Fundamentals of Business Finance MGBBT1FBF Assignment Sample

Introduction - Fundamentals of Business Finance MGBBT1FBF

Financial information provides data related to the financial activities and position of an organisation. It provides insights to the stakeholders related to the company’s position and potential future projections. Financial information gives an input for drafting final accounts such as balance sheet and income statement prominently. This led to provide information about an organisation’s expense, liabilities, revenues and assets (Atrill, Peter and McLaney, 2018). It is important to present the realistic as well as accurate financial information and no manipulation should be done as it can mislead stakeholders. The Purpose of the current report is to assess the financial performance of 7 Seas Onboard Restaurant LTD. The assignment aims to focus on organisation’s financial information along with discussing the motives of different stakeholders. Furthermore, financial ratios will be calculated to evaluate the monetary performance of organisation in terms of efficiency, liquidity and profitability. The objective of the report is to analyse whether the company has sound financial position or not and this would be analysed by looking upon the ratios.

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MAIN BODY

Discussing the motive of stakeholder for financial information in context of 7 seas

Government (HMRC): The government is highly interested in knowing about the financial position of 7 Seas so that they can determine the tax liabilities (Barth et al, 2023). Consequently, government guides about the ways in which compliance with tax regulations must be made. Furthermore, government cross checks whether the company is paying right amount as tax or not.

DFDS Seaways: This is the accountability of prime partners to check whether company is able to meet obligations or not. This provides idea whether the company will be able to meet future contracts in significant manner or any challenges would be faced (Du et al, 2020). Thus, DFDS Seaways has accountability to present the verified information so that appropriate decision could be taken.

Suppliers of raw materials: Suppliers show their complete interest in assessing the financial position of an organisation (Kadoya and Khan, 2020). Based on this they determined about the creditworthiness of the company and analyses the possibility of receiving payments. By looking upon the financial information of organisation suppliers take decision related to giving goods or credit.

Potential Investors: Investors assess the financial position of company so they can undertake investment related decisions. The information provides idea to the investors about the potential growth of company and return on investment [ROI]. Thus, there is no doubt in saying that investors are highly interested in knowing the financial position of company as it enables them to take appropriate decisions.

Banks and Financial Institutions: The banks and financial institution looks upon the financial position of company so they can analyse the creditability and accordingly provide loans to them (Mio et al, 2020). A sound financial position shows that 7 Seas is able to repay their loans and in such situation banks and other financial institutions prefer to provide loan to the concerned company.

Briefly discussing the purpose and characteristics of good financial information along with explaining how they are going to address the motive of stakeholders

Good financial information provides important insights to the stakeholders so they can take significant decisions. The purpose of good financial information is to present the accurate, concise and clear information along with including the necessary information. It is important to asses the financial position of a business for the stakeholders so they can take appropriate decisions. Below presented are the characteristics of good financial information-

Understandability- The financial information should be presented in such manner so that it can be easily understood. The easy representation enables government to know about the financial position of firm and accordingly their tax liability can be determined (Monciardini et al, 2020). Complex information misleads the stakeholders due to which they are not able to take significant decisions.

Timeliness- It shows how quickly the information is available for the users. The financial information needs to be presented on time so that investors and suppliers can take decision regarding investment.Reliability- Accurate financial reporting is just not limited to enhancing business practices. Along with this, it is also considered as an important legal requirement which must be focused out. The presented information needs to be reliable and no false information should be presented that misguide banks or financial institution in terms of making decision for providing loan (Sagan et al, 2020). Furthermore, primary partner of 7 seas onboard restaurants must be aware about the real information. It is the accountability of company to present accurate information and no fake revenues should be presented.

Comparability- It refers to the degree up-to which financial information can be compared. In order to assess the financial position of the company, comparison has been done between present and previous year. This comparison provides idea about the progress or failure or company. Therefore, financial information must be presented in such a manner so this can be easily compared and accordingly decision can be taken.

Verifiability- When information can be easily verified then it provides assurance about the faithful representation of data. Hence, good financial information is said to be when it can be verified. Information should represent the actual purpose so stakeholders and users cannot get mislead.

