Parkson Corporation Analysis

Parkson Corporation Analysis The objectives of this report is to present the findings of the strategic analysis conducted for Parkson Corporation Sdn Bhd and recommend the key strategies that the organization should implement in order to against with their competitor. So, the report begins by examining the general environment that affect the growth of organization, industry condition by using Porters Five Forces Analysis. The discussion part will describe the three stakeholders that affect the decision making of company and organization direction. Next, review the strength, weakness, opportunities and threats which can call SWOT analysis. The SWOT analysis determines and specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective for company. Lastly, discuss about the key selection criteria and recommendations for Parkson Corporation Sdn Bhd. to identify their strategies to against their main competitiv e and maintain its market share, market value and also their company reputation. 1.3  Scope of the report This report had covered the operations of Parkson Company in China, Vietnam and Malaysia. For information, the report had analyzed the internal and external environment and also its industrial conditions and competitors which are the factors of operation growth for Parkson Corporation Sdn Bhd. Moreover, the online research such as online article, online magazine, online newspaper that related to Parkson Corporation Sdn Bhd is the major information sources for the analysis. 1.4 Limitations Parkson Corporation Sdn Bhd has their limitation too. Firstly, not all customers know the strategy of Parkson Corporation Sdn Bhd. It causes them to lose their confidence towards the company. For example, from the operations of Parkson Company in China, it was showed that the market shares drop significantly. It highly depend on China causes customers to lose confidence because of their lack of the information about the company. Besides, the company sometimes showed some uncertain of their real performance and problems. The reason behind is sometimes the actions do not reflect what the report have mentioned so called transparency issues. Furthermore, Parkson Corporation Sdn Bhd cannot purchase their products through online. It show the inconvenient to the customers when they are not free or busy. In addition, it has their limited target market. They only focus more on the high income ladies. Therefore, it shows that it has no obvious competitive advantage compare with other competito rs. Thus, without the important information, the company will face lots of difficult problem. In order to solve their problems for their company, they must try to improve their operation management. 2.0 Background Of The Organization Parkson was one of the well known shopping malls. There was a lot of Parkson outlet can be found around the world. In other country such as China and Vietnam, there was a lot of Parkson outlet were available to be shop. Parkson was one of the largest department store company in China and Parkson currently has 35 outlets in Malaysia.Parkson branded department stores was divided into 36 brand and 2 Xtra branded. Parkson was established in the year of 1987. In Malaysia, the founder of Parkson was the retailing arm of the Lion Group and it is rapidly became one of the largest shopping malls in Malaysia. As an example, we can find Parkson outlet in Kuala Lumpur such as Subang Parade, Pavilion and other stated as well in Malaysia. Inside the Parkson, it has divided into few departments. The departments were strategically divided into different market segments and locations. The main purpose of the segmentations was preventing the customer to be confusing as the stores are categorized into 3 tiers depending on suitability of market and location. Since the Parkson was one of the successful shopping mall, it has been given a lot of achievements as their growing from strength to strength. Parkson always strive to do away with the conventions and to bring a fresh perspective to the retail industry. As an example, Parkson has been given a title of Malaysia Most Valuable Brands in 2009 or known as MMVB. MMVB is a part of a national brand valuation study commissioned by an Association of Accredited Advertising Agents Malaysia and conducted by Interbrand. Other achievement such as Certificate of Excellence Awarded to Parkson Pavilion being the Overall Best Retail Outlet in 2009/2010 and achievements that had achieved by Parkson. Parkson has its own moving forward target or mission. Parkson will constantly stays true to the needs and aspirations of the consumers. It has promises to continue to improve themselves in order to stay relevant. Parkson has emergence of younger age c onsumers who are well travelled, brand or image conscious and lifestyle-oriented will be the key of Parkson considerations which will lead Parkson lead the Parkson brand strategy. 4.0 Strategic Options Based on the situation analysis conducted, several strategic options or alternatives are proposed for the organisation. These strategic options include: 1. Set target customer higher We suggest Parkson Holdings upgrade their operation system and relocation their business direction by set their target customer among medium class income and upper class income customer. Parkson Holdings also can invite more branded company such as Gucci, LV and other come set their shop lot. There are few shopping center that sell luxury goods in Malaysia and previously Parkson Holdings image in public already is a high cost expenses shopping center. So now, we suggest Parkson Holdings try to upgrade their image and specific their customer segment, which medium and high classes income customers. 2. Refurbishing and Construct a new building For example, Parkson renovate the whole buildings by upgrade its store image and profile. Parkson can refine all the merchandise to higher income products and brand mix. This indirectly can enhance the productivity of retail space. Besides revamp the whole buildings, we would suggest that Parkson re-construct the building for instance let Mahkota Parade to be the Parkson Holdings shopping complex. Parkson will do all their business activities inside the shopping complex. Besides that, they also can rent their shop lots to other suppliers or clients to earn profits. 3. Preserving cash for potential MA opportunities and retail property acquisition Table 1. Major MAs Announced During 2006 MA Value (RM Billion) Parkson Retail Group, Lion Diversified Holdings Bhd, and Amalgamated Containers Bhd 4.3 Source: PWC Research As we can see from the Table 1 above, when Parkson Retail Group merged with Lion Diversified Holdings Bhd, and Amalgamated Containers Bhd, it can create the value of RM4.3 billion. Thus, we suggest that Parkson can choose to preserve some cash for potential mergers and acquisition opportunities and retail property acquisition. As mentioned in the first strategy, we suggest Parkson target medium and high classes income customers. Therefore, Parkson can choose to merge with Cold storage producers that sell high quality products like organic foods and used organic production method. We select organic foods as green products and services are now becoming the center attention of consumers. 4. Diversified product line to other industry and Retail space We suggest Parkson to invest in hotel industry other than just Parkson shopping centre complex. For example: we can refer to Hatten square which have their own buildings for retail shopping complex and also hospitality service suites in addition come out the ideas of Information Technology (IT) in their buildings. In addition, according to Parkson, it will target to expand its retail space by 15% 20% each year or 9-12 new stores in the countries where it operates. Hence, we suggest that Parkson can target country like India as India now is a fast growing country. If globalization success, this indirectly can helps in the formation of international financial system. 