Business Finance

Module 6

Fundamentals of Business Finance

Cohort: Jan 23 – Level 4

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Subject: Business Finance

Introduction and Meaning of the Financial Information

Introduction: This report aims to examine General 7 Seas Onboard Restaurants Ltd.’s financial performance and situation for 5 financial years, from 2019 to 2023. This information aims to measure liquidity, effectiveness, profitability and evasion of related risk which is made through the financial year 2019 to financial year 2023. The purpose of this analysis is to provide a comprehensive reflection of 7 Seas Onboard Restaurants Ltd.’s financial health by classifying key tendencies and dares and along with it posing references for considerate financial management in the working process of the business.

Financial Information: This information helps to reflect corporate data and records, by taking the financial situation, performance and activities of a business. Financial Information of the company includes annual reports financial statements and discoveries that assist in the investigation of the many business transactions, assets, liabilities, income and expenditures of the industry (Wallstreetmojo.com, 2024). Financial Information of the company helps by way of a healthy instrument for shareholders for inspecting and assessing of financial health and financial performance of the business, which is complemented by creating well-informed conclusions and assessing the competency of the company to meet its financial responsibilities on time.

Stakeholder Motives

Government (HMRC)

Her Majesty's Revenue and Customs that is HMRC needs 7 Seas Onboard Restaurant’s financial information to make sure that there is appropriate tax obedience. This financial information aids the government in verifying that the industry is exactly reporting its profits, earnings and tax obligations (GOV.UK, 2024). For example, HMRC may emphasize corporate tax responsibilities, employee income tax, and value-added tax, all of which are contingent on the financial information of the company, which is delivered. By way of analyzing this financial information, the government can measure if the restaurant is remunerating the right amount of taxes and classify any possibility of tax evasion problems (GOV.UK, 2024).

DFDS Seaways

Being a business partner and feasibly a shareholder, DFDS Seaways is attentive to the financial constancy of 7 Seas Onboard Restaurants since their teamwork could disturb own operations of DFDS. DFDS may use the company's financial data to measure the profitability, cash flow, and cost management of the business (DFDS A/S, 2023). This examination aids in determining the feasibility of the partnership, along with the ability of 7seas to sustain operations aboard and if any financial threats exist that could disturb their teamwork, for example, deficit or liquidity problems.

Suppliers of Raw Materials

For example, food and beverages are considered suppliers of raw materials are intense to analyses the financial health of 7 Seas to measure its affluence and capability to meet payment duties. A fiscally steady restaurant may indicate to suppliers that they can make appropriate payments, dropping the threat of bad debts. Suppliers of the company also use financial information to transfer contract relationships for example payment programs, pricing, and credit restrictions as per the cash flow and solvency of the company (Ziphaccp.com, 2022).

Potential Investors

Potential investors of the restaurant are attentive to the financial performance of 7 Seas to assess the profitability, growth forecasts, and long-term feasibility of the restaurant. It reviews financial measures such as profit margins, revenue growth and return on investment to measure the possibility for future returns. Shareholders also use this financial data to measure possible risks, for instance, variations in costs and earnings instability, formerly determining whether to obligate their resources to the business (OpenTable, 2021).

Banks and Financial Institutions

Banks and financial institutions call for comprehensive financial information to appraise the solvency of 7 Seas Onboard Restaurants earlier lengthening its loans or credit lines. It can examine liquidity ratios, solvency ratios and cash flow statements of the business to measure the ability to pay back its outstanding loans. In addition, financial institutions may search for any red flags in the financial structure of the company, for example, high stages of debt that could designate for risk of default (Bankofengland.co.uk, 2021).

Purpose of Financial Information

Performance Assessment: Financial data of the company helps to allow stakeholders to measure the past and current performance of the company. This is grave for considerate cost control, profitability and productivity. DFDS Seaways, being a partner, may study revenue and profitability to regulate the contribution of the restaurant to its operations, whereas banks may investigate the solvency and liquidity ratios of the company to measure the financial health of formerly loaning (Bragg, 2024).

Risk Assessment: Financial data of the business is used to measure the level of risk related to a business. Aimed at banks and financial institutions, risk assessment is a perilous role that aids in determining the ability of the company to pay back its outstanding loans. Aimed at potential investors, the financial statements of the company deliver an image of risks and elaborate on investment prospects.

Decision Making: The main purpose of financial information is to assist stakeholders in well-informed decision-making. Whether it is the government for measuring tax liabilities, shareholders assessing investment prospects or banks seeing loans, financial information of the company is used to regulate upcoming actions. Perhaps, suppliers put to use its financial data to measure the ability of the company to make payments; however, potential investors use it to assess the profitability and growth possible.