Relevance- The presented financial information must be relevant to the organisational operations. Irrelevant information should not be presented in statement and this is a kind of manipulation (Sharif and Naghavi, 2020). By providing relevant information attention of stakeholders can be gained and trust can be developed among them.

Faithfulness- The information must reflect on actual resources of company and no false transaction should be involved in the statement. Faithfulness is an important aspect while presenting financial information as it supports in gaining the trust of both stakeholders and users. Therefore, it is important to develop significant focus on this area and information must be provided in the faithful manner.

Thus, the above mentioned are the major characteristics of good financial information and this need to be followed by 7 seas onboard restaurants.

Ratios and their development in given period

Gross Profit Ratio- This ratio is stating that company has effectively managed their cost of production from past years (Soong et al, 2020). In 2019 and 2020, due to higher expenses business unit failed to generate enough profit margin. Thus, for enhancing future performance company has made significant control over expenses by using budgetary control tools and techniques.

Operating Profit Ratio: Company has ability to generate more money in comparison of the money that has been invested. From year 20121 to 2023 company has shown effectual growth in controlling their cost.

Net Profit Ratio: Outcome of ratio analysis is showing fluctuated trend in the NP ratio of 7 Seas restaurant. Company’s net profit margin improved from -44% to 24% at the end of 2023. This in turns clearly reflect that company has exerted effectual control on expenses which resulted into high profitability.

Return on Investment: The rate of ROI above 12% is considered as good and this is indicating about effectual growth (Tristram et al, 2022). On the basis of this, it can be stated that company failed to generate enough returns from the investment made. Thus, significant changes need to be done in the existing strategic and policy framework.

Return on Equity- The return on equity increased on consistent note from the past years. This shows that organisation’s capacity in relation to generating return by using shareholder’s fund has been increased to the significant level.

Assets Turnover Ratio: It indicates how efficiently company has used its used for generating sales (Vitolla, Raimo and Rubino, 2020). Financial analysis clearly exhibits that company’s ability in relation to using assets have been improved over the time frame. The value is less than 2.5 which is significantly showing that company is lacking in this area.

Current Ratio: The current ratio has been increased fro, .88 to 1.75 in the FY 2023. This is highly near to the ideal ratio which is 2:1. Accordingly, company is able to pay its short term liabilities by selling the current assets.

Quick Ratio- The change in quick ratio depicting that 7 Seas restaurant is able to pay their liabilities. This proves to be a good indicator for creditors that company is able to pay liabilities (Weetman, 2019).

Equity Ratio- Company has high equity ratio and that is denoting that company is using huge equity capital for purchasing asset.

Debt Ratio-The cost of the organisation has been increased and this is evident by the value of debt ratio from past years. 7 Seas has been using debt amount in order to purchase asset, they rely on debt financing. High level of debt indicates the ineffective cost management within the organisation (Weetman, 2019).

Limitation of ratio analysis

Ratio analysis has been determined as that quantitative technique that enables in assessing organisation’s efficiency, solvency and profitability position. Thus, financial position of the firm can be identified through ratio analysis. However, there are certain limitation comprised with the ratio analysis and those are-

Historical information- The data which has been evaluated in the ration analysis is based on the past performance (Yarovaya et al, 2022). It makes difficult to assess the accurate financial position of the company and varied current trends and factors has been ignored within this that increases the chances of manipulation.

Inappropriate financial information- Managers in the company often manipulate with financial information in order to show positive image of the company. This can lead to misinterpretation of information (Limitation of ratio analysis. 2024). In case, ratio analysis has been undertaken on wrong information then, it depicts false information to users.

Economic condition- The performance of the company further impacted due to changes in economic condition (Yarovaya et al, 2022). However, ratio analysis does not consider this aspect and this led to contribute in presenting wrong information

Changes in accounting policy- The deviation in accounting policies and regulation negatively impacts reliability and validity of the ratio (Limitation of ratio analysis. 2024). Due to which wrong information has been presented and this is considered as unethical. This is one of the major limitations in this context as it can impact the efficacy of the outcomes.

Thus, the above mentioned are the major limitations of ratio analysis which can led to impact the reliability and validity of the information.

