Financial Analysis And Decision Making At Bresil Investment Finance Essay

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1.Introduction

As a team of investment Analyst for Bresil Investment, We have been approached by one of our client, Stephen Curry to offer investment advice. Mr. Curry has two investment choices, either Games Workshop PLC or Hornby PLC. Our analysis will include ratio analysis of both the companies for current and previous years, as well as some industry specific analysis. Aim of this report is to provide Best investment advice for Mr. Curry.

2.Financial Analysis

"Financial Analysis exists to help decision Makers. It is concerned with the ways in which funds for a Business are raised and invested" (Theoh 2009:3 ). Financial analysis can also be referred as analysis and interpretation of financial statements to determine the current position and future scope of the firm using Balance sheet, Profit and loss account and other effective statistics. Financial Analysis uses the financial ratios for this purpose. Financial analysis gives a good idea about the profitability and financial soundness of the company so that investors can take right decision and invest in the Best Company.

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3. Interpretation of Ratio analysis

3.1. Profitability Ratios

Return on Capital Employed (ROCE )

The Return on Capital Employed Ratio is the fundamental measure of business performance. This ratio expresses the relationship between the operating profit generated during a period and the average long term capital invested in the business during that period. (McLancy & Atril 2008:229)

Ratio in percentage can calculated as follows:

ROCE= ((Operating Profit)/(Total asset – Current Liabilities)) * 100

The above graph shows the ROCE of both Games Workshop PLC and Hornby PLC for 2008,2009 and 2010.

Time Analysis

ROCE of Games PLC has increased at constant rate from 2008 to 2010. That is 5.48%, 17.26% and 27.98% respectively. On the other hand ROCE of Hornby was better in 2008 (29.47%), however it has declined in 2009 and 2010 (i.e. 17.67% and 12.65% respectively). The reason behind the decline in the return of Hornby with realizing from the capital employed is that the company has invested lot of money in various fixed assets. Also the cost of production has increased in 2009 and 2010 as compared to 2008.

Industrial Benchmarking

Games workshop PLC’s performance very well in 2010 and 2009 (27.98% and 17.26% respectively) as compared to the industry average in terms of ROCE. Also in 2008 the ROCE (5.48) was above the industry average. On the other hand for Hornby PLC also ROCE figures are higher for 2008, 2009 and 2010 (Fame 2010)

Conclusion

From the ROCE comparison of Games Work Shop PLC and Hornby PLC we can conclude that Games PLC is profitable as compared to Hornby.

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