Answerability and Obedience: Governments (HMRC), use the financial information of the company to make sure that businesses are obedient to tax rules and other financial rules. Correct the financial data of the company and make sure that taxes are properly considered and funded. Correspondingly, shareholders and investors of the company use financial data to grasp management answerable for company performance and strategic decisions.

Characteristics of Good Financial Information

Appropriateness: Financial information should be accessible when needed. Well-timed data help to allow shareholders to react rapidly to fluctuating situations. For instance, if the cash flow of the company is declining, banks are required to distinguish directly to regulate credit terms or loans. Likewise, DFDS Seaways need appropriate information on the performance of the restaurant to ensure smooth teamwork (accaglobal.com, 2024).

Accuracy: The financial data of the business must be correct and free from any error. Wrong financial information can reflect poor decision-making, legal penalties and a damage of trust. For instance, wrong reporting of revenues or costs reflects to underpayment of taxes or misinforming stakeholders. Similarly, suppliers trust correct financial information to make sure that the company can meet its payment responsibilities (accaglobal.com, 2024).

Relevance: Noble financial information of the company must apply to the requirements of the stakeholders. It should deliver financial data that aids shareholders in making knowledgeable decisions regarding the future. Such as potential investors' prerequisite for appropriate information for its profitability and growth, though the government prerequisites for applicable tax data (Team, 2023).

Comparability: Stakeholders of the company should be capable of comparing financial information through periods or along with other companies. It permits the valuation of tendencies and benchmarking presentation. For instance, potential investors, use relative financial data to assess whether 7 Seas Onboard Restaurants provides an improved return on investment as compared to other prospects (Team, 2023).

How These Characteristics Address Motives of Stakeholders

Aimed at the government (HMRC), accuracy and obedience make sure that the company pays the precise amount of taxes to the government. Aimed at DFDS Seaways, dependability and significance are essential by way of prerequisites for dependable information to assess the partnership’s value of partnership. Suppliers of the company get benefit from accuracy and appropriateness in assessing the ability of the company to pay. Potential investors rank dependability, relevance and comparability to choose on the overall profitability and future development of the company. On the other hand, Banks and financial institutions trust appropriateness and reliability to measure risk and make loaning well-informed decisions.

Ratio Analysis

Calculation of Ratios of 7Seas Onboard Restaurant

Profitability Ratios

Gross Profit Margin: The margin ratio helps to explain the portion of the profit of the company, which when accounting for the cost of goods sold is done. It displays the effectiveness of production and cost management of the company (BDC.ca, 2019).

Development: The 7Seas Onboard Restaurant presented an adverse gross margin in the years 2019 and year 2020, as it indicates that costs are surpassed from revenue. Conversely, in the year 2021, the gross profit margin of the business turned constructive and produced consistently, reaching 56.21% in the year 2023. It is signals for significant improvement in cost control and revenue production.

Operating Profit Margin: The margin ratio helps to assess the efficiency of the core business operations of the company. It eliminates non-operating costs such as taxes and interest (Team, 2024).

Development: This operating profit margin of the business was adverse in the year 2019 and year 2020 but moved to constructive in the year 2021. The margin touched 33.68% by the end of the year 2023, as it reflects improved operational effectiveness and cost management of the business.

Net Profit Margin: This ratio displays the portion of revenue that is leftover once all expenses such as taxes and interest are deducted from operating profit (Wall Street Prep, 2023).

Development: The net profit margin of the company enhanced from adverse values in the year 2019 and year 2020 to a constructive 23.57% in the year 2023. This stable growth proposes for operative control over all expenditures, not just working.

Efficiency Ratios

Return on Investment: it measures the efficiency of the company to produce profit from its investments employed (Vipond, 2023).

Development: In the year 2019 and year 2020, the company had no verified investment expenditures, which led to no return on investment. However, ROI surged to 142% in the year 2021 and 1830% by the end of the year 2023, as it demonstrated extremely successful investment policies.

Return on Equity: This ratio of the business helps to indicate the efficiency of the company in using shareholders’ equity to produce profit (BDC.ca, 2020).

Development: Once an adverse ROE in the year 2019 and year 2020, the company displayed constructive ROE data from the year 2021 to the year 2023, topping at 10.36%. It reflects improved use of equity capital and increased overall profitability.

