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Discounted cash flow

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Beer is the most widely consumed alcoholic beverage and it is oldest prepared beverage in the world; the beer is third most popular after water and tea. The big two breweries that are Scrabbles Brewery Malaysia Bertha(CB) and Guinness Anchor Bertha(GAB) in Malaysia. Strengths and weakness of Scrabbles Brewery Malaysia Bertha The strengths of Scrabbles Malaysia are that brand image, strong financial position quality and distribution network.

The Scrabbles Group has a long tradition for sponsorships that can be positively associated with Scrabbles brands.

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The Scrabbles Malaysia has financially powerful to be protected from the fluctuating fortunes of the Malaysian market. The weakness of Scrabbles brewery is face a largely Muslim population in Malaysia so the government has used the alcoholic drinks industry as a source of revenue generation and accordingly excise hikes are large and frequent.

The cost of beer brands in Scrabbles Malaysia is getting higher, due to the consumption tax. Strengths and weakness of Guinness Anchor Bertha The strength of Guinness Anchor Bertha is the joint venture of the winning brands companies such Guinness, Tiger, Anchor and Heinlein.

In Malaysia There are five popular brands in the market which are tiger, Scrabbles, Heinlein, Anchor, and Guinness. In this five brands have four is come from Guinness Anchor Bertha.

Based on the pie chart below, it shows the market share for beer brewer in Malaysia. As GAB claims 59% of market share and is obviously ahead of Scrabbles, which is estimated to be at 41%. Page 1 of 16 The weakness of Guinness Anchor Bertha and Scrabbles shared the same weaknesses which are government interference of tax control and face a largely Muslim population in Malaysia and the government has used the alcoholic drinks industry as a source of revenue generation. 2.

Financial analysis No 2 Financial analysis 3 4 Quick assets ratio Average collection period Inventory turnover Gross profit margin 5 Operating profit margin 6 Operating income 7 8 Total asset turnover ratio Non-current asset turnover ratio Debt ratio 9 10 11 Long term debt to total capitalization Net profit margin 12 Return of total assets 13 Return on equity ratio YEARS Scrabbles Brewery Malaysia Guinness Anchor Bertha(CB) Bertha(GAB) 2009 2010 2011 lays days times 098 or 0929 or 1. 29% ). 1028 or 10. 28% | . 106 times 24 times 0. Error 2. 9% 0. 127 or 12. % 0. 1859 or 18. 59% 1. 457 times 15 times 0. 1508 or 15. 08% 0. 1511 or 15. 11% 0. 3099 or 30. 99% 2. 05 times 19 times 0. 1631 or 16. 31% 0. Error 16. 34% 0. 3551 or 172 times 23 times . 56 times . 63 times 1. 4533 or 5. 33% ). 0828 or 3. 28% ). 0733 or 7. 33% 0. 0811 or 8. 11% 0. 1485 or 14. 85% 0. 3739 or 37. 39% 0. 0856 or 8. 56% 0. 0980 or 9. 8% 0. 1428 or 14. 28% 0. 2278 or 22. 78% 0. 2892 or 28. 92% 0. 380 or 38% 0. 1123 or 11. 23% 0. 2304 or 23. 04% 0. 3243 or 32. 43% 0. 2459 or 24. 59% 35. 74% 0. 0121 or 1. 21% 0. 0264 or 2. 64% 0. 3302 or 33. 2% Comparison Financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, financial analysis involves extrapolating the company’s past performance into an estimate of the company’s future performance. Will compare 12 months ended 31 December 2010 between Scrabbles Brewery Malaysia Bertha(CB) and Guinness Anchor Bertha(GAB). Page 2 of 16 1. Quick assets ratio GAB is ARM. 17 quick assets to meet every RMI . 00 and CB is RMI . 13 quick assets to meet every RMI . 0 of current liabilities. That means GAB have enough ash on hand to meet accounts payable, interest expenses and other bills when they become due. The higher the ratio, the more financially secure a company is in the short term. The quick ratio is too low, the larger the risk of short-term corporate debt. The CB still can comfortably meet its current obligations. 2. Average collection period GAB collects its credit sales every 50 days and CB collects its credit sales every 55 days, a short collection period means prompt collection and better management of receivables.

A longer collection period may negatively affect the short-term debt paying ability of the business. . Inventory turnover The CB high inventory turnover than GAB, the CB turnover is 24 times and GAB is 15 times. The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is managed by comparing cost of goods sold with average inventory for a period. In general, a low turnover implies poor sales and excess inventory. A high ratio implies either strong sales or ineffective buying. 4. Gross profit margin The gross profit margin of GAB is 15. 08% and CB is 12. %. The higher the percentage is an indication of the financial success and viability of a particular reduce or service. Gross profit margin serves as the source for paying additional expenses and future savings. The investors and analysts can compare similar companies and companies to their overall industry and assess companies financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold. 5. Operating profit margin The operating profit margin of GAB is 15. 11% and CB is 12. 7% in 2010 . GAB is more efficiency than CB.