Conclusion

Conclusively; it can be stated said that financial analysis has been proven highly effectual for the companies as it enables in predicting about the current performance and future projection. The financial information is important for the stakeholders as they can take appropriate decision on the basis of financial information. The report has reflected on the purpose of financial information along with the characteristics of good financial information. Furthermore, it can be entailed financial position and performance of 7 Seas has been improved over the years. Thus, it can be said that outcome of ratios assist stakeholders in doing future projection and taking investment decisions. 7 Seas onboard restaurant needs to enhance its sales which in turn also lead high profitability of the company. Moreover, limitations of the ratio analysis was identified and it has been known that changes in accounting policy, ignoring economic condition, historical and inappropriate information creates loopholes in ratio analysis and manipulates with the financial information.

Part 2 Introduction

7 Seas restaurant provides the range of delicious appetisers, main desserts as well as cheese. Customers can choose their preferred combinations at the buffet table. The restaurants offer the wide range of traditional meat dishes, seafood, pastries, salads as well as a popular kids' buffet. The main aim of the report is to analyse the financial performance of the organization (Atrill, Peter and McLaney, 2018). Ratio analysis will help the organization to track their performance over the time while comparing it with other similar companies. Financial analysis is the procedure of analysing the company’s budgets, projects as well as other finance-related transactions to analyse the suitability and profits. By analysing the financial data the firm can gain deeper insight about the liquidity, profitability, efficiency and solvency position or performance. This allows the organization to analyse the investment opportunities, handle risks as well as optimize resources. This analysis aids in setting goals, maintaining transparency as well as developing strategies with the stakeholders.

Stakeholders’ motives for financial information

Government (HMRC): The financial statement assists the government especially HMRC in deciding the regulation policies as well as taxation based on the operations of 7 Seas restaurants. HMRC needs accounting information for tax assessment for evaluating the ways in which firm can operate under the related requirements. The government also monitors financial reporting to make sure fair trade, financial activities as well as compensation.

DFDS Seaways: As a parent organization, they are interested in reviewing as well as analysing the financial statements to make the informed decisions. Measuring the liquidity assists in the right balance as well as the position of their strategic development (Bocken and Short, 2021). DFDS Seaways uses financial statements to analyse the economic trends, builds long-term plans for the business activities, sets financial policies as well as analyses the projects.

Suppliers of raw materials: 7 Seas restaurants need enough liquidity on their hands to cover their bills as well as responsibilities so that they can pay the suppliers, keep updated with the payroll as well as keep their operations going day in and out. Creditworthiness is an analysis of a firm’s financial reliability to make sure that they can meet their debt obligations on time.

Potential Investors: 7 Seas restaurants' financial performance informs to the investors regarding their general well-being. This is a snapshot of their economic health as well as offers the future insights. This helps investors in making the informed decisions on the basis of the price per share which the investors want to invest.

Banks and Financial Institutions: They need financial statements to analyse the firm’s ability to pay their bond investors, loans, debt as well as credit analysis. This includes analysing the range of factors like income, credit history, employment as well as collateral to analyse the probability of borrower repaying their loans.

Purpose and characteristics of good financial information

Efficient financial information reflects the fair and true value of the business's financial outcomes as well as the situation. This reduces the risk of fraud, errors, litigation as well as misstatements which enhances the credibility of 7 Seas restaurants. This also helps the organization to comply with the tax laws, contractual obligations as well as regulatory needs to avoid fines. Good financial reporting allows the 7 Seas restaurants to make the informed decisions, monitor performance as well as plan ahead for the progress. Efficient financial reporting means that the financial statement includes all the specific information which the stakeholder needs to understand the financial performance. This assists the stakeholders in analysing the business profitability, performance, solvency, liquidity as well as the ability to make sound assessments and judgments (Brealey and Marcus, 2023). Complete financial reporting also allows the communication as well as cooperation among the stakeholders and firm which fosters confidence and trust.

