Fosters Construction Ltd - Financial Review and Analysis - Case Study Example

Foster’s Construction Ltd Name: Institution: Executive Summary The Capital Investment project is to be unveiled in about a year’s time. This research is a reflection of the financial and fundamentals that the project is going to involve. This will also highlight on the viability of the project. The analysis is based on the financial performance of the company. This will allow the company to forge ahead with the project. The project is a capital investment of a new crane and is meant to be bought to ease operations in the organization. The debate here is whether to buy or repair the existing machinery in order to continue operations. Fosters Construction Ltd.’s operations rely on how resources are used. There are various resources at Fosters Construction Ltd.’s disposal. The resources interact to give profitable results from the organization’s activities. An asset such as employees facilitate activities and utilize other assets such as cash to improve the company’s value (Bodie and Merton, 2000). Financial Review and Analysis The company publishes annual financial reports and in this section the analysis is based on figures given in the financial reports for 2013 and 2014. The analysis is important because it helps tell how the company is performing in recent times. There was a percentage increase of 5.88% in total current assets this indicates growth in the firm's net assets and also an increase in liquidity of the firm. This is in consideration of the existing Net Present Value of the organization’s assets. There was a14.26 percentage increase in total non-current assets which comprised of Property plant and Equipment. This shows that there was the acquisition of non-current assets, and there was an increase in total assets and net worth of the company. This further supports the need to acquire new assets to offset the current capital assets and improve performance. The final liquidity ratio is the interest coverage ratio which is a ratio that indicates the company’s ability to meet obligations when it comes to interest owed with regards debts undertaken by the organization. The ratio assists in determining both profitability and risk of an organization. The interest ratio is very important especially when it comes to creditors are they are able to assess the company’s ability to meet and take care of the additional debt. The interest coverage ratio is calculated by dividing Earnings before interest and taxes (EBIT) with Interest expense. Fosters Construction Ltd.’s had an interest coverage ratio of 1.24 meaning that the firm can meet its current interest expenses thus showing profitability and good performance. (Appendix 1) Action Plan The project will be based on capital asset evaluation, and a review of the policies may give the business a better outlook of the organization’s future. Cash flow is what one would term as the blood line of an organization’s activities. This particular asset is vital in running company activities and improving the value of the organization. One of the ways this may be hindered is by mismanagement in the purchasing department. The purchasing department is mainly the major output of cash in an organization. Due diligence and proper research on the purchases and service makes the difference between a profitable organization and loss-making an organization. The critically analyzed research will allow the company to save on expenses and improve on its cash flow. Financing of a company is the initial point of cash flow and depending on the company’s leveraging power. The higher the leveraging power, the more the cash flow coming into a company. The leveraging power is dependent on the administration of the Company. The administrative wing of the company is dependent on the negotiating power of the senior members of the administration. Phases and Models The capital investment division is employing different strategies in the project. The key Idea is to source for materials and capital investments that will help the company save the value. This is should also get the high net present value of the capital investment made. The distinction between sourcing, making, delivering and returning the capital investment at the right time and place and from the right source makes all the difference. The sourcing phase of the investment processes requires that a company should meet the actual/planned demand. Capital investment model comes in where the business is bound to induce processes that should help in formulating the methods necessary for making production levels meet the planned demand. The Fosters Construction Ltd.’s business has been able to fulfill this planned demand by conducting what is referred to as market research, which basically is meant to help to establish what brand the capital investments are in demand of across all the business environments that this business operates in. therefore, this company has been able to offer a good customer care service since they operate at the convenience of the customers as well as providing what is exactly needed. Through the capital investment model, the company can be able to get product brands commonly demanded from the various regions it operates in and thus be able to check on its sources in order to meet its operational demand. This establishes a high-quality machinery and production levels when it comes down to performance. The other option Fosters Construction Ltd. has is to establish a make division of making the machinery and repairing existing ones. The term “make” refers to the process of creating or the transition from one form to another. This is the production part, where existing spare parts and old machinery are transformed into working finished products. Therefore, relating the Capital Investment’s model to the make phase, the business can employ this tool in making the production process more considerate to Fosters Construction Ltd. preferences by ensuring that every detail of quality desire is included in the repair of the capital investments which will include the use of mechanics. For example, it would be worth to respect the existing machinery and by providing professional assistance to make these machines work. The company bought them as high end desired brand and are in good working condition. This has allowed Fosters Construction Ltd. to perform in