+ 44 20 8144 3706Executive Summary:
Coffee industry in UK is growing rapidly but it is becoming expensive because of decrease in pound. Main challenge in this industry is competition because there are many firms.
Roast Ltd profitability ratios are good but company should focus more on its liquidity and efficiency ratios. It can be observed that company could not maintain proper liquidity in its company and this may create liquidity crunch in the company. Also, inventory and debtors holding period is increasing because of which OCC is increasing and ultimately finance cost of company is also increasing.
Company dividend policy is also not good because management is paying dividends to its shareholders when net profits are lower.
Roast Ltd should go for accepting the investment appraisal for expansion in Romania because under all techniques it is showing positive results.
On the basis of different source of finance, company can go for borrowing various type of loans on the period basis along with owned capital because company is having high retained earnings.
Starbucks can go for acquiring Roast Ltd because there are very less firms that grow coffee beans in UK and this company is one of them. This will be helpful for company in decreasing its import cost and ultimately increasing company’s profits.
Part1: Industry Review:
• Coffee industry in UK is very big market and it is growing industry because coffee is not grown in UK. This plays very important role because many manufacturers import coffee beans from outside countries into UK. Also, Britain is the country which is mainly known as highest consuming coffee (Acharya, 2016);
• As per the study of HMRC, coffee beans are been imported from various countries such as Brazil, Vietnam, Indonesia etc. approximately £ 393.5 million in year 2018. Also, coffee prices for UK purchasers have become highly expensive because of depreciation of pound which is big challenge for companies prevailing in UK;
• Key major players in coffee industry in UK are BrewDog, Deliveroo, Costa Coffee and Starbucks which are highest brand value in this industry (Maye, 2019);
• Green coffee is the highly consumed coffee in UK which is imported from European market. Also, roasted coffee and soluble coffee is also of greater value as compared to the other coffee present in the world;
• UK’s coffee growth was 5.8% in year 2018 which was lower than the growth of 7.1% in year 2017 which was because of slow economic conditions;
• Biggest challenge for coffee industry is the location of shops in the market according to the consumers. According to consumers, restaurants and coffee shops should be located in the centre of city so that it can be available to them (Ferreira, 2017);
• It has been noticed that approximately 76% of estimated produced value is furnished in the same country and remaining is either exported or imported to other countries.
• According to year 2019, Total revenue earned of £ 6 billion and from 2014 to 2019, total growth took place in this industry is 6.1% (Laitinen, 2017)
Part2: Business Performance Analysis
2.1 Statement of Profit & Loss
The Profit and loss (P&L) statement is a budget summary that outlines the incomes, expenses, and costs caused during a predetermined period, generally a monetary quarter or year. This statement is along with the income statement (Kajananthan, 2018). These records give data about an organization’s capacity or failure to create profits by expanding income, decreasing expenses, or both. It is also helpful in analyzing profitability ratios of the company like gross profit margin, net profit margin, operating profit margin.
Reference:
Books and journals
Abor, J.Y., 2017. Evaluating Capital Investment Decisions: Capital Budgeting. In Entrepreneurial Finance for MSMEs (pp. 293-320). Palgrave Macmillan, Cham.
Acharya, U.K. and Pun, U., 2016. ANALYSIS OF NEPALESE COFFEE INDUSTRY: PRODUCTION AND POST-HARVEST ISSUES. An Official Journal of Nepal Horticulture Society, 11(1), p.66.
Almazan, A., Chen, Z. and Titman, S., 2017. Firm Investment and Stakeholder Choices: A Top‐Down Theory of Capital Budgeting. The Journal of Finance, 72(5), pp.2179-2228.
Batra, R. and Verma, S., 2017. Capital budgeting practices in Indian companies. IIMB Management Review, 29(1), pp.29-44.
Canil, J. and Karpavičius, S., 2018. Are employee stock option proceeds a source of finance for investment?. Journal of Corporate Finance, 50, pp.468-483.
Cox, J. and Nguyen, T., 2018. Does the crowd mean business? An analysis of rewards-based crowdfunding as a source of finance for start-ups and small businesses. Journal of Small Business and Enterprise Development, 25(1), pp.147-162.
Ferreira, J., 2017. Café nation? Exploring the growth of the UK café industry. Area, 49(1), pp.69-76.
Hayward, M., Caldwell, A., Steen, J., Gow, D. and Liesch, P., 2017. Entrepreneurs’ capital budgeting orientations and innovation outputs: Evidence from Australian biotechnology firms. Long Range Planning, 50(2), pp.121-133.
Hes, T., Mintah, S., Sulaiman, H., Arifeen, T., Drbohlav, P. and Salman, A., 2017. Potential of microcredit as a source of finance for development of Sri Lankan biogas industry. Energy & Environment, 28(5-6), pp.608-620.
Hughen, J.C. and Strauss, J., 2017. Portfolio Allocations Using Fundamental Ratios: Are Profitability Measures More Effective in Selecting Firms and Sectors?. The Journal of Portfolio Management, 43(3), pp.87-101.
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