2018), the implementation of new software would also benefit the company to achieve a higher sales and profitability in the prolonged future of investment appraisal. The arrival of the covid-19 pandemic has significantly altered the dynamics of the industry and has led to a significant change in the profitability and business management structures. Therefore, it is essential to implement new software’s for ensuring robust and streamlined invoicing patterns, and to minimise the risks of management inefficiency caused due to covid-19.

2.2: Process

In order to implement the suitable tactics the process includes hiring new consultants who provide technological and software services. Moreover, the process involved in the suitable implementation of new software is mostly associated with removing the complexities involved in billing and invoicing systems for assuring strong credentials in packaging monitor and tracking (Foltyn-Zarychta, 2020).

2.3: Proposition

The propositions involved in the implementation of new software shall be beneficial to facilitate a streamlined conduct of billing activities. Moreover, the propositions involved in the implementation of a new project also considers generating higher potentials for making profits and subsequently expanding the packaging business across Europe as well as globally.

3: Investment Appraisal using Quantitative and Qualitative Information

3.1: Payback Analysis

Year

Cash Flows(M)

Cumulative Cash Inflows

Cumulative Cash Inflows (Discounted)

Payback

Discounted Payback

0

-£ 400.00

-£ 400.00

-£ 400.00

3.78

4.13

1

 £ 100.00

-£ 300.00

-£ 328.00

2

 £ 200.00

-£ 100.00

-£ 225.00

3

 £ 450.00

 £ 350.00

-£ 57.00

4

 £ 750.00

 £ 1,100.00

 £ 144.00

5

 £ 700.00

 £ 1,800.00

 £ 279.00

Table 1: Payback Analysis

(Source: Created by Learner)

3.2: NPV and IRR analysis

Programme 1

Description

Year 0

(£K)

Year 1

(£K)

Year 2

(£K)

Year 3

(£K)

Year 4

(£K)

Year 5

(£K)

Programme Cost

(400)

(200)

(100)

100

Annual Benefits

300

300

450

750

600

Net Cash Flow

(400)

100

200

450

750

700

Cost of Capital (CoC)

39.0%

Discount Factor

1.00

0.72

0.52

0.37

0.27

0.19

Present Value (PV)

(400)

72

104

168

201

135

Net Present Value

(400)

(328)

(225)

(57)

144

279

IRR

64.00%

Year 0

(£K)

Year 1

(£K)

Year 2

(£K)

Year 3

(£K)

Year 4

(£K)

Year 5

(£K)

NPV Programme 1

(400)

(328)

(225)

(57)

144

279

Table 2: NPV and IRR analysis

(Source: Created by Learner)

Graphical Representation of Investment Appraisal

(Source: Created by Learner)

3.3: PESTEL analysis

The first major parameter of the non-financial analysis consists of the pestle analysis and a detailed discussion is being carried out as follows.

Features

Description

Political

The political factors of investment mainly include the legislations governed and stipulated for provision and liabilities for taxes. 

Economical

The economic aspects of the investment mainly include the prospect of Amcor Plc achieving a higher revenue and profitability by investing in a new packaging project (Rosenow et al. 2018). 

Social

The social attributes of the new investment proposal mainly consists of creating an influential awareness to the public regarding why the new packaging industry is important and beneficial.

Technological

The technological factors involved are considered to be related with the streamlined implementation of new software to facilitate smooth operational conduct.

Legal

Legal Factors include the various licences and commercial obligations necessary to be fulfilled for establishing suitable investment based outputs under HMRC act of 2005 (Florio, Morretta and Willak, 2018).

Environmental

Environmental factors mainly include the adherence of promoting environmental safety with the implementation of new investment appraisal under Environment protection Act of 1990.

Table 3: PESTLE analysis

(Source: Created by Learner)

3.4: SWOT analysis

Strengths

Weaknesses

? Strong market aesthetics and a dignified presence in the packaging industry

? Improvised billing and invoicing services (Reidy et al. 2018).

? The presence of a smaller market mix

? Higher costs of implementation for technology.

Opportunities

Threats

? Abilities to generate a higher sales revenue

? provide state of the art packaging services

? The potential of new market entrants

? Possibilities of an economic slowdown

Table 4: SWOT analysis

(Source: Created by Learner)

The strengths for investing in the new project of implementing software includes the presence of strong marketing aesthetics as well as having improvised billing and invoicing for facilitating streamlined flow of daily transactions. The weaknesses include the presence of a smaller market size and high costs of technological implementation. The opportunities for the new investment includes the increased feasibility and flexibility by improvising technology as well as providing state of the art packaging services by promoting the packaging of multiple products such as electronic goods. Threats mainly involve the possibilities of an economic slowdown as well as new market entrants.

4: Risk and Return and its Potential Impact on Financial Performances

4.1: Sensitivity Analysis

Sensitivity analysis

 Sales (£,000)

 £ 4,000,000.00

 £ 356,000.00

 £ 3,000,000.00

 £ 280,000.00

 £ 236,000.00

 £ 250,000.00

 £ 320,000.00

 £ 297,000.00

Cost

 £ 200,000.00

 £ 100.00

 £ 60.00

 £ 40.00

 £ 20.00

-£ 30.00

-£ 40.00

-£ 70.00

 £ 140,000.00

 £ 105.00

 £ 65.00

 £ 45.00

 £ 25.00

-£ 25.00

-£ 35.00

-£ 65.00

 £ 5,000.00

 £ 110.00

 £ 70.00

 £ 50.00

 £ 30.00

-£ 20.00

-£ 30.00

-£ 60.00

 £ 11,000.00

 £ 144.00

 £ 104.00

 £ 84.00

 £ 64.00

 £ 14.00

 £ 4.00

-£ 26.00

Table 5: Sensitivity Analysis

(Source: Created by Learner)

From the above table of sensitivity analysis it can be clearly observed that the project for implementation of new software’s by Amcor Plc, when profitability is lower in the years 3 and 4 respectively.