5. Go green projects For example, we can convey to Parkson Subang Parade, Parkson Corporation Sdn. Bhd. by implemented the No Plastic Bag Day Every Saturday green campaign  to reduce plastic bags in response of Environmental Social Responsibility (ESR). However, this strategy only covers in Selangor State. Thus, we suggest that this strategy can be further implemented to all parts of Malaysia. Furthermore, we also could follow the step of 1 Utama shopping mall in Petaling Jaya by come out a secret garden which has the system that reduces its usage of treated pipe water by 30%, and a building automation system with sensors that automatically adjust lighting and temperature. Moreover, we also can could followed the step of Tesco Greener Living by come out green gifts which using recycle material to handmade products. 6. Involve in Charity Apart from that, money that we earn from the Green projects will donate to the society for charity work. Parkson can also join charities and support groups that concentrate on eco-friendly lifestyles and choices. Parkson can donate items to schools, churches, city clubs and organizations. Parkson can promote themselves at eco-friendly events and give away items like free gifts or sample at school fairs, carnivals, or local cities farmers market. Involved in such events and can help people can become aware of contributing to the health of our planet and indirectly to help Parkson build a superior images in market. Key selection criteria According to Brundtland Commission (1987), sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainable development is a worthy goal for small and big businesses everywhere, especially for globalization organization. As members of various communities, we know that society, the environment, and the economy are interconnected. In order to maintain sustainable image and revenue, Parkson will appear few strategies that try to create and more focus on awareness, reputation, make profit and efficiency when making strategies. Profit maximisation is the aim of the owners and shareholders. Company will try to make the most profit as possible. One of the essential factors for Parkson needs to focus its sales growth. Parkson need make as many sales as possible. This may be because we believe that the survival of the business depends on being large. Large businesses can also benefit from economies of scale. In order to this cases, Parkson will attempt to upgrade its store image and profile, diversified product line to other industry and also can merger or joint-venture with other sector industry. When Parkson struggle to merger with other sector industry or use differentiation strategy, it can help Parkson establish good reputation by thrust business into the limelight and open doors for Parkson. Besides, it also can assist Parkson to partner with a larger company such as Lion Diversified Holdings Bhd  [1]  , and Amalgamated Containers Bhd to access their large list of customers and it will frankly improve   Parkson profitability and EPS. Parkson can share the risks with partner and help to gain higher competitiveness; nevertheless it can be rigid Parkson to enter the new market and it will become barrier to entry for Parkson. Pay attention to the environmental impact of our economic practices, and try to ensure that our communities are healthy, pleasant places to live. Nowadays, organizations started to paying attention and actively producing greener products and services to create a center of attention consumers. Parkson Corporation Sdn. Bhd. actively involved in sustainable development and follows the pace to adopt environmentally sound business principles and translate these into action. Parkson Corporation CEO raises awareness and reputation at this time, and he believes that the positive impact for the environment is immense for 2011 and well into the future. He adopt this approach because he believe and aware that operating a green business is not only good for the environment but good for their businesss bottom line because conserving resources and cutting down on waste saves money However, Parkson Corporation Sdn. Bhd. promotes No Plastic Bag Day only covers in Selangor State initially, it haven i mplement in other states. Environmentalism is no enough for certain places; it should engage numerous metropolitan areas and every branch in promoting the use of eco friendly bags in order to get more efficient and successful effects. Even thorough Parkson Corporation Sdn. Bhd. had implement eco-friendly, nevertheless it still no adequate to contributing to a healthy world and healthier place for us and for the future. Parkson should put more improvement and enhancement to implement eco-friendly. For example, we can follow the step of Tesco Greener Living by come out green gifts which using recycle material to handmade products. We also can put more focus of store on the eco-friendly category. Parkson can let customers see that there are practicing what their sell. If customers feel like you have a true passion about the environment, it will help them purchase these items with confidence. If customer is interested in an item, try to offer them a similar item that is eco-friendly. It not merely can make contribution to making the world a better place; it also straightforwardly can enhance and create awareness to customers and build customer loyalty. In order to determine where it is going, the organization needs to know exactly where it stands, then determine where it wants to go and how it will get there. Parkson need to carefully establish unique value proposition and strategies compared to competitors, executed through operations that provide different and tailored value to customers and drives continual improvement within the organization and moves it toward its vision in order to become market leaders in market. 6.0 Recommendation Key Questions Option/Hypothesis/ Recommendation Decision Criteria Pros Cons (i)Parkson had started to pay attention to the environmental impact of our economic practices, and try to ensure that our communities are healthy, pleasant places to live. (i)Parkson should propose the shop outlet to have a zero plastic bag day in order to archive a green environment target. (ii)Zero plastic on Saturday was not enough to influence the customer to be more green environmental minded but should apply to other day as well. (i)No plastic bag was given to the customer whenever the customers purchase their stuff in Parkson during Saturday period. (ii)The customers who really or ask for the plastics bag will be charge for 20 cent each. (i) A green business able to provide a better environment and also a good for their businesss bottom line because conserving resources and cutting down on waste saves money. (ii) Able to prevent damaging the environment from the chemicals in cleaning products that are sprayed out into the air. (i)There will be some of the customer dislike the strategy of the Parkson (ii)The customer might be dislike to shop on Saturday. (iii)The non given plastic bag strategy might cause the sales of the Parkson drops. (iv)Other competitors might gains advantages on Parkson strategy and increase their sales. Since everyone of the shopping mall had started to pay attention on the green environment activities, the Parkson also had started the move on it. Most of the shopping complex had their own strategy like no plastic bag will be provide to the customer who purchase stuff or item on Saturday. We believe that it is not enough for Parkson