Accounting And Finance For Decision Making Case Study

Introduction of Accounting And Finance For Decision Making Case Study

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AstraZeneca Plc is a British-Swedish multinational pharmaceutical and biotech company Founded in 1999 through the merger of Swedish Astra and British Zeneca Group (astrazeneca.com). After such a merger, the company becomes a member of the list of the world’s largest pharmacy companies and it has numerous corporate acquisitions. The company is listed under the London stock Exchange and is primarily constituent of the FTSE 100.

2. Purpose of the Report

The report will represent the investment appraisal plan based on the financial performance of the company and will analyze NPV, IRR, Payback, SWOT and the PESTLE of the company. The report will be a reflection of the post-pandemic financial condition of the company. The report will also represent and analyze the investment appraisal of the company. At the same time, there will be an investment recommendation based on risk return and the potential impact of the company by considering the financial performance. Therefore, the report will help directors to identify the potential investment plan for the company.

3. Conclusion

Report has a clear reflex action of the company's profitability regarding the proposed projects according to the calculation of the NPV IRR and the payback periods. On the other hand PESTLE and SWOT analyses have been made on the basis of the project. Report has been analysed investment planning of Astra Zeneca. NPV of the project is 38.19 million, IRR of the project is 16% and payback period is 3 years 3.9 months. It can be suggest to management if Astra Zeneca they can undertake this project.

4. Recommendation

• Management need to collect investment through debt
• Rate of interest will be limited within 8%
• They need to hire technical expertise
• Management must provide training to their employees for use new technology.

Motivation for Investment Proposal

Purpose of the Investment

According to the provided data, the major problem for the company is the crucial impact of the COVID-19 on financial stability and the business infrastructure. After the shock of the pandemic the company faces some financial instability regarding the growth in the future, as a result, it seemed to be a major problem for the development.

Regarding the future growth of the company, there is a need for financial support for the betterment of the financial structure of the company. The financial problem needs to be overcome to achieve long-term growth in the future and therefore initial financial support is required for the company (Astrazeneca.com, 2022).Company spend large amount on development of COVID vaccine, which failed in market.

Process of the Investment

The main threat for AstraZeneca is the financial instability and losses of the pandemic. The main reasons for the circumstances can be stated as the lower physical work, losses due to the vaccine, the financial gap or the monetary support, and the ineffectiveness of the workers due to lower performance for their health. Company failed to sale their COVID vaccine in market (Astrazeneca.com, 2022). AI Based Market Research can help them to develop product which can be launched effective way. They can invest on AI based Market Research for their future benefit and reduce chance of loss. 

Proposition of the Investment

Company can invest 100 million GBP for their AI based market research. They can collect the amount through equity investment. They can develop a new software based model and hire expertise of market research for conduct market research. It can help to improve data analysis of company.

Investment appraisal on quantitative and qualitative information

Payback analysis

The payback period defines the time in which the company recovers its investment with the help of the profits (Abuseif and Gou 2018). Payback period of the investment will be 3 years and it indicated that risk is low

(Refer to Appendix 2)

NPV and IRR

The Net Present Value defines the value of the project of the company based on which investors get interested in investing in the proposed project (Ahmad et al 2018). The NPV of the proposed project of the company stands at 38% according to the calculator.

(Refer to Appendix 1 and 3)

PESTLE analysis

Political factors

UK political scenario is stable from long time and it can be expect that political factor would not make impact on project. In addition, government also encourage technical development through various scheme and financial advantages which can enhance planning of Astra Zeneca (Uday and Högler 2018).

Economic Factors

Main economic factors of the UK are GDP growth, retail sales, index of production, the balance of payment, and many more (Alarussi and Alhadheri 2018). Inflation rate of UK is 2.19% in 2021 and GDP was decreased 2707.4 Million GBP (tradingeconomics.com, 2021). Financial position of UK has been decreased and it can make negative impact on project especially on financing matter.

Social factors

The social factors can affect the sales market of the company directly, as the public is the end-user of the product (bbc.co.uk, 2022). Population of UK is high and they have large number of educated potential employees who can help to complete this project (eacea.ec.europa.eu, 2021).

Technological factors

Developed technological factor environment can make positive impact on this project (He and Harris 2020). AI business is one of the fastest growing business organisation in UK and it has been grown 125% from 2011 and 2021 (cybercrew.uk, 202). Technologicalenvironment is effective and it can help Astra Zeneca on their project (Jensenet al 2020).