Transparency is government’s access to the financial information regarding the 7 Seas restaurants' market position, price as well as audit of financial reports. Financial reporting standards offer the framework for the firm to report their financial information in an accountable and transparent manner. DFDS Seaways needs financial statements to analyse the pursuit of financial returns with the requirement to promote a business which can thrive in the ever-changing environment (Goldstein et al, 2021). This ensures the organization’s long-term health which helps in the identification of effectiveness. Good financial statements offer insights into the firm’s profits, liquidity as well as overall financial health which are useful for the suppliers. The firm has the legal obligation to maintain the financial records as well as disclose information with the specific accounting regulations and standards. Beyond the legal compliance accounting accuracy builds the confidence and trust among the suppliers as well as investors.

By analysing the trends in revenue as well as expenses over the time, investors can gain insights about the 7 Seas restaurants' financial growth, stability, prospectus as well as operational effectiveness. This can also be served as a backbone of the firm’s economic decision-making procedure which offers the clear picture of their financial health as well as performance. With the updated financial data, the firm can make sound decisions, protects from the potential threats, stay organized as well as builds trust with the investors. Efficient financial data is significant for analysing as well as mitigating the risk within the firm (Griffin, 2022). This in turn provides investors with the true picture of 7 Seas restaurants' financial health which allow them for the better strategic decisions.

Efficient financial statements such as debt level, liquidity as well as cash flow trends allow banks and financial institutions to gauge the firm’s ability to service the loan. For instance, the bank might approve the loan with the favourable items which meets their repayment obligations (Weetman, 2019). Banks use this analysis to analyse the potential investment opportunities by ensuring that the financial resources are allocated strategically for getting the best returns. Financial reports allow investors as well as suppliers to make the informed investment decisions which align with the financial objective and drives growth.

Compute ratios for 7 Seas Onboard Restaurants and replicate their development for 5-years period

3.03%5.00%6.59%

Return on EquityNet Profit / Total Equity*100-7.32%-10.14%8.24%7.92%10.35%Net Profit RatioNet profit/ sales *100-43.96%-40.64%19.26%24.56%23.56%

Gross profit: A negative gross profit in the initial first two years means that the sales of the company are not enough to cover the cost of goods sold. A sharp improvement from 2021 indicates the efficient cost control measures for the high profit generation.

Operating profit: The negative operating profits indicate that the organization has higher overhead costs in the initial 2 years. Improved performance trend from the period of 2021 to 2023 clearly shows that company undertook the competent strategic as well as policy framework for the control and profit maximization.

Net profit: In the initial 2 years the gross margin has turned negative when the costs of the production exceed the total sales. The boost from 2021 indicates the good financial health from a strategic direction.

Return on investment: The company experiences negative returns when the total expenses are greater than the total revenue. The positive growth after 2020 highlights the efficient capital deployment.

A current ratio below 1 indicates the firm has more liabilities than the asset which has created liquidity problems in the initial 2 years. In the period of 2022 and 2023 current ratio of the firm was near to the ideal ratio such 2:1. Referring this, it can be stated that company was high capable to meet its short-term liabilities.

A quick ratio of 1 and lower than 1 indicates the potential liquidity challenges. However, after 2020, there is a major improvement in cash management.

A higher equity ratio indicates the lower financial risk as well as a stronger ability of the organization to withstand with the economic downturns.

A declining debt ratio indicates that the firm is using the less debt as well as being less reliant on the borrowed funds.

The rising trend in the asset turnover ratio highlights that better asset utilization helps in generating revenue which enhances the operational efficiency of the organization. Increasing trend in the ratio clearly depicts the company’s efficiency in making optimum utilization of assets.

Briefly discuss important limitations of the ratios analysis

All the data used in the ratio analysis is derived from the specific historical data. This information is drawn from the historical actuals which remain the same in the future as the firm performance gets affected every year. Financial statements are released periodically which have time differences among every release. The figures across the different periods are not comparable unless they adjusted for the inflation. The information from the financial statement from the specific line item for comparison might have aggregated from different parts in the past. This trend analysis of this data does not provide a true picture.

The firms' operational structure might range from its supply chain strategy to the selling product. When major operational change is carried out, comparing the financial metrics after and before might lead to inaccurate conclusions regarding the business’s prospectus as well as performance. The firm’s underlying operational structure might change to the point where the ratio calculated on several years ago as well as compared with the yields an incorrect conclusion (Moffett et al, 2021). Ratio analysis is based on the data reported by the firm in their financial statement. Thus, the firm’s management might manipulate this information to report the better outcomes than their actual performance. This might not especially reflect the true nature of the business as the information misinterpretation requires to be detected by the simple analysis.