to active on this program. As a result, Parkson can improve it by having more zero plastic bag days for the week. Nevertheless, it is important for the shop outlet in Parkson to be corporate with them as well. The shop outlet also can propose not to provide plastic bag to the customer. In directly, it can help our environment to be a better place and also can help them to save their cost. (ii) How Parkson time to times change improve their Parkson images and environment of the shopping complex? (i) Parkson can create their own super market and no need other super market or hyper market such as Cold Storage. With this, Parkson can have a better environment and gain more competitive advantages. (ii) Once Parkson have their own brand name, they can try to sell their product at other shopping mall in order to have a different shopping environment for the customer. (i)Parkson always construct or renovate their building As an example in Malacca( Mahkota Parade had relocate the shop location and paint their building. (i) Parkson able has a better management for the shop. (ii) Parkson able to generate new image, give new shopping feels and attract more customer to shopping. (iii) They also can rent their shop lots to other suppliers or clients to earn profits. (v) Parkson upgrade their operation system and relocation their business direction. (i)It might comsume a lot capital for the renovation and building construction in order to have a new building. (ii)Is hard to find a new place or location to construct a new building (iii)When there is a renovation, it might disturb the businesses which are going on. (iv)When there is a renovation, A lot of space consuming will be required. Such as the place to store the renovation stuffs and parking lots. When time past, the customer might be started to get bored due to the unchangeable environment or shop in the Parkson. As a result, Parkson had started to change their image and the shopping environmental. As we can see, most of the Parkson had reconstructs their building, painting their building and so on. I believe that it is not enough to satisfy the customer needs. Parkson can try to create their own super market or hyper market instead of renting their space to the Cold Storage or Giant. It can help them to gain more competitive advantage and have a better shopping environment for the customers. It might include a lot of capital but we believe that Parkson able to generate more profit in the future. By that time, Parkson no longer depend to other super market or hyper market but it has it own brand or name of the super market. (iii)What capability should Parkson develop to ensure the success? (i)High diversification to increase the profit. (ii) Since Parkson have their own member card or member day, Parkson should have more attractive reward which can redeem by the customer with the bonus link point. (iii) Parkson should attract more investor to invest in to their share as well. With a huge capital provide from the investor, Parkson can develop more their shopping more or maybe have a better management. (i)High diversification. (ii)Differentiation strategy. (iii)Focusing on their product line. (i)Less risk with the premium pricing and increase retail consumer market. (ii) Parkson able to gain more competitive advantages. (iii) With a interesting or attractive reward, it can indirectly influence the customer to spend more on their products. (i)Economic downturn. (ii)Competitor strategy to counter the Parkson strategy. (iii) If investment by the Parkson fail will cause the investor occurs loss. (iv) The cost of the reward to member might include a huge capital. Parkson was one of the famous shopping mall. In every department of the Parkson, we can find a lot of product sell by them and it has show Parkson product is highly diversified. It is one of a good strategy to increase the profit. But there is a weakness among them. Most of the product sell by them were more to the female department comparing with department. Parkson should implement differentiation strategy and make the diversification in to more wide area. Focus more on the product line and make it balance well be one of the great solutions for this matter.

Education †Law Essay

Life is too short for acquiring knowledge. Student life is mainly meant for studies. A student who devotes his full energy and time to his studies is a good son of his motherland. India needs mentally alert and able young men and women. It is the duty of students to acquire as much knowledge as they can during their student life. A nation of undisciplined citizens can never make any progress. Such a nation is always in danger of extinction. Indiscipline is a serious drawback of our national life. Not only students but also mature citizens, responsible leaders and honorable legislators, often behave in an undisciplined way. This shows that they did not get proper training in early life. Naturally, it becomes the most important duty of students to be fully disciplined. They should be disciplined in every thought and action. No one can become disciplined. It is essential in their life outside schools and colleges. The damaging of public property, burning of buses etc., are all signs of indiscipline. They are anit-national activities. Students must not indulge in them. During the national struggle for freedom, students were asked to take active part in the struggle. But in free India students must devote all their time to their studies. However, political parties use them to gain their own ends. In Gujarat, in Punjab, in Assam, in Bihar, and in other parts of the country, students were used as tools. They took part in agitations against price-rise, unemployment, or for the dissolution of some Legislative Assembly or the other at the cost of their studies. Students must safeguard themselves against their involvement in politics. It simply means wastage of time and energy. Only mature minds can be successful in politics. the first duty of students is to carry on their studies. They should avoid politics. A nation does not live by its big factories, dams or buildings. It can live only by the character of its people. During three hundred years of foreign rule, our moral character was shaken. Students are yet in the process of training. It is their sacred duty to build up their character. They must learn from the very beginning the lesson of self-help, self-reliance and self-sacrifice. These are the essential qualities of character which they  must acquire. They should learn to co-operate with each other in their class-rooms, on playgrounds and in other activities of college life. For them no duty is of greater importance than the development of character. Today communalism threatens to break the country into pieces. Religion is being used to secure votes. This must not be done. It is the duty of students to see that religion is declined from politics. Religion must not be misused for political purposes. Further, students must shun violence. Violence leads to terrorism. Every effort must be made to do away with it. Students as citizens of India must play an active part in putting down such evils. Students should participate in the political life of the country, but not at the cost of their studies. No doubt, the voting age has now been lowered to 18 years, but this does not mean that they should neglect their studies. Seasoned and experienced leaders are there to shape the destiny of the nation. Students will be required to take their place when they retire. They are the future builders of the nation. Their duty in the present is to prepare for the future. They should be well equipped morally, emotionally, mentally and physically. In this way alone would they do discharging their duty to their motherland.

