Portfolio Analysis - Essay Example

Student’s name Course code+name Professor’s name University name City, State Date of submission 1.0 Portfolio Analysis Portfolio Analysis can be defined as systematic method of organization analysis where product and services are being associated with different business portfolio. Different businesses are offering various business products in the market and the organization are often divided into different business units, each strategic business unit consist of different portfolio of the product; In our analysis we would like to analysis the performance of different product. 1. Shores Table1.0   Height Shoe Size Median 175.26 9.00 Mode 175.26 10.00 Mean 175.61 8.69 Standard Deviation 7.14 1.84 Max 189.00 13.00 Min 157.00 5.00 Range 32.00 8.00 Correlation 0.64 From the table 1, it can be seen that shoe number 10 is the most sold one followed by shoe number9. The least shoe sold is number 5, 2. Tobacco The performance of the tobacco has improved from the year 1990 up to the year 2012, with increase in inflation, the prices has also increases upward which has enable to counteract the increase in inflation. The highest price was recorded in the year 2001 and the same year, the company recorded the highest number tax and inflation burden. The price of the tobacco has been stable throughout the 21years. The year 2005 the tax and inflation incidence was highest making the performance of the tobacco to be the lowest. 2.0 Analysis of the financial performance of the company The financial statements give a brief insight of the company performance in terms of the cash flow management, sales and the general financial position of the company by the end of the Accounting period. a. Cash flow statement The cash flow statement shows the general inflow and outflow of the cash from the company. From the cash flow of the two products in the year 2013, product 1 has shown no growth through out the year with constant cash inflow. This might be attributed to constant units of product produced through out the period. The second product has shown a slim growth of around 1.0% in the month of January- June and in the Month of July to December the growth in cash inflow increased by 1.5%. The cash out flow has increased and outweigh the inflow; this might be contributed with increase in the overhead expenses. This is a good indication for the management to control and reduce the overhead expenses and increase the cash inflow through sales and other areas within the business. b. Profit and loss account The profit and loss account shows the performance of the business during the trading period, it show the total revenue the business has received less the business expenses. PROFIT & LOSS Data Generated from the Cash Flow Model £ Margin Analysis Turnover Sales 367975 LESS Cost of Goods sold Opening Stock 40000 Add Purchases 221784 261784 Less Closing Stock 52,000 209,784 Gross Profit 158191 0.4299 Gross Profit margin Less Expenditure Wages 93000 Electric 6000 Telephone 2700 Advertising 14000 Misc Expenditure 7200 Depreciation of Stock 10000 Depreciation of Machinery 11000 143900 TOTAL EXPENDITURES Net Profit 14291 0.0388 Net profit margin From the company profit and loss account, the company has made a profit indicating positive growth. The net profit margin is at 0.0388 and gross profit margin 0.4299. This gives the company a good indication and bench mark. MARK & SPENCER   Year Ended 2012 2011 2010 2009 2008 £ Millions Turn Over 9934.30 9740.30 9636.60 9062.10 9022.00 Operating Profit 746.50 836.90 852.00 870.70 1211.30 Net Interest -88.50 -56.30 -149.30 -164.50 -82.20 Profit Before Tax 658.00 780.60 702.70 706.20 1129.10 Profit After Tax 489.60 598.60 523.00 506.80 821.00 There is growth in the profit in the company in the past five years; the interest rate has gone up decrease in the operating profit. It can be seen that the turn over has increased from 2008 to 2012, but the profit has decreased tremendously. MARK & SPENCER   Year Ended 2008 2009 2010 2011 2012 £ Millions Turnover 9022 9062 9637 9740 9934 Sales growth % 0.44 6.34 1.08 1.99 Operating Profit 1211 871 852 837 747 Operating Profit growth -28.12 -2.15 -1.77 -10.80 Operating Margin 0.13 0.10 0.09 0.09 0.08 Net Interest -82 -165 -149 -56 -89 Profit Before Tax 1129 706 703 781 658 Profit After Tax 821 507 523 599 490 There is increase in sales growth but through out the year, though this has not resulted to increase in profit. The company needs to change its strategies by, lowering overhead expenses, increasing prices and considering going for finances which are of low interest rates. 3. Balance sheet The company balance sheet shows the financial position of the company at any given time during the trading period. The management usually used it to show the position of the company in terms of; Assets which the company have; the company Assets are divided into two, they include current assets and fixed asset. The company current assets show the liquidity of the company in terms of debtors and the cash at hand and at bank. The company can use this information to determine the debtors ration and knows the lead time and help in setting up the debt period within the company. Fixed assets on the other hand give the detailed movement of fixed assets in terms of depreciation, and appreciation of Assets, the new assets which have been brought into the business. This also is very important in pointing out for the company management on the life span of the current assets and whether the company should acquire other assets or not. Project valuation YEAR Project 1 Discount Factor Present Value Project 2 Discount Factor Present Value Net Cash Flow Net Cash Flow 10% 10% 1 20,000 0.9091 18,182 10,000 0.909090909 9,091 2 80,000 0.8264 66,116 40,000 0.826446281 33,058 3 40,000 0.7513 30,053 40,000 0.751314801 30,053 4 0 0 40,000 0 5 0 0 20,000 0 Total Present Value 114,350 Less Initial Cost 100,000 100,000 Net present Value 14,346 The valuation of the project using the PV value gives an investor opportunity to evaluate among the available investment opportunities the one with the highest return. The investor should take the one with the highest present value. In the above table, project 1 is more viable that project 2 hence the investor should invest in project1. Internal rate of return (IRR) Internal rate of return is another way through which a company can use to evaluate the viability of the investment. The project with the highest internal rate of return should be picked first. Accounting rate of return (ARR) This also measure the viability of the business investments and normaly gives an investor an opportunity to calculate the rate ate which the investment will get the return over a period of time. Read More