Asset Turnover Ratio: This efficiency ratio of the business measures the efficiency of the company's use of its assets to make revenue (Wall Street Prep, 2024).

Development: This ratio gradually increased from 0.09 in the year 2019 to 0.28 in the year 2023, which suggests enhanced productivity in consuming assets to produce better sales.

Liquidity Ratios

Current Ratio: This ratio helps to assess the capability of the company to pay back its short-term liabilities with short-term assets (BDC.ca, 2020).

Development: The current ratio of the company varied, preliminary at 0.88 in the year 2019, topping at 3.25 in the year 2022, and relaxing at 1.75 in the year 2023. A ratio above 1 indicates the concrete ability of the company to pay its liabilities, as the drop in the year 2023 sign of a decrease in liquidity.

Quick Ratio: This ratio eliminates inventory from assets so that to give a more severe measure of the liquidity of the company (Wall Street Prep, 2024).

Development: The quick ratio of the business monitored the current ratio, topping in the year 2022 at 3.24 and then reducing to 1.75 in the year 2023, as it indicates that whereas liquidity leftovers are healthy, the quick assets of the company have reduced marginally.

Default Risk Ratios

Equity Ratio: This ratio helps to measure the amount of assets which is financed by shareholders against debt (Wall Street Prep, 2024).

Development: The equity ratio of the company dropped from 0.51 in the year 2019 to 0.37 in the year 2021, earlier it rose to 0.64 in the year 2023. A greater ratio in current years shows a reduced dependence on debt and an improved capital configuration.

Debt Ratio: This ratio helps to show the amount of the assets of the company financed by debt (Peterdy, 2023).

Development: The debt ratio of the business increased to 0.91 in the year 2021, as it suggests for noteworthy borrowing, then fell to 0.36 by the end of the year 2023. This decrease specifies a reduction in financial risk, by way of the company has reduced its debt problem on the company.

Conclusion

At the end of the five-year financial period, the company has exposed notable improvement in operational efficiency, profitability and liquidity. Whereas its debt load peaked in the year 2021, the company has meanwhile enhanced its financial configuration, dropping default risk and increasing equity financing of the 7 seas. The general financial health and performance of 7 Seas have significantly improved, particularly in the profitability and efficiency sectors.

Limitation of Ratios

• Financial Ratio analysis does not evaluate the human component of a company.

• Financial ratio analysis can merely be used for assessment with other companies with having same magnitude and category (BBC Bitesize, 2018)

• It may be problematic to associate with other companies since they may not be eager to share this information.

• The use of information in the analysis is as per real past outcomes that are free by the company. Consequently, the ratio analysis measure of the company does not essentially signify future company financial performance (Team, 2024).

• An expert should be conscious of regular factors that can result in limitations of financial ratio analysis. The incapability to regulate the ratio analysis to the seasonality special effects may reflect false clarifications of the consequences of this analysis (Team, 2024).

• If the rate of inflation in the market has altered in any of the periods in analysis, this can indicate that the numbers are not equivalent through accounting periods.

• A company may modify its primary operational configuration to such a scope that a ratio considered numerous years previously and associated with the same ratio now would produce a confusing decision (Bragg, 2023).

• Ratio analysis can be unsafe to conduct a ratio analysis assessment between two firms that are following different policies.

• If the accounting policies and procedures of the company have altered, this may meaningfully affect financial reporting. 

• The main financial measures used in ratio analysis are altered in this case. By way of a consequence, the financial results of the company are recorded once the changes are not equivalent to those verified before (Arora, 2021). 

Conclusion

After completing the five-year financial period from year 2019 to year 2023, the company has established noteworthy development in efficiency, liquidity, profitability, and risk management. Profitability margins, mainly gross and net profit margins, have changed from adverse to strongly positive, as it indicates strong cost control and revenue development. Efficiency, which is measured by return on investment and return on equity, and asset turnover ratios, which have improved significantly, as it reflects better asset utilization and investment yields. Liquidity ratios, whereas topping in the year 2022, endure strong despite a minor decrease in the year 2023. The financial risk of the company has also been reduced, as shown by a lower debt ratio and an increasing equity ratio, viewing a move in the direction of more maintainable equity financing in the capital structure.

Suggestions: The 7 Seas onboard restaurant should preserve its prominence on optimizing operational productivity and adjusting costs to endure profitability in its business operations. Sustained management of debt stages and upholding a strong liquidity position will make sure for long-term financial steadiness and support future growth for the company. Moreover, strategic investments must be made to sustain high profits on equity and investment.

References

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