Cost Management and Analysis for Interest and Tax -myassignmenthelp

Question: Discuss about theCost Management and Analysis for Interest and Tax. Answer: Analysis of Information In the business organizations, financial analysis is one of the major parts in order to measure the financial performance of the companies. In addition, with the help of financial analysis, the board of directors along with the major stakeholders of the companies can understand the overall financial health of the companies. In order to analyse the financial condition of the companies, the financial managers use to observe some of the major financial parameters; they are earning before Interest and Tax (EBIT), Capital Expenditure (Capex), Net Present Value (NPV), Internal Rate of Return (IRR) and others. As per the provided case, it can be seen that there are four scenarios. Each scenario has all the information about EBIT, Capex, NPV and IRR of the projects. Thus, for this analysis, it is required to discuss some of the major terminologies for the analysis. First, EBIT is one of the major concepts for the business organizations. EBIT refers to a particular measure of the performance of the companys profit that includes all the expenses except interest and taxation expenses (Barta, Kleiner and Neumann 2012). More specifically, it is considered as the difference between the operating revenues and operating expenses of the companies. Another major aspect is the concept of Capital Expenditure. Capital expenditures refer to those business expenditures that are occurred for the acquisition and maintenance of the fixed assets of the companies such as land, building, machineries and others. The concept of NPV is used for the analysis of the profitability of particular projects or investment s (Rich and Rose 2014). More specifically, NPV is considered as the difference between the present value of cash inflows and the present value of cash outflows. The concept of IRR is used for the measurement of the profitability of the potential investments of the companies (Bas 2013). As per the first scenario, it can be seen that there is an increasing trend in the EBIT of this particular project. The same increasing trend can be seen in case of EBIT excluding depreciation and after tax cash. In this scenario, the rate of NPV and IRR for this project is 11% and 28.7% respectively. In case of the second scenario, it can be seen that EBIT of the project has an increasing trend over the years. The same increasing trend can be seen in case of EBIT excluding depreciation and after tax cash. Capital expenditure can be seen in the financial year of 2022. In this scenario, the rate of NPV and IRR of this project is 11% and 35.8% respectively. The NPV of first and second scenario is 55.5 million and 77.9 million. However, the third and fourth scenario is different from the first and second scenario. In case of the third scenario, it can be seen that the NPV of the project of zero. This has happened as the rate of NPV and IRR is same that is 11%. In the fourth year, decrea se in after tax cash flow can be noticed. In case of the fourth scenario, one of the major factors is that the NPV of this project is in negative and the rate of IRR (0.8%) is less than the rate of NPV (11%). Negative NPV implies that the company will not be able to recover the cost of the project during the project lifetime. On the other hand, fluctuations can be seen in after tax cash flow of this particular project (Brigham and Houston 2012). For the selection of any project or investment, the NPV and IRR of that particular project need to be higher compared to the other projects or investments. Thus, based on the provided sensitivity analysis, it can be seen that both the NPV and IRR of the project is higher than the other three projects. On the other hand, the amount of gross profit is higher in this project than the other projects. Thus, Coles should select this project. Problems and Suggestions From the above analysis, it can be seen that there are some problems in the third and fourth scenario. In case of the fourth scenario, it can be seen that the NPV of the project is negative. At the same time, the rate of IRR is lower than the rate of NPV. In addition, fluctuations can be seen in after tax cash flow. In the second scenario, it can be seen that the NPV is zero. For all these reasons, it is needed for the company to reduce the project costs in different levels. Reduction of project costs in different level will help the company to increase the amount of NPV for the projects. Future Trends and Impacts From the above analysis, it can be seen that the selection of correct project or investment will have major impact on the operation of the company. In case the company selects the fourth project, the company will be profitable, as right investment will fetch the company with higher returns. In case the company fails to choose the correct project, it will affect the profitability as well as return of the company. Conclusion From the above discussion, it can be seen that there are four scenarios provided. Based on the above analysis, it can be seen that there is a trend to increase in the EBIT and after tax cash flow in case of the first and second scenario. However, in case of the fourth scenario, it can be seen that the NPV is negative and the rate of IRR is less than the rate of NPV. From the sensitivity analysis, it can be seen that in the fourth scenario, the amount of gross profit is more. In addition, the amount of NPV is higher than all other projects along with the rate of IRR. The above discussion also shows the fact that the negative amount of NPV in the fourth scenario is one of the major problems for the company. For this reason, the company needs to cut the amount of costs from the various operations of the project to make the amount of NPV positive. References Barta, T., Kleiner, M. and Neumann, T., 2012. Is there a payoff from top-team diversity?.McKinsey Quarterly,12, pp.65-66. Bas, E., 2013. A robust approach to the decision rules of NPV and IRR for simple projects.Applied Mathematics and Computation,219(11), pp.5901-5908. Brigham, E.F. and Houston, J.F., 2012.Fundamentals of financial management. Cengage Learning. Rich, S.P. and Rose, J.T., 2014. Re-examining an old question: Does the IRR method implicitly assume a reinvestment rate?.Journal of Financial Education, pp.152-166. Xiao, Z. and Xiao, Y., 2013. Security and privacy in cloud computing.IEEE Communications Surveys Tutorials,15(2), pp.843-859.