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Financial Management Measures - Profit and Loss Statements Essay Example

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Financial Management Measures - Profit and Loss Statements

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Financial Management Measures - Profit and Loss Statements. Independently both the proposals are financially sound and economically feasible and add value to the company in the long run. But at the same time, Proposal 2 appears to be more financially sound as compared to Proposal 1. Proposal 2 provided the company with a higher amount of cash flows over the life of the project. Hence, it results in a higher net present value and an addition of £560000 to the wealth of the shareholders. Next, proposal 2 gives a higher internal rate of return of 25.3%. It also meets the targeted annually ROCE and hence ensures the firm’s efficiency to generate revenue from the invested capital. The proposal 2 also takes a lesser time to pay back the initial investment as compared to the counterpart.

Therefore, proposal 2 should be given go-ahead amongst the two options.
There are many other financial factors that were put forward in considering the best alternative amongst the two proposals. The discount rate is very significant for making capital investment decisions. Basically, this is considered that minimum acceptable rate of return of the project. At the same time, riskiness and accuracy of the forecasted cash flows have to be analyzed because these cash flows form the basis of all financial measures. Hence, any problem with the cash flows would invalidate the profitability of the project. At the same, the foreign risk needs to take into effect. Any change in the foreign exchange rate between the overseas countries will considerably change the cash flows of the project and hence affect the financial measures. On the other hand, the political stability, economic factors, and tax incentives need to be focused on if proposal 2 is to be moved ahead.
An effective launch plan is very significant for the new product launch. It needs to well planned and well documented for the success of the new product in the existing market or a new undiscovered market (DRM Associates, 2002).    . Financial Management Measures - Profit and Loss Statements.

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