Financial Decision-Making Analysis for BGC Ltd Assignment Sample

Introduction Of Financial Analysis, Appraisal And Decision Making

Financial decision-making is defined as the process through which the company identifies the financial objective and try to analyse the data and take decision for betterment of working. The use of financial decision-making is very important for the company in order to improve the performance of the company. The current report is based on BGC ltd which is a company dealing in cleaning services to offices and retail companies. The report will evaluate the financial position of company with help of ratios. Along with this evaluation of cash budget for the next four month will be made. At last the decision relating to operating in domestic market or to continue with office and retail will take place.

Part A

Ratio analysis

With the evaluation of financial ratios it is clear that the performance of the company has declined in the year 2021. By analysing the profitability ratio, it is clear that in the year 2020 performance was moderate but in the year 2021 it declined. With regards to the gross profit ratio in the year 2020 it was 6.81% but in 2021 it declined to 3.94 % which is almost half. With this it can be evaluated that the profitability of the company has reduced and this is not good for the company at all (Kou and et.al., 2020). In addition to this, the net profit margin of the company has gone to negative which is very bad situation for the company. This simply implies that the expenses of the company are higher as compared to the income. Thus, it is very necessary for company to try to manage their expenses so that the profitability of the company can increased.

Further, with help of the return on capital employed ratio it is clear that the returns have also been declined. In the previous year the ROCE was 0.14 and in the current year it declined to 0.02. This decline is huge and it affects the performance of the company negatively. The return on capital employed ratio outlines the return which the investor can generate over the capital employed by them (Palepu and et.al., 2020). This has reduced drastically and this affect the company's performance and working in negative manner. Thereafter, with regards to the liquidity of the company it has also reduced to a great extent. Earlier the current ratio was 2.24 and in the current year it dropped to 0.96. This decline is huge and it affects the working of the company to a great extent. The liquidity ratio outlines the ability of company to convert the current assets into cash. In the previous year the liquidity of the company was sound and in the current year it has a declined. The simply implies that the company is not having enough current assets to pay off their current liabilities.

Moreover, with the help of gearing ratio it was clear that in the current year the gearing ratio increased which is good for the company. In the year 2020, the gearing ratio was 0.46 where as in the current year it increased to 0.97. This is good for the company as the company has increased the debt content within its working and this is good for the company. Along with this, coverage ratio has declined as compared to the last year (Shahid, Rappon and Berta 2019). Earlier the interest coverage ratio was 22.75 and currently it is 2.04. This is particularly because of the reason that the earnings before interested has reduced to a great extent. Earlier the, earnings before interest and tax was 455 but in the current year declined to 57. This is a huge decline within the earnings and as a result of this interest coverage ratio has declined to a great extent.

With this it can be stated that the performance of the company has declined over all. This is particularly because of the reason that the pandemic has affected the working of the business to a great extent. Thus, as a result of this it is very necessary for the company that they must try to improve the performance so that the working efficiency is increased to a great extent.

Part B

Analysis of cash budget

With the evaluation of the cash budget it is clear that the receipts from the customer are increasing gradually every month (Rahimi and et.al., 2020). Further, with evaluation of the expenses it is clear that there is fluctuation within the payments made. In the month of July payment is less whereas in August and September they are high and again and October it is low. This simply implies that the payment structure of the company is not effective and they need to work over it. In addition to this net cash inflow for the company is negative for August and September. This is particularly because of the reason that within this month payments are more as compared to the income generated. Thus, it is highly recommended to the company that they must effectively work on managing their expenses so that there is stability within the expenses (Mi and et. al. 2019). When the expenses will be stable, than company can easily forecast the expenses and it will be easier for them to manage the expenses well. In addition to this, when the appropriate estimation will be made regarding the expenses then it will provide a base to the company to arrange for the amount of money for a meeting all the expenses.

