Calculating cash flow and net present value (see paper for details) Assignment

Calculating cash flow and net present value (see paper for details) - Assignment Example From the presented case of the manufacturing organization, revenue outflows are the additional support costs of  £4K every year. Capital inflows refer to those incomes that are generated from other activities other than the normal trading of an entity. In the case of the manufacturing organization such capital inflows is the sale of machinery. On the other hand, revenue inflows are those incomes that are generated by an entity from its normal operations by selling goods or services. To establish the payback period, the cumulative cash flows was established, but from the above calculations, the manufacturing organization could not cover its initial investment costs of  £410K from the net cash flows it generates within a period of five years. It is also a discounted cash flow technique that uses the principle of NPV. It is individual investment’s rate of return when it is considered in isolation or independently of all other investments that the firm undertakes. It is that rate of return which is inherent or internal to the cash flow of a given project. It is the discounting or required rate of return that gives a zero NPV i.e. ∑PVs – I0 = 0 NPV. Internal rate of return is established through trial and error, interpolation, or extrapolation method. Through the trial and error, a rate of interest is selected at random and is used in the establishment of NPV of the cash flows. If the rate chosen gives a lower NPV than the cost, a lower rate is chosen and if the rate gives a greater NPV, a higher rate is chosen. The process continues until the final rate chosen gives a zero

Analysis of the financial statements of three leading supermarkets in Research Paper

Analysis of the financial statements of three leading supermarkets in UK - Research Paper Example Reporting financial results in a transparent and straightforward fashion is a means to an end (Fridson & Alvarez, 2002). The financial performance of a company can be discerned by the different financial ratios in accounting that tries to evaluate the overall financial condition of a company. The different financial ratios can be categorised into liquidity ratios, activity ratios, debt ratios and profitability ratios. Liquidity ratios measure the company's availability of cash to pay its obligations and debts. Activity ratios measure the ability of the company to convert non-cash assets into cash. Debt ratios measure the company's capability to repay long term obligations. Profitability ratios measures how the company controls its expenses and uses its assets in order to generate an acceptable rate of return. Based on the financial statements and financial ratios calculated, Tesco is more liquid than Sainsbury and Morrison. The liquidity of the company is measured by the current assets ratio as well as the acid test ratio. An asset is liquid if can be readily converted to cash, while a liability is liquid if it must be repaid in the near future. The current assets ratio compares the assets that will turn into cash within the year to the liabilities that must be paid within the year. The acid test ratio is a more conservative liquidity measure where the numerator of the current ratio is reduced by the value of its inventory. (Higgins, 1995) The trends of Tesco's liquidity ratios are increasing from 2007 to 2009. This means that the company has