The Business Sector Driven Rationale Of Neoliberal Free...

As per Paulo Freire, as the business sector driven rationale of neoliberal free enterprise keeps on devaluing all parts of people in general great, one outcome has been that the instructive worry with greatness has been expelled from matters of value, while the thought of educating as an open decent has to a great extent been diminished to a private decent. Both open and advanced education are to a great extent characterized by the corporate interest that they give the abilities, learning and qualifications that will give the workforce important to the United States to contend and keep up its part as the major worldwide monetary and military force. (Stefkovich, 2013). Along these lines, for Freire, education was not a way to plan†¦show more content†¦What Paulo clarified in Instructional method of the Oppressed, his most compelling work, is that instructional method taking care of business is about neither one of the training, showing techniques nor political influence. For Freire, instructional method is not a strategy or a from the earlier system to be forced on all understudies, however a political and good practice that gives the learning, abilities and social relations that empower understudies to grow the conceivable outcomes of being basic natives, while extending and developing their investment in the guarantee of a substantive majority rules system. Basic intuition for Freire was not a question lesson in test taking, but rather an apparatus for self-determination and city engagement. For Freire, basic speculation was not about the assignment of essentially recreating the past and understanding the present. (Zeichner Liston, 2013). Freire rejected those administrations of instructive corruption sorted out around the requests of the business sector, instrumentalized information and the need of preparing over the quest for the creative ability, basic intuition and the educating of opportunity and social obligation. (Zeichner Liston, 2013). As opposed to take on the position of a false fair-mindedness, Freire trusted that basic teaching method

THE LEGAL ELEMENTS OF FINANCING IN BUSINESS - Free Essay Example

Sample details Pages: 15 Words: 4553 Downloads: 3 Date added: 2017/06/26 Category Business Essay Type Research paper Did you like this example? Balance sheet: This financial information sheet is very important as it illustrates the companys financial status and stability, as it summarises how the company is being operated, as well as listing its liabilities and assets (Alexander and Britton, 2004). The term balance sheet explains its intention of presenting financial data as its two parts are intended to balance and show equality, and would normally include the following information: (International Labour Office, 1991) Current assets Fixed assets Current liabilities Long-term liabilities Shareholders equity Current assets: These differ from fixed assets as these could be sold or used within one year, and are listed on the balance sheet in order of their increasing liquidity value, so are normally ordered as stock, debtors and cash. Therefore, the financial strength of a company is represented by its current assets, but it also demonstrates its operating efficiency and its competitive pos ition with other companies. Don’t waste time! Our writers will create an original "THE LEGAL ELEMENTS OF FINANCING IN BUSINESS" essay for you Create order However, the value levels of current assets need to be sufficient for companies to operate on a day-to-day basis, but if these become insufficient then the company will need to find an external source of funds, such as loans that are termed debts. According to Shapiro and Balbirer (2000), there are five different types of current assets: Cash and equivalent high liquidity items, Investments over the short-term and long-term, Accounts that will be received, Inventories of stock held, and Expenses that are pre-paid. Fixed assets: These would include assets that the company would not intend to sell within one year, so could not be used to operate the business or exchanged or sold for cash. Therefore, these may be regarded as the companys property, such as building structures or land (Ross et al., 2007). However, these fixed assets can also be subject to subdivision into two types: (Vanhorne and Wachowicz, 2008) Tangible assets: These exist physically and contr ibute to the companys overall financial value, and would normally include building, bank deposit, machinery and land assets. Intangible asset: These are different from tangible assets as they do not visibly exist as a physical form or directly contribute to the companys financial value. Therefore, these are listed on the balance sheet differently. This may be explained by a company purchasing a patent to protect its products design rights, as the purchase of the patent remains an asset that is intangible. However, its purchase may lead to generating revenue at a later date indirectly. Goodwill is another intangible asset that gives credibility and indirect value to a company. Therefore, a companys intangible assets should be: Identified, Controlled, and Used to improve profit margins. Current liabilities: Current liabilities are those that need to be repaid or clear within one year, and usually relate to short-term loans taken from external sources, so demonstrates a companys liabilities or debts. These would often include the interest that needs to be paid to clients for any deposits invested with the company, short-term loans and any outstanding accounts that remain unpaid (Watson and Head, 2009). Long-term liabilities: Long-term liabilities would normally describe all long-term loans from external sources, where liability for repayment extends more than one year. However, if the final repayments will be completed for long-term loans within the forthcoming year, these would be reclassified as current liabilities, but a simple definition of long-term liabilities would be long-term debts. Some companys take short-term loans or debts to finance specific work activities, but renew these on an annual basis, so when this pattern is established, the practice would be defined as long-term liabilities (Alexander and Britton, 2004). Shareholders equity: This represents the companys total worth, and the claim by shareholders on the companys finance s when all loans, debts and credits have been paid (Banks, 2010), although this equity is also known as owners equity. Needles et al. (2008) explain that the formula shown below for calculating shareholders equity may be adopted. Stockholders equity = Total assets Total liabilities Or Shareholders equity = Share capital + Retained earnings Treasury shares These formulas would produce the companys net worth, stockholders equity and share capital, which are all similar terms. Shareholders equity is shown on the balance sheet, and two sources will determine the data for this formula calculation. Firstly, financial data relating to the selling of stock and the investors payments for these, and secondly any retained earnings. Retained earnings are likely to be company profits not paid to shareholders. Both sources of financial data generate the value of shareholders equity. Part 1 The items for the balance sheet for SHU plc is shown in the table below that present end-of-year values for 2008 and 2009, and shown in thousands of pounds, and expenses and revenues for each of these years are shown as profit and loss items. This data also includes all taxes paid for each year. 2008 2009 Revenue  £4,000  £4,100 Costs of goods sold 1,600 1,700 Depreciation 500 520 Inventories 300 350 Administrative expense 500 550 Interest expense 150 150 Central and local taxes 400 420 Accounts payable 300 350 Accounts receivable 400 450 Fixed assets 5,000 5800 Long term debt 2,000 2,400 Notes payable 1,000 600 Dividends paid 410 410 Cash and marketable securities 800 300 1.1 Balance Sheet The balance sheet shown below presents the financial statement for SHU for 2008 and 2008, which produces the second part of question A that calculates shareholders equity. Assets 2009 2008 Liabilities 2009 2008 Current assets Current liabilities Cash equivalents 300 800 Due debt for payment Receivables 450 400 Accounts payable 350 300 Inventories 350 300 Other current liabilities 600 1000 Other current assets Total current assets 1100 1500 Total current liabilities 950 1300 Fixed assets 5800 5000 Long term debt 2400 2000 Tangible fixed asset Deferred income taxes Property, plant and equipment Other long term liabilities Less accumulated depreciation Net tangible fixed assets 5800 5000 Total liabilities 3350 3300 Intangible fixed assets Good will Other intangible assets Total intangible fixed assets Share holders equity 3200 2760 Total fixed assets 5800 5000 Retained earnings 350 440 Other assets Total share holders equity 3550 3200 Total assets 6900 6500 Total liabilities and share holders equity 6900 6500 1.2 Shareholders equity When all liabilities have been deducted, shareholders equity demonstrates a companys net worth (Pinto and CFA Institute, 2010), and this value is shown on the balance sheet after calculating the financial data. The formula suggested by Needles at al. (2008) calculates shareholders equity as below: Shareholders equity = Total assets Total liabilities Therefore, this financial data will be taken from the balance sheet shown above and the calculations for both years are: Shareholders equity (2009) =  £6,900,000  £3,350,000 =  £3,550,000 Shareholders equity (2008) =  £6,500,000  £3,300,000 =  £3,200,000 1.3 Net working capital This is also known as working capital ratio and net working capital, and represents a simple difference between current assets and current liabilities, and Needles et al. (2008) present the following formula for this calculation: Net working capital = Current assets Current liabilities Net working capital (2008) =  £1,500,000  £1,300,000 =  £200,000 Net working capital (2009) =  £1,100,000  £950,000 =  £150,000 In comparing these two years, the net working capital has reduced, as current assets were greater than the decrease of current liabilities. 1.4 Profit and loss statement SHU plc statement of profit and loss for 2008 and 2009 (Values are in thousands of pounds) 2008 2009 Net sales 4,000 4,100 COGS 1,600 1,700 Selling, G A expenses 500 550 Depreciation expenses 500 520 EBIT (4,000 1,600 500 500) = 1,400 (4,100 1,700 550 520) = 1,330 Net interest expense 150 150 Taxable Income (1,400 150) = 1,250 (1,330 150) = 1,180 Income Taxes 400 420 Net Income (1,250 400) = 850 (1,180 420) = 760 Allocation of net income dividends 410 410 Addition to retained earnings (850 410) = 440 (760 410) = 350 This profit and loss statement shows the net income of SHU plc, and the earnings before interest and tax (EBIT) is calculated by taking the operating revenue value and deducting the operating expenses value, and then adding non-operating income. Therefore, the net sales of SHU plc demonstrate its operating revenue, and operating expenses are deducted from this, such as expenses of depreciation, general and administrative (GA) expenses, selling expenses and the cost of goods sold (COGS). These calculations result in the EBIT value, but interest expenses will also need to be deducted, as well as deducting tax to achieve the net income value. When the net income has been determined, the value of the dividends to be paid to shareholders is defined, as well as how much will be retained by the company. These retained earnings are also known as reinvested earnings of the company. These retained or reinvested earnings are regarded as the investors share of the earnings of the company, but retained by the company for commercial reasons rather than distributing these to these investors. In contrast, losses incurred by the company are described as accumulated losses or retained losses, and these would also be included in the balance sheet within the shareholders equity section. SHU plc had reinvested earnings of à ‚ £350,000 for 2009, and these reinvested earnings, as well as common stock, contribute to calculating the total shareholders equity. However, if there is a decrease in reinvested earnings, and over a two-year period the total shareholders equity remains the same, shareholders equity will increase. 