With the analysis of the cash flow it is clear that there is requirement of some improvement so that cash budget is made easier and good. Hence, some of the recommendations to the company are as follows-

• The first and foremost recommendation for improving the cash budget is to lease the big machineries. This is very beneficial for the company because when they will lease the machinery used than the cash will be saved for the company's other purpose (Yoe, 2019). Thus, as a result of this the expenses will be less and the cash can be utilised in many other areas.
• In addition to this another major recommendation to the company for improving the cash budget is to provide for discounts for early payment. This is very good strategy to be implemented by the company because when early discounts will be provided then this will motivate the creditors to pay the amount as fast as possible. Hence, as a result of this the payment will be gathered early and this cash can be used in attaining other activities.

Part C

Recommendations to BGC Ltd

In the present case the owners of the company have two different options from which they have to select one. The first option is to remain within the retail and Office sector of the company (Khosravi and et. al., 2019). On the other hand, another option is to leave the office and retail and go for the domestic market for the business. Hence, for taking the optimal decision the following calculation is being carried on by the company-

Cash inflow for the company in case office and retail option is continued

Cash inflow in case of domestic option is selected

With the evaluation of the calculation it is clear that when the option of office and retail is selected then in case of boom period the company will be earning total cash inflow of 1300. Whereas in case of domestic market, the boom period will provide only 1100 of cash inflow which is less than the inflow of combination of office and retail. Similarly, in case of the static market situation the cash inflow for office and retail combined will be 425 whereas the domestic market will have only 400 cash inflow (Wahlen, Baginski and Bradshaw, 2022). On the other hand, in case of recession the domestic market is having cash deficit of 200 whereas the combination of office and retail is having the cash surplus of 100. Thus, with this it is clear that company must go for the option of office and retail rather than going for the domestic market. Hence, it is highly recommended to the company that famous carry on their retail and Office Sector and must not shut down this for moving into the domestic market.

Conclusion

At last it is concluded that meeting financial decisions is very important for the company's performance to be improved. The reason underlying the fact is that effective financial decision making helps the company in improving the working capability and performance. The above report concluded that ratio analysis is helpful in evaluating the performance of the company. With help of the analysis it was clear that in the year 2021 performance of BTC was not good. It was also evaluated that cash budget needs to be maintained well so that effective decisions can be taken. At last it was evaluated that continuing the office and retail is better option rather than going within the domestic market.

References

Books and Journals

• Abdel-Basset, M., and et.al., 2019. A group decision making framework based on neutrosophic TOPSIS approach for smart medical device selection. Journal of medical systems. 43. pp.1-13.
• Brigham, E.F. and Houston, J.F., 2021. Fundamentals of financial management: Concise. Cengage Learning.
• Goyal, K. and Kumar, S., 2021. Financial literacy: A systematic review and bibliometric analysis. International Journal of Consumer Studies. 45(1). pp.80-105.
• Khosravi, K., and et.al., 2019. A comparative assessment of flood susceptibility modeling using multi-criteria decision-making analysis and machine learning methods. Journal of Hydrology. 573. pp.311-323.
• Kou, G., and et.al., 2020. Evaluation of feature selection methods for text classification with small datasets using multiple criteria decision-making methods. Applied Soft Computing. 86. p.105836.
• Mi, X., and et.al., 2019. The state-of-the-art survey on integrations and applications of the best worst method in decision making: Why, what, what for and what's next?. Omega. 87. pp.205-225.
• Palepu, K.G., and et.al., 2020. Business analysis and valuation: Using financial statements. Cengage AU.
• Rahimi, S., and et.al., 2020. Sustainable landfill site selection for municipal solid waste based on a hybrid decision-making approach: Fuzzy group BWM-MULTIMOORA-GIS. Journal of Cleaner Production. 248. p.119186.
• Shahid, N., Rappon, T. and Berta, W., 2019. Applications of artificial neural networks in health care organizational decision-making: A scoping review. PloS one. 14(2). p.e0212356.
• Wahlen, J.M., Baginski, S.P. and Bradshaw, M., 2022. Financial reporting, financial statement analysis and valuation. Cengage learning.
• Weygandt, J.J., Kimmel, P.D. and Aly, I.M., 2020. Managerial Accounting: Tools for Business Decision-Making. John Wiley & Sons.
• Yoe, C., 2019. Principles of risk analysis: decision making under uncertainty. CRC press.