the past and deliveries in time. This will basically help in satisfying operational’ desires and needs. Also, employing the an investment model that works in this phase will help in putting Fosters Construction Ltd.’s need at the frontline. Performance quality will be consistent upon repair of old machinery and will help in maintaining the quality of the production. Attending to performance detail requests is one way of establishing good and quality output. Fosters Construction Ltd.’s should implement this in every region they are based. This can be achieved by outsourcing some of its production processes to other companies. This investment model helps in reducing the cost associated with production as well as making the work output process efficient and reflective on Fosters Construction Ltd.’s needs. This is because it is assigned to professionals in that particular task to maintain existing capital assets. A different phase of the Fosters Construction Ltd. investment protocol involves improvement of cash flow through tax subsides. This is achieved through reduction of taxes by obtaining subsidies. The subsidies are only offered to organizations when products and services to the end users are locally based. This is the local government’s way of support to the businesses. This phase of capital investments would help in formulating better ways or channels of delivering services to the customers in relation to quality. Especially when the order delivered is of high value and quality as expected by the customer. Fosters Construction Ltd. can achieve success in this delivery phase of capital investment by ensuring that most of it stakeholders are local. This will, in turn, make sure that most of the local stakeholders confide in each other frequently. Hence, the quality of services demand will be met effectively. This also acts as a form of good customer care service. Fosters Construction Ltd. can still make the production processes be relocated closer in order to ensure that distribution of services is easier. This will facilitate easier access to their products. The tax subsides investment model would help in propagating local economies. For example, the company may end up creating industrial areas that draw in more businesses which save on logistics. This caters for the demand presented from those regions completely. This investment model will bring out new ideas on how to improve the existing methods production with organizations being so close to each other. The company can set guidelines on how to relate to other businesses to capitalize on benchmarking. This improves the profit basis and bottom line through an increase in tax incentives and reduction in logistic costs. This phase capitalizes on guarantees and warrantees on service contracts on capital assets. This entails banking and capitalizing on return policies. Here the company is bound to formulate new methods and processes, which will help increase value for money on faulty capital assets. Fosters Construction Ltd. can be able to design a program that this specifically deals with returned assets in order to ensure the business gains high value and quality from the assets it receives. Policy and the terms and conditions or the guarantee is not void; then it will be good for the company. This basically calls for a review of the purchase and service contracts on capital assets to improve the chances a business has. This will help in boosting the quality of services and goods along with maintenance services for the business. It will also have better performance output for the company because the capital investment will have longer output capacities. Strategic position Fosters Construction Ltd.’s strategy is to have global recognition of services and to be approved by all, in all regions of the world. The strategy aims to review performance which is represented on the bottom line of the financial records. This is signified by the better performance that is outstanding in the current market and ease operations at an attractive profit and acceptable terms to the stakeholders at all levels. Fosters Construction Ltd. participates in a wide sphere of operations; technical and non-technical. These are activities for the everyday provision of services that have to be used on a daily basis. In order to curb competition, Fosters Construction Ltd. shall in its project use the five porter’s factors to regulate their production activities in the market and to monitor the amount of competition in the market regarding services. Fosters Construction Ltd.’s marketing strategy is beneficial and very cost efficient in that the company through the project is running advertisements by use of stakeholders. The practice of paying unreasonable marketing fees for its services has been affecting the budget. By improving the marketing services allocation, Fosters Construction Ltd. ensures relevance in the current market all the time and curb expenses on this budget entry. Conclusion In conclusion financial and operational details and financial analysis are relevant to organizations. It is not only important internally for the managers and board of directors but externally for creditors and investors. Through proper analysis of financial statements and mainly using financial ratios we can be able to tell the financial health of the company. In doing so, we can establish key features such as liquidity, growth, profitability. These features are essential to all stakeholders of a corporation. We have also established that different organizations in different industries have varying financial ratios. The reason is that line of business affects the financial structure and operations of a company. Therefore, it is crucial to put these factors into consideration when calculating financial ratios to establish the performance of business. From the listed calculations it can be established that the organization namely Fosters Construction Ltd a leading service provider has stable financial positioning and hence it is safe to conclude that the project to be undertaken will, in fact, be of high value to the organization. Therefore, investors’ creditors and all other stakeholders to this company can look at the company identify where there is an opportunity for improvement and then work on those areas. References Bodie, Z., and Merton, R. (2000). Finance. Upper Saddle River, NJ: Prentice Hall. Read More