1.5 Earnings per share The formula to calculate earnings per share is described by Tracy (2004) as the following: Earnings per share = net income à · number of outstanding shares To calculate the earnings per share formula for each year, the financial data of net income for 2008 of  £850,000 and net income for 2009 of  £760,000 is used, as well using the data of the total number of shares, which are 500,000. Earnings per share (2008) =  £850,000 à · 500,000 =  £1.70 Earnings per share (2009) =  £760,000 à · 500,000 =  £1.52 1.6 Price per share of SHUs stock Total shareholders equity =  £2,900,000 + (  £350,000 +  £3,200,000 ) +  £200,000   =  £6650000 Price per share = Total shareholders equity à · numbers of shares =  £6,650,000 à · 500,000 =  £13.30 Part 2 SHU plc is interested in constructing a large shopping centre near the train station in Sheffield and has asked for an investment appraisal to help the board decide whether or not to accept this project. Therefore, the investment appraisal will use the following information and guidance given by SHU plc: The proposed construction will begin in 2012 and be completed in 4 years. There will be four phases for this construction. The life of the project is 15 years. Each level will have 12,000 sq.ft. area, and all four levels total an area of 48,000 sq.ft. Rental income will be based on  £15 per sq.ft. starting in year 5. Estimated construction costs will be based on  £13 per sq.ft. at 2012 values. Statutory costs are estimated to be  £48,000. Professional fees are based on 3% of the construction costs. Land acquisition will cost  £2,000,000 Rental income will be based on an increasing rate of occupancy of 25% each year for the first four years from year 5. Maintenance costs will start in year 5 costing SHU  £950,000 each year. 3% inflation rate is predicted for calculating costs and revenues. The payback period must within 9 years, which is a requirement of SHU plc. However, Investment needs to be fully understood before a solution to this part of the assignment can be attempted, but can be simply described as the method of buying large capital items for companies. Investment appraisal: Companies need an investment appraisal to judge whether invested funds will give value for money, but can also determine the potential value of the company based on other investments. Investment appraisal can be applied is several different ways, such as payback period, accounting rate of return (ARR), internal rate of return (IRR), profitability index, net present value (NPV) and cash flow. Payback period: This is well established method to calculate how long it will take to repay the amount initially invested (Ross et al., 2007), which is the case of SHU plc is a maximum of 9 years. Many companies use this method for screening projects that are unsuitable. However, Kinserdal (1998) argues that payback period method has disadvantages, such as not considering profits arising after the payback period, and it does not consider time value of money. Kinserdal (1998) also suggest other aspects that analysts should consider when using payback period method, such as: Investment capital is tied up during the payback period, Liquidity is enhanced for short-term payback, Longer periods for payback expose potential risks, Short-term payback periods have greater reliability, Simple and easy calculation are possible for this method, and Most companies understand this method and is widely adopted. Accounting rate of return (ARR): ARR calculates the value of a project over its useful life, by calculating average profit over time, and indicates the potential value of the investment and is simple to understand (Ross et al., 2007). Internal Rate of Return (IRR): IRR calculates the rate of return that the project is forecasted to achieve, so if the IRR is higher than the targeted rate of return, the project should be adopted. Therefore, when several projects are being considered, the project with the highest IRR would normally be selected (Ross et al., 2007), but some weaknesses are exposed by this method, such as: The relative size of investments is not considered, This is difficult to use for projects without established cash flows or for selecting exclusive projects, and Changes to discount rates over the projects life cannot be included within IRR calculations. Profitability index: According to Warren (1998), this is a profit investment ratio, as the method defines the mutual relationship between investment costs and its benefits for a proposed project. The formula for calculating the profitability index is: PI = Present value of the cash flows in the future / the initial investment. The results indicate whether an investment is recommended or not recommended. Net Present Value (NPV): NPV is calculated by finding the difference between the present value of outflows of cash and the present value of cash flows, and the results indicate whether a project should be accepted or declined (Ross et al., 2007). In addition, the NPV method shows sensitivity to future cash inflows for the purposes of investment appraisal and the following formula is used for this calculation: 2.1 Perform an Investment appraisal for the proposed project Initial investment made for the project.  £13.00 per sq.ft. construction cost is increased by a 3% inflation rate each year. Initial investments made in the project: Construction costs: 1styear  £ 13.00 12,000 sq. ft 156000.00 2ndyear  £ 13.00 + 3% of  £ 13 =  £ 13.39 12,000 sq. ft 160680.00 3rdyear  £ 13.39 + 3% of 13.39 =  £ 13.7917 12,000 sq. ft 165500.40 4thyear  £ 13.79 + 3% of  £ 13.7917 12,000 sq. ft 170465.40 Professional fees on the construction cost 3% of 652646.00 Land acquisition cost: Statutory costs: Total investment in the project: The payback period method is used in the table shown below by analysing expected cash flows of the projects life. Revenue of the project: Rentals expected: Years Rent / sq ft (a) Total area in sq ft (b) Cost (a)*(b)=c Revenue after maintenance 5thyear  £ 15.00 25% *48,000=12000  £ 180000  £ 130000 6thyear  £ 15.00 + 3% of  £ 15 =  £ 15.45 50% *48,000=24000  £ 370800  £319300 7thyear  £ 15.45 + 3% of  £ 15.45 =  £ 15.9135 75% *48,000=36000  £ 572886  £519841 8thyear  £ 16.39 100% *48,000=48000  £ 786720  £732084 9thyear  £ 16.88 48,000  £ 810321.60  £754046.15 10thyear  £ 17.39 48,000  £ 834720  £776756.29 11thyear  £ 17.91 48,000  £ 859680  £799977.38 12thyear  £ 18.45 48,000  £ 885600  £824106.31 13thyear  £ 19.00 48,000  £ 912000  £848661.50 14thyear  £ 19.57 48,000  £ 939360  £874121.35 15thyear  £ 20.16 48,000  £ 967680  £900484.20 From these calculations it is seen that SHU plcs investment in the project of  £2,720,225 is achieved between years 9 and 10, but SHU Plc expects that pay back is 9 years or less. Therefore, by the justification of the calcul ations above, the project cannot be recommended to SHU plc. These calculations show that after 9 years 4.09 months the invested amount would be paid back, but as this period exceed the 9-year limit set by SHU plc, the project would not be accepted.  £2,455,271.15 received in year 9  £3,232,027.44 received in year 10 Amount invested was  £2,720,225 So,  £2,720,225  £2,455,271.15 =  £264,953,085  £3,232,027.44  £2,720,225 =  £511,802.44 The cash flow in one year is  £776,756.29 calculated by the difference in the calculations above. When this is divided by 12, we get the monthly cash flow.  £776,756.29 / 12 =  £64,729.69 / month. So the total payback period is 9 years and 4.09 months, and so the payback period has been exceeded and SHU plc will reject this project and this investment appraisal recommends rejection based on the requirement of SHU plc to achieve payback within 9 years. The professional fee based on percentage costs of th e construction would be  £652,646, the statutory costs are likely to be  £48,000 as well as land acquisition costs, which demonstrate the initial investments. Each year construction costs will be affected by 3% inflation that needs to be added to the  £13.00 sq.ft. costs. In addition, inflation would also influence maintenance costs that begin in year 5, which would be deducted from the total rent revenue. The estimated occupancy rate is 25% for year 5 and increasing by another 25% each year over the following three years, and in year 6 rents would be subject to a 3% inflation-related increase. This investment appraisal has used payback period method, as its focus on cash flow is easily understood, but it should be noted that this method does not account for time value and there is no consideration of risk; therefore, decisions cannot be taken regarding maximising value. There are also other factors that justify why this project should be rejected, such as investing t his capital in 4% bonds that would give a better rate of return on the investment than the construction project. So, if 4% is taken as the interest (r) and the time t is taken as 9, by calculating the amount at year 9 by using the compound interest formula, the amount received is  £3,871,728. This is much higher than the revenue in the payback at year 9 ( £2,455,271.45). This calculation is shown below. Compounding interest formula: P = C (1 + r) t =2720225*(1+0.04)^9 =3871728 These calculations have shown there are different options for investing capital, and construction project may not always offer the best solution. Also, land costs might appreciate or depreciate in value over time due to volatile market conditions, and the proximity of the train station might expose the shopping centre to future problems if the rail network changes or buildings need to be extended, which may lead to the need to demolish the shopping centre. Also, shoppers and businesses may be d eterred from using this proposed shopping centre due to noise and vibration from train freight, as well as parking problems. In conclusion, the project is not recommended. SHU plc may wish to balance this recommendation against some other influencing factors, such as the payback period only needs to be extend by another 4 months, and the projected income after this period up to the 15-year life of the project is considerable. Also, as the land is adjacent to the railway station it should have a high demand and could be sold at a significant profit in the future. Furthermore, if there is a high level of interest in renting the shopping centre units, the rents could be raised more, but the risks will also expose potential risks. So, as consultant I would like to recommend that SHU Plc. does not accept this project, and to invest the amount in funds or private initiative projects that would provide higher revenue. Part B This business opportunity would mean that the constru ction of a four-storey shopping centre would become a fixed asset of SHU plc if it decides to accept this project. However this is a large capital investment for the company as costs of construction are estimated to be  £2,720,225, but it only accepts projects that repay the initial investment within 9 years. As a result, the recommendation of this report is that the company rejects this project, but if it reconsiders its payback deadline or intends to accept a similar project, it requires advice on the optimum funding source for this capital investment. This decision is difficult as there are many options for seeking funding from many financial institutions and specialist groups, but these charge differing levels of charges, costs and may have time limitations for repayment, so this report will analyse this range of options and make a recommendation to SHU plc for the best choice of funding source. These funding options include: (HSBC.com.hk accessed 16 December 2010) What is needed financially? This project requires the construction of a shopping centre, but capital needs may change over time, so overdrafts are not appropriate, as long-term capital finance would be better. What will the project achieve? A business plan should describe the projects objectives, profit and cash flow forecasts, as well as potential risks. How much and how long? The investment appraisal should show the total construction costs and the optimum time length for the debt to be repaid. Which options? Each project will require a unique solution. What are the risks? High charges and interest rates will influence profits and cash flow, and the repayment methods may be inappropriate. The finance costs are likely to be based on risk assessments, so will vary between different projects. Often companies use equity finance to fund development opportunities, as cash flow and profit margins are not affected. Therefore, investment funds can be sourced from overdrafts, ba nk term loans, asset based finance, receivable finance, invoice discounting, angel funding and venture capital. Finance methods would include external finance that may be short-term or long-term, but companies can also source funds from internal finance methods for similar periods. Other methods include assistance from government and finance specifically for small and medium companies. External finance financial institutions offer short- and long-term loans for business opportunities, but external finance would also include angel investors and venture capitalists that buy company stocks. Personal savings company owners can invest in their own company, but remains external finance as the company has to repay this investment. The amount will determine the time for repayment, but this is not suitable for SHU plc. Commercial banks these offer overdrafts for short-term needs or bank loans for longer-term needs, but will be subject to high commercial interest rates dependen t on the perceived risk of the project, and is not suitable for SHU plc. Building societies although similar to banks and offer mortgages to purchase real estate, this is not suitable for SHU plc. Factoring services this trade credit is used as short-term finance to buy supplies to convert into products that can be sold, when the loan is repaid, and this is not suitable for SHU plc. Share issue by selling shares a company can raise capital, and when it makes a profit, this is repaid to its investors, but as a long-term option, this is not suitable