Financial and Non-Financial Attributes of Fashion Investment Decision Assignment Sample

Financial and Non-Financial Attributes of Fashion Investment Decision

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1: Introduction - Evaluating Fashion Investment Projects Through Financial and Non-Financial Metrics

This report shall focus on the various financial and non-financial attributes of an investment decision being implemented for the appraisal of fashion related projects. Moreover, this report shall also focus on the additional cash recommendations as well as suitably identify whether to make or buy the nylon and polyester T-shirts. The additional focus of this report shall be further provided on the investment and liquidity decisions for the project to achieve its required objectives.

2: Marketing

As per the above graphical division of potential sales, the major emphasis should be given to northern England and London owing to the potential of high revenues from those regions.

3: Profitability and Risk

Selling Price (£)	20.00	per shirt sold	5820	116,400.00
Direct Materials (£)	5.00	per shirt produced	5820	29,100.00
-
Best case	15%	better than expected	133,860.00
worst case	15%	worse than expected	98,940.00
Target profit (£)	150,000	for 6 months	120000

Table 1: Profitability Estimate after 6 months

(Source: Created by Learner)

As per the above table of profitability estimate, it can be estimated that the profit after 6 months is assumed as £ 120,000. Therefore, from the above table it can be analysed that the expected profit after 6 months is slightly lower as compared to the target of £ 150,000. The one risk factor that could potentially affect the sales projection can be attributed to the arrival of a new market entrant who provides various products at the same segment. The one opportunity factor to increase sales can be attributed to the potential of Trendsetters to attract a large share of customers through digital marketing (Bala and Verma, 2018).

The margin of safety and sensitivity to changes in profitability has been duly identified by taking into consideration a 15% net change in the profit volume. In order to mitigate the financial risks of the project the company is required to optimise its variable costs for making.

0	248960	246580	244970	241003	239004
200500	210525	221051.3	232103.8	243709	255894.5
198500	208425	218846.3	229788.6	241278	253341.9
197100	206955	217302.8	228167.9	239576.3	251555.1
194500	204225	214436.3	225158.1	236416	248236.8
189600	199080	209034	219485.7	230460	241983

Table 2: What-if Analysis

(Source: Created by Learner)

The above table of what-if analysis further demonstrates that the minimum profitability expected is 189600 and maximum profit as 248960.

4: Liquidity

In order to further identify the key aspects of the cash budget, the major emphasis should be provided on raising additional sales value from the third month onwards.

From the above table of cash budget it can be predicted that the surplus of cash is expected to diminish in the fifth month, hence the company is required to encourage a high sales value.

5: Working Capital

In order to further improve the working capital scenario of the new project, the company is required to focus on minimising the inventory level as well as maximising the cash and bank balances. By minimising, the inventory level Trendsetters further ensures liquidity in their current assets and by maximising the cash and bank balances, the company has ample funds to finance its operational activities for the project.

Inventories
7800.00	8100.00	8680.00	9000.00	9250.00
7200.00	7560.00	7938.00	8334.90	8751.65
6450.00	6772.50	7111.13	7466.68	7840.02
5820.00	6111.00	6416.55	6737.38	7074.25

Table 4: What-If analysis

(Source: Created by Learner)

6: Other Cash Recommendations

In order to further achieve suitable prospects and feasibility from the projects, the primary emphasis shall be further given to encourage quick collection of receivables from debtors. The additional emphasis can be further provided to the faster payment of creditor’s amount to ensure quick credit purchases as well as continuous flow of raw material supplies in the project.

7: Investment Decisions

Year	Cashflows	Df 10%	Disc Cash Inflow
0	-125,000	1	-125000
1	20,000	0.909090909	18,181.82
2	24,000	0.826446281	19,834.71
3	28,800	0.751314801	21,637.87
4	34,560	0.683013455	23,604.95
5	41,472	0.620921323	25,750.85
(15,989.81)
Figure	Decision
NPV	104,832.00	Reject
IRR	5%	Accept

Table 5: Calculation of NPV and IRR

(Source: Created by Learner)

As per the above table of calculations for NPV and IRR, it can be clearly visible that the resulting NPV of the project is expected to be GBP (15,859.81) and the resulting IRR is expected to be 5%. Therefore, as the resulting NPV is slated to be negative for the project, the project should be rejected. However, Trendsetters can alternatively choose to go ahead with the project as the resulting internal rate of return for the project is slated to be 5%. As criticised by Ulfa, Yulhendra and Ansosry (2018), the resulting IRR is also lower in comparison to the standards being implemented by the Project and the chances of project risks and volatility are slated to be higher.

8: Make or Buy Decision

The two major decisions relating to the make or buy approach for Trendsetters mainly involves the consideration to acquire low operational costs as well as maximise profits. As per the statements and explanations of Bustinza et al. (2019), the additional aspect of the make and buy, approach relates to the strategic decision-making for product innovation.

Make
Direct material	87300
Cost of Machinery	20,000
labour	58200
Electricity	6000
Factory Rent	24000
Machine power	29100
Packaging	11640
Transportation	8730
Marginal Cost of making it	244970
Decision	Buy
Buy
Direct Material	69840
Cost of Machinery	0
Labour	64020
Electricity	4500
Factory Rent	18000
Machine Power
Packaging	23280
Transportation	17460

Table 6: Make or Buy Decision

(Source: Created by Learner)

As per the above table the wise decision for Trendsetters is certainly considering the buy option as the associated costs are expected to be lower than that of the costs involved in making (Hansen and Revelio, 2018).

9: Conclusion

This report has discussed the various financial aspects of the project initiation involved for Trendsetters. In order to further, extract suitable findings the emphasis has been provided on the financial appraisal techniques, through which the project should be rejected owing to less profitability attributes. Furthermore, the risks and potential opportunities for Trendsetters in the new project are considered to be related with a new market entrant and the possibility of expanding business through online digital marketing paradigms.

References

Bala, M. and Verma, D., 2018. A critical review of digital marketing. M. Bala, D. Verma (2018). A Critical Review of Digital Marketing. International Journal of Management, IT & Engineering, 8(10), pp.321-339.

Bustinza, O.F., Lafuente, E., Rabetino, R., Vaillant, Y. and Vendrell-Herrero, F., 2019. Make-or-buy configurational approaches in product-service ecosystems and performance. Journal of Business Research, 104, pp.393-401.

Hansen, E.G. and Revellio, F., 2020. Circular value creation architectures: Make, ally, buy, or laissez?faire. Journal of Industrial Ecology, 24(6), pp.1250-1273.

Ulfa, H., Yulhendra, D. and Ansosry, A., 2018. Analisis Investasi Pengadaan Alat Berat Di PT. Anugrah Halaban Sepakat Dengan Metode NPV dan IRR. Bina Tambang, 3(3), pp.1004-1013.