Data is the financial statement line used from the ratio analysis might aggregated differently in the past. Running on the same trend line compares with the same information over the whole period. The ratio analysis comparison of the two companies with contrasting approaches might be hazardous (Risk, 2020). For instance, one firm might follow the low-cost strategy while willing to accept the lower gross margin in interchange for more major market share.

Conclusion

In conclusion, the financial analysis of the 7 Seas Restaurants aims to analyse the liquidity, solvency, stability as well as profits to warrant the monetary investment. Ratios analysis is an analytical procedure which seeks to reveal the data regarding the range of revenue stream of the firm. This helps the firm to identify the ways to optimize the profitability. The higher profit margin signifies better effectiveness in handling the costs as well as higher earnings which influence the impact on investment decisions. The liquidity ratio is used to analyse the liquidity through the relationship between current assets as well as current liabilities. A well-managed assets as well as liabilities include the procedure of matching the offsetting items which can enhance the profits of 7 Seas Restaurants.

References

Books and Journals

• Atrill, Peter and McLaney, E. J. 2018. Financial accounting for decision makers. 9th ed. Harlow: Pearson
• Barth, M.E., Li, K. and McClure, C.G., 2023. Evolution in value relevance of accounting information.The Accounting Review,98(1), pp.1-28.
• Du, E., Terrer, C., Pellegrini, A.F., Ahlström, A., van Lissa, C.J., Zhao, X., Xia, N., Wu, X. and Jackson, R.B., 2020. Global patterns of terrestrial nitrogen and phosphorus limitation.Nature Geoscience,13(3), pp.221-226.
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• Mio, C., Fasan, M., Marcon, C. and Panfilo, S., 2020. The predictive ability of legitimacy and agency theory after the implementation of the EU directive on non‐financial information.Corporate Social Responsibility and Environmental Management,27(6), pp.2465-2476.
• Monciardini, D., Mähönen, J.T. and Tsagas, G., 2020. Rethinking non-financial reporting: A blueprint for structural regulatory changes.Accounting, Economics, and Law: A Convivium,10(2), p.20200092.
• Sagan, V., Peterson, K.T., Maimaitijiang, M., Sidike, P., Sloan, J., Greeling, B.A., Maalouf, S. and Adams, C., 2020. Monitoring inland water quality using remote sensing: Potential and limitations of spectral indices, bio-optical simulations, machine learning, and cloud computing.Earth-Science Reviews,205, p.103187.
• Sharif, S.P. and Naghavi, N., 2020. Family financial socialization, financial information seeking behavior and financial literacy among youth.Asia-Pacific Journal of Business Administration,12(2), pp.163-181.
• Soong, J.L., Fuchslueger, L., Marañon‐Jimenez, S., Torn, M.S., Janssens, I.A., Penuelas, J. and Richter, A., 2020. Microbial carbon limitation: The need for integrating microorganisms into our understanding of ecosystem carbon cycling.Global change biology,26(4), pp.1953-1961.
• Tristram, M., Banday, A.J., Górski, K.M., Keskitalo, R., Lawrence, C.R., Andersen, K.J., Barreiro, R.B., Borrill, J., Colombo, L.P.L., Eriksen, H.K. and Fernandez-Cobos, R., 2022. Improved limits on the tensor-to-scalar ratio using BICEP and P lanck data.Physical Review D,105(8), p.083524.
• Vitolla, F., Raimo, N. and Rubino, M., 2020. Board characteristics and integrated reporting quality: An agency theory perspective.Corporate Social Responsibility and Environmental Management,27(2), pp.1152-1163.
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• Yarovaya, L., Brzeszczyński, J., Goodell, J.W., Lucey, B. and Lau, C.K.M., 2022. Rethinking financial contagion: Information transmission mechanism during the COVID-19 pandemic.Journal of International Financial Markets, Institutions and Money,79, p.101589.

Author Bio

Jack Roberts   9 years | PhD

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