The operating profit margin ratio indicates how much profit a company makes after paying for variable costs of production such s wages, raw materials and other etc. It is expressed as a percentage of sales and shows the efficiency of a company controlling the Page 3 of 16 costs and expenses associated with business operations. Higher operating profit margin means that the company has good cost control or that sales are increasing faster than costs, this is the optimal situation for GAB. 6. Operating income The operating income of GAB produced a 30. 99% and CB is 18. 9% return on its total assets before interest and taxes have been paid. Operating income is a measure of profitability that tells investors how much revenue will eventually come profit for a company Operating income is also called earnings before interest and taxes. A business that has a higher operating margin than others in the industry is generally doing better as long as the gains didn’t come by piling on debt or taking highly risky speculations with shareholders money. 7. Total asset turnover ratio For every RMI . 00 of total assets, the GAB produced 0. 21 cents and CB is 1. 46 cents.

In general, a low asset turnover ratio suggests problems with excess production capacity, poor inventory management, or lax collection methods. In general, the company can use ‘small profit quick return way’ to accelerate turnover of assets, the absolute amount of increase profits. 8. Non-current asset turnover ratio Non-current assets including held to maturity investments, long-term receivables, long-term equity investment, engineering goods, investment real estate, fixed assets, construction in progress, intangible assets, long-term prepaid expenses, available for sale financial assets.

The GAB uses its investment in non-current assets is 0. 56 times and CB investment in nonoccurrence assets is 0. 23 times. 9. Debt ratio The GAB is financing approximately 28. 2% of its assets with borrowed funds and the CB financing approximately 37. 39% of its assets with borrowed funds. A lower debt ratio usually implies a more stable business with the potential of longevity because a company with lower ratio also has lower overall debt. The CB face financial risk is higher than GAB. 10. Long term debt to total capitalization Page 4 of 16 The GAB long term debt to capitalization ratio is 38% higher than CB, CB only have 8. 6%. If the percentage is higher, it means that the finance of the company mainly comes from the debt which can be quite risky and is sometimes reason for bankruptcy and shows how weak the company is financially. In general, a decrease in the long term debt to capitalization ratio would mean that there is an increase in the stock holder’s equity. 11. Net profit margin The net profit margin of GAB is 11. 23% and CB is 9. 8%. The amount of net profit margin depends on two factors: First, total profit and the second is the income tax rate.

The net profit margin is the percentage of revenue remaining after all operating expenses, interest, taxes and preferred stock dividends have been deducted from a company’s total revenue. For ever RMI . 0 of sales, GAB earns approximately 0. 11 cents for their shareholders and CB earns approximately 0. 09 cents for their shareholders. 12. Return of total assets The return of total assets is measure of how effectively a company uses it assets and the total assets are based on the carrying value of the assets.

A higher return of total assets is better; Return of total assets depends on the company, the industry and the economic environment. The GAB return of total assets is 23. 04% and CB is 14. 28%. 13. Return on equity ratio CB Return on equity ratio is 22. 78% and GAB is 32. 43% higher than CB. Return on Equity is indicator of how effective management is at using equity financing to fund operations and grow the company. If the percentage higher means more money a company is able to generate for the same dollar amount spent. This is an important measurement.

Because investors want to see how efficiently a company will use their money to generate net income. Return on equity is also an indicator of how effective management is at using equity financing to fund operations and grow the company. Page 5 of 16 3. Recommendation Nowadays the adult prefer have a relax and enjoying lifestyle so they will rink beer to relax themselves and a lot of people admit they turn to alcohol to help them cope after a stressful day, so after work they will go pub, disco, bistro with friends, colleagues even boss.

In term of opportunities, option 1, Scrabbles flagship store in Malaysia. The term “flagship” refers to a ship which is the largest, fastest, newest, most heavily armed, most well known, or the lead ship in a fleet. When applied to a particular retail store, the designation of “flagship” is given to a retailer’s primary location, a store in a prominent location, a chain’s largest store. The flagship store has a key role to play in the company’s brand strategy. The flagship store is a showcase for the brand. The purpose of a flagship is not to generate a profit.

Instead, it has a particular job to do in drawing attention to the brand, broadcasting its brand status and marking itself out against its competitors. Flagship shopping itself is more about shopping for leisure and pleasure. The flagship store provides an opportunity for customers to experience the brand in an innovative and memorable way, so raising brand awareness on a truly personal level. The flagship store making a strong brand tenement, it may be used to test the market, re-position the brand, trial new products, assess retail store design concepts or act as host venue for a range of PR activities.