4.2: Risks of Cost of capital, costs and benefits

The risks of cost of capital mainly include the presence of a higher discounting rate, which is attributed as %. Moreover, the risks of the cost of capital include the project being deemed more volatile, thereby leading to a decline in the profitability and cash inflows from the implementation of a new project. As per observations and explanations of Dimitriou and Zeimpekis (2022), the risks of costs and benefits hampers a project to successfully determine what percentage of costs are involved with the project initiation and investment appraisal. Moreover, the risks involved in the costs and benefits further include the inadequate provision of making actual estimation of key operational components including raw materials of packaging and the costs involved in the operational activities.

4.3: Returns from NPV

The returns from NPV are slated to be £ (400,000), £ (328,000), £ (225,000), £ (57,000), £ 144,000 and £ 279,000 respectively in the entire duration of the new project. As per statements and opinions of (), the negative returns in the initial stages of the project could hamper the outcome of investment appraisal. This can potentially lead to a decrease in the number of investors.

4.4: Risks and Returns of Discounted Payback

The risks associated with the implementation of payback period mainly include the half-baked perception of project implementation. Therefore, the actual profitability derived from the implementation of the project can be deceiving, leading to the company incurring losses in the long-run. As per statements and explanations of Reidy et al. (2018), the returns from discounted payback period is slated to be 4.13 years, clearly indicating that the project is slated to recover its initial cost after a long duration.

4.5: Calculation and Discussion of Financial Ratios

The suitable discussions relating to the calculation of financial ratios is an important metric to outline the financial performances of Amcor Plc. Following are the calculations of

Year

Gross Profit Ratio

Formula

Amount

Ratio

2021

Gross Profit

(Gross Profit/Sales )*100

 £ 2,771.00

19.67%

Sales

 £ 14,089.00

2020

Gross Profit

(Gross Profit/Sales )*100

 £ 2,732.00

21.24%

Sales

 £ 12,861.00

Table 6: Gross Profit Ratio

(Source: Created by Learner)

Year

Net Profit Ratio

Formula

Amount

Ratio

2021

Net Profit

(Net Profit/Sales )*100

 £ 1,117.00

7.93%

Sales

 £ 14,089.00

2020

Net Profit

(Net Profit/Sales )*100

 £ 1,085.00

8.44%

Sales

 £ 12,861.00

Table 7: Net Profit Ratio

(Source: Created by Learner)

Year

Current Ratio

 Formula

Amount

Ratio

2021

Current Assets

 Current Assets/ Current Liabilities 

 £ 5,266.00

1.21

Current Liabilities

 £ 4,345.00

2020

Current Assets

 Current Assets/ Current Liabilities 

 £ 4,534.70

1.14

Current Liabilities

 £ 3,973.60

Table 8: Current Ratios

(Source: Created by Learner)

Year

Quick Ratio

 Formula

Amount

Ratio

2021

Current Assets

(Current Assets- Inventories)/Current Liabilities

 £ 5,266.00

0.75

Inventories

 £ 1,991.00

Current Liabilities

 £ 4,345.00

2020

Current Assets

(Current Assets- Inventories)/Current Liabilities

 £ 4,534.70

0.68

Inventories

 £ 1,831.90

Current Liabilities

 £ 3,973.60

Table 9: Quick Ratio

(Source: Created by Learner)

As per the above table of financial ratio calculations, the major emphasis has been provided to calculate the profitability ratios and liquidity ratios for Amcor Plc (finance. yahoo.com 2022). The profitability ratios depicted in the above table clearly suggest that the ratios for 2020 are superior in comparison to 2021. Moreover, the liquidity ratios for the year 2021 are observed to be better than the ratios for 2020. This could be mostly attributed to the decrease in business credentials mostly due to the covid-19 pandemic.

References

Journals

Dimitriou, D. and Zeimpekis, P., 2022. Appraisal Modeling for FSRU Greenfield Energy Projects. Energies15(9), p.3188.

Florio, M., Morretta, V. and Willak, W., 2018. Cost-benefit analysis and European Union cohesion policy: Economic versus financial returns in investment project appraisal. Journal of Benefit-Cost Analysis9(1), pp.147-180.

Foltyn-Zarychta, M., 2020. The Dilemmas of Public vs. Private Goods Discounting for Long-Term Investment Appraisal: The Puzzle of Citizen and Consumer Approaches to Valuation. Folia Oeconomica Stetinensia20(2), pp.114-133.

Okolelova, E., Shibaeva, M. and Trukhina, N., 2018. Model of investment appraisal of high-rise construction with account of cost of land resources. In E3S Web of Conferences (Vol. 33, p. 03014). EDP Sciences.

Reidy, A., Kumar, A., Kajewski, S. and Lamari, F., 2018. From point value to sustainability investment logic-infrastructure appraisal and the challenges of climate change. In Proceedings of the 6th National Climate Adaptation Conference (pp. 1-12). NCCARF-National Climate Change Adaptation Research Facility.

Rosenow, J., Guertler, P., Sorrell, S. and Eyre, N., 2018. The remaining potential for energy savings in UK households. Energy Policy121, pp.542-552.

Websites

amcor.com, 2022, about us [online], Available at: https://www.amcor.com/ about us [Accessed on: 07.05.2022]

finance.yahoo.com, 2022, Financial statements [online], Available at: https://finance.yahoo.com/quote/Financial Statements =AMCR [Accessed on: 07.05.2022]

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