for SHU plc. Debentures this is for very long periods and for large amounts of funds, so this is not suitable for SHU plc. Venture capital investors are guaranteed returns on their investments if they can offer the capital investment, and is similar to the issue of shares, and is not suitable for SHU plc. Leasing and hire purchase occupiers use a property and pay rent, but never own the property and this is not suit able for SHU plc. Hire purchase the occupier makes instalment payments, but does not own the property until the final payment is made and is expensive, so this is not suitable for SHU plc (Teachnet-uk.org accessed 14 December 2010). Internal financing this offers a company the flexibility of financing its own projects and may be short- or long-term finance. There are savings in costs as interest charges, fees and transaction charges are not applicable, as these funds come from depreciation or retained earnings. If depreciation is adopted as a method of internal financing then other advantages are exposed as when cash flow increases, the company can devalue assets values over time. Then, when the assets are depreciated, the tax liability of the company also reduces. Long-term financing retained profits can be used as surplus funds for funding projects, so long as profits are assured. Short-term financing stock levels can be reduced, creditors can be paid late and cred it controls need to be strict. Reducing stocks stock can be sold to create investment capital for other projects, but is a short-term solution and is depended on the interest levels of buyers. Delaying payments due debt is increased and the companys reputation is damaged. Reducing stock levels if payments to workers are delayed, workforce relationships are damaged despite raising funds, but this is a bad option (Teachnet-uk.org accessed 14 December 2010). Funding sources evaluation Selecting the best source for funding construction projects is difficult, as costs and charges vary according to the risk exposure of the loan, and although SHU plc may wish to consider all these options for sourcing funding, consideration needs to be given to charges and costs over the long term for these loans. SHU plc is recommended not to accept this project, as repayment of the investment cannot be made within 9 years, which is a requirement of the company. Nevertheless, if the company accepts another similar project or reviews this current proposal, then I recommend to the company that the best funding option would be internal financing and to use the depreciation method. If this action were taken asset values would be depreciated and tax payments would reduce, and the company would avoid potential risks and charges from external financial institutions. Conclusion This assignment has examined the importance of finance for successful business operations that has examined construction projects, and rates of return on investments when investment opportunities arise, as well as methods and terminology used to justify whether or not to accept potential projects. The first task required me to construct a balance sheet for 2008 and 2009 for SHU plc and to explain the importance of each of the elements of this financial information sheet. This financial information included the calculation of shareholders equity that was  £2,600,000 in 2009 and  £1,900,000 in 2008. In 2008 net working capital for SHU plc was  £200,000 and in 2009 it was  £150,000. This shows a reduction due to a decrease in current assets that was more reduced that the decrease of current liabilities. I then constructed a profit and loss statement for 2008 and 2009, and in 2009 the reinvested earnings as  £350,000. Also, this financial statement showed that shareholders equity increased between 2008 and 2009 from  £1,900,000 to  £2,600,000, which was due to paid-in capital and common stock that increased from  £1,460,000 to  £2,250,000. In contrast, during this period retained earnings reduced from  £440,000 to  £350,000. The calculation presented in this investment appraisal also demonstrated that in 2008 the earnings per share was  £1.70 and for 2009 it was  £1.52, and the price per share was shown to be  £4.90 per share. The investment appraisal examined the proposed new shopping centre in Sheffield near the railway station, and SHU plc invited me to examine the relevant information and its companys requirements and to make recommendations to the company within the investment appraisal whether it should accept or reject this development opportunity, as well as to give advice about sources for finance for this project. This investment appraisal analysed differing methods and presented their advantages and disadvantages. Payb ack period method is widely used and is simple to calculate, but has weaknesses as no values are allowed for cash flows, there are no risk adjustments, maximising wealth is not included and time value of money is not considered. This report examined other methods, such as net present value, cash flows, internal rate of return, profitability index and accounting rate of return. This assignment evaluated this proposed construction project with payback method and calculated the cash flow estimates for 15 years. The conclusion of this investment appraisal is that I recommend SHU plc to reject this shopping centre project. The justification for this recommendation is that the investment cannot be repaid within 9 years, which is required by the company, as this is only achieved after a further 4 months. Therefore, a higher rate of return for this investment could be achieved from investing in a 4% bond over the same time period. However, the board may wish to reconsider this option as the cut off point is extended by only 4 months, and the investment appraisal calculations have shown considerable revenue is likely in the following years until the life of the project ends. Nevertheless, there is greater exposure to risk over a longer period that must also be noted. If SHU plc reconsiders this shopping centre construction project or another similar project, the optimum source of funding should be found, as many options for taking loans exist commercially. This report has also discussed and analysed the options for funding capital project by giving their advantages and disadvantages. However, the best sources may be different for different projects, so these need to be examined carefully. Therefore, if SHU plc decides to accept this project or another similar project the recommended financing method is internal financing and adopting the depreciation method, as finance costs and tax liabilities are both reduced.