Legal factors

Data protection act is the main obstruction that the business faces very much in the UK (Sadeghiet al 2020). Astra Zeneca will use data that they collect from customer and other party. They need to protect those data according to Act otherwise they can face law mentioned consequences.

Environmental factors

Environment Act UK provide guidelines in UK regarding environment protection rights (clientearth.org, 2021). Project that undertaken by company would not harm environment of UK yet maintains of large number of server can make impact on plan and company need comply with provision of law.

(Refer to Appendix 7)

SWOT Analysis

Strength

Astra Zeneca can take strategically decision based on this AI based tools and chances of failure in product launch and decision can reduce (Wen, 2020). Efficiency on data analysis can make positive on all of the business of Astra Zeneca.

Weaknesses

Primary weaknesses of the Astra Zeneca project can be the wrong algorithm of the project and the negative feedback from the customers (Lee and Huh, 2019). Primary data source can be collected various sources and assumption which can be wrong for the data analysis and make negative impact AI-based proposed projects and therefore it can face several failures in the future.

Opportunities

Decision of management can be improve which create several opportunity for company such as increase sales, launch of product. In addition, company can emerge as technology based company.

Threat

AstraZeneca will face some serious difficulties regarding their data security and the project data that will be the main factors of the project.

(Refer to Appendix 8)

Impact of risk and return on financial performance

Analysis of risk and returns

According to the calculation, the relation between the risk and the returns of the company can be stated as the internal rate of return, which stands at 16% according to the return on the investments. On the other hand, the risk regarding the return on capital stands at 4%. These stars will show that the company will never face issues in terms of capital returns as the profit margin or the inflow reflects higher from the return rate.

(Refer to Appendix 6)

Risk of project investment

Cost of the capital

The cost of capital according to the CAPM model stands at 4.15% according to the calculation. Therefore the investment regarding the proposed project can be easily returnable as the profits making ratio of the project is higher than the cost of capital, as a result the company we'll never face any kind of issue regarding the return on the capital.

(Refer to Appendix 5)

Cost of benefits

The benefits according to the calculation can be stated as the company is making profits from its operations very well and the profit-making ratio or the percentage is higher than the investment (Manganelliet al 2018). The cash inflows regarding the profit can easily recover the investments within 3 and a half years therefore the investment plan of the proposed projects can be accepted by several investors.

Return on NPV

The return on NPV is the assumption of the profitability of the project and the analysis of the percentage of the future returns regarding the project. With the help of the NPV, investors can get the assumed profit returns of the projects therefore they can get assurance in investing. The return on NPV stands at 38.19%, which reflects the guarantee of return.

Discounted payback period

The discounted payback period of the company is calculated on the discounted cash inflows of the organization. According to the calculation, the discounted payback period stands at 9 years and 3 months, which is very disappointing regarding the normal payback period.

(Refer to Appendix 4)

Impact on the company's financial performance

1. Gross Margin Ratio	2021	2022	2023	2024	2025
Formula	(Gross Profit/Sales)*100
Gross Profit	24980	29976	35971.2	43165.44	51798.528
Sales	37,417.00	43,029.55	49,483.98	56,906.58	65,442.57
Gross Margin Ratio	66.76%	69.66%	72.69%	75.85%	79.15%
2. Operating Profit Margin Ratio
Formula	(Operating Profit/Sales)*100
Operating Profit	1056	1182.72	1324.6464	1483.603968	1661.636444
Sales	37,417.00	43,029.55	49,483.98	56,906.58	65,442.57
Operating Profit Margin Ratio	2.82%	2.75%	2.68%	2.61%	2.54%
3. Pre Tax Profit Margin Ratio
Formula	(Pre Tax Profit/Sales)*100
Pre Tax Profit	115	132.25	158.7	206.31	309.465
Sales	37,417.00	43,029.55	49,483.98	56,906.58	65,442.57
Pre Tax Profit Margin Ratio	0.31%	0.31%	0.32%	0.36%	0.47%

Table 1: Financial Ratio

(Source: Developed by Learner)

The impact of the company's financial performance is enhanced by the cash inflows and the profits of the company. The assumed invest of the company can easily achieve good level of profit and the rate on capital return is lowered also, as a result the relationship between the profitability and the risk is enhanced. Financial ratio analysis indicated profitability of company will be increase after implementing AI based marketing.

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