Flagship stores generally have the best of everything. Store design and layout is luxuriously spacious, the best products are on display some unique to the flagship, merchandising is innovative with stock maintained at optimum levels, window display is stunning, lighting is perfect, the store is spotlessly clean and meticulously tidy, and customer service is second to none. Scrabbles flagship store of basic facilities also added a new element. The new element is combine flagship store and sport bar. This idea is from Scrabbles Sports Bar London the Casino at The Empire.

Except casino, facilities in Scrabbles flagship store including: Scrabbles sport bar, icon balcony bar, the shadow bar, vapor bar and restaurant. Scrabbles Sport Bar is State of the arts screens; slick design and wall to wall sport live from where it’s happening in any sports, such as: football, golf, formula 1, basketball, baseball and other sport etc. Icon Balcony Bar is also an interconnecting private cinema making it especially perfect for presentations, conferences and award ceremonies. Shadow Bar is a stunning and truly versatile space.

The illuminated dance floor, private bar and sink in your seat loungers make it an obvious choice for performances or events with dancing and music. Vapor Bar is the perfect place to enjoy exquisite cocktails & major sporting events in dramatic surroundings. In restaurant can watch chefs work the woks in on show kitchen as create affordable, authentic Asian dishes, Mikhail (alcohol free) and enjoy an exotic tea while meal comes together, most important is this restaurant serve for Muslims. This concept must attract over 18 years old Malaysian and tourists to come over here.

Option 2, the CB can invest in Taiwan. Compare with Taiwan The current population of Malaysia in total is 30,267,367 and Malay is over 50%. The current population of Taiwan in total is 23,373,517 in Taiwan CB no need to face largely Muslim population. Page 6 of 16 The beer market in Taiwan is estimated to be four times larger than Malaysia. In Taiwan, younger generations are more inclined towards western diets such as burgers, bread and pizza, making this group of consumers a good target for imported beers from other countries. In Taiwan threats of Scrabbles is domestic ere production in Taiwan.

Local beer production accounts for over 80% of total beer consumption in Taiwan. Page 7 of 16 4. Capital Investment Analysis & Sources of Financing Recommendations Capital investment analysis Capital investment decisions essentially include the commitment of large sums of money which affect the business for several years. These decisions require purchasing of items such as land, machinery, buildings, or equipments, which is one of the most important decisions that a business manager undertakes. In addition, purchase of a capital item requires immediate payment, whereas the income or benefits need time to increase.

Since the benefits are reliant on future events, an intensive evaluation of investment options becomes inevitable. The goal of this process aim is to pinpoint the option that is most likely to be the most profitable for the business. Business manager may use techniques such as discounted cash flow analysis, risk-return analysis, risk-neutral valuation and utility theory in a capital investment analysis. Capital investments are risky because they involve large, up-front expenditures on assets intended for many years of service and that will take a long time to pay for themselves.

If a capital investment is financed, it must earn an even greater return, to compensate for the interest the company must pay on the financed funds. Furthermore, a poor investment decision may not be reversible. Thus, an investment decision, a financing decision, and a dividend decision form a capital investment analysis. Unlike some other types of investment analysis, capital budgeting focuses on cash flow rather than profits. Capital budgeting involves identifying the cash in flows and cash out flows rather than accounting revenues and expenses flowing from the investment.

Capital budgeting is vital in marketing decisions. If the investment is unprofitable in the long run, it is unwise to invest in it now. In general, it would be good to know what the present value of the future investment is, or how long it will get returns on investment. It could be much more profitable putting the planned investment money in the bank and earning interest, or investing in an alternative project. One of the primary goals of capital budgeting investments is to increase the value of the firm to the shareholders. Each project must yield a positive net present value (NP).

There are four main guiding principles by which financial managers should assess the pros and cons of the various capital-budgeting criteria. These are: C] The use of cash flows rather than accounting profits to measure a project’s costs and benefits. Consistency with the Goal of Wealth Minimization Allowing for the Time Value of Money Accounting for Project Risks page 8 of 16 and benefits. [l The use of cash flows as a measurement tools, rather than accounting profits. When a firm invests in assets of projects, it outlays cash, so it is logical that the true cost and benefits should also be measured in units of cash.

The firm receives and is able to reinvest cash flows, whereas accounting profits are shown when they are earned rather than when the money is actually in hand. The major difference between accounting profits and cash inflows is depreciation expenses. Unfortunately, a firm’s accounting profits and cash flows may not be timed to occur together, due to factors such as depreciation and credit sales. Accordingly, the use of accounting profits will not truly reflect the costs and benefits associated with a project.

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Discounted cash flow. (2018, May 20). Retrieved from https://graduateway.com/discounted-cash-flow-2/

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