Financial Analysis

1. Introduction

Business organizations require to change the way of doing business as per the changing need of the business environment. Therefore it is essential to analyze the market and its influential factors that can affect the business of the organization. This report contains the financial appraisal technique such as the NPV method, IRR, Profitability index to evaluate the financial investment and its result for the Baxil Electronic as they want to analyze whether to update the new feature in their existing product to face the competition in the market. Therefore Financial appraisal technique will help to understand the profitability of the company under this scenario.

2. Factors influence the production of PDA Product

Business organizations require to change themself as per the business requirement and to satisfy consumer needs for a longer period. Therefore Baxil Electronic has do bring the changes o update the existing product so that it can face the competition and save its market share. Following are the factors that can affect the Production of PDA product:-

Consumer requirement

Every business can grow if they have a large consumer base. To keep consumer loyalty it is required to understand the customer requirement from the product and change the product as per consumer needs (Brunner, & Ostermaier, 2019).

Huge Money Involved

As the production process requires a huge investment and it is estimated by the management that if the new feature is updated then the sale will be higher, therefore, it is essential to understand the whether the management is dong the correct estimation of quantity production and to be sold in the market (Brunner, & Ostermaier, 2019).

Product Obsoleting 

Production quantity of the PDA product can be affected due to its obsolete feature in the market and consumer can go with the other substitute product offer by the competitor company who offer the updated product with the new feature (Hayward, et al. 2017).

Survival of the company

As the existing product is required to update with the new feature to face the competition, if the company does not do that then Baxil Electronic will not survive more than 2 years.

3. Investment assessment appraisal to evaluate the PDA product

Following are the various method which can help to evaluate the PDA product with huge investment:- 

4. Analysis of the payback period of the PDA project

                                       Source: - (Please refer to the spreadsheet for details)

                                       Source: - (Please refer to the spreadsheet for details)

Considering the given computations, it can be predicted that if the Baxil Electronic invests in the new project then it will take 4 years and 2 months to recover the entire investment which seems to be lower than the life of the project hence it concludes that project is viable for the company and generate the value (Hayward, et al. 2017).

5. Analysis of profitability index 

Profitability Index help to analyze the percentage of the total inflow of the project by dividing through the outflow of the project. If the result is more than 1 then the project can be accepted to invest. Following are the detail calculation:-

                                       Source: - (Please refer to the spreadsheet for details)

As from the above calculation, it can be predicted that the PI of the PDA project is higher than 1 hence this project consider to be positive and beneficial for the company. Hence the company should produce the product with a new feature.

6. Analyze the IRR 

IRR help to understand the rate of return that require to invest in the risk-free project. IRR is the rate that makes the NPV of the financial project equal to the nil value. That means if the origination is having a rate of return lower than this rate then it should invest in the financial proposal to create the value for the company.

                                       Source: - (Check refer to the spreadsheet for details)

From the above, the resulted return is 0.62 % while the required rate of return of the company is 12% hence it will be beneficial for the company to invest in the project and create the value from it. The company should improve the existing PDA product it provides the lead to the company to survive and grow in the market (Iachan, 2020).

7. Sensitive analysis of PDA project if the sale price change

Baxil Electronic is facing the competition in the market an if the competitor company influence the price of the PDA product then it will reduce the  $ 255 and lead to the lower NPV of the company due to reduction of the sale amount of the PDA product (Brunner, & Ostermaier,2019).  In this circumstance following will be the NPV of the PDA product:-

Note- all amount is in $

From the above result, it can predict that NPV has been negative for the company and providing the zero value from the financial investment.  This led to conclude that this financial project is price sensitive and can occur the negative result in the future if the situation turned out to be like this (Malenko, 2019). Therefore sensitive analysis has been done below:-

                                   Source: - (Please refer to the spreadsheet for details)

From the above sanative analysis, it can be observed that if the price of the product change then the NPV of the project will affect a huge amount and led to the loss for the company (Su, et al. 2018).

8. Sensitive analysis of PDA project if sale quantity change

Baxil Electronic is facing the competition in the market an if the competitor company influence the quantity of sale of the PDA product then it will reduce the 20% of sale  and lead to the lower NPV of the company due to reduction of the sale amount of the PDA product. In this circumstance following will be the NPV of the PDA product:-

                                   Source: - (Please refer to the spreadsheet for details)

From the above-detailed analysis of the project, it can be observed that if the selling quantity of the project is reduced from the influence of the competitor then it will lead to lower NPV by 86.98% from the existing scenario (Johnson,., Pfeiffer, & Schneider, 2017). ) It reduces the profitability of the company at a huge scale.

                                   Source: - (Please refer to the spreadsheet for details)

From the above sensitivity analysis, it can be seen that this project is quantity sensitive too, and can affect the future profitability of the company.

9. Impact of coronavirus on the financial project of the company

From the recent past, it can be observed that the entire world is facing the crises coronavirus COVID-19 pandemic which was initiated to the outbreak since November 2019. It has been impacted the world economy on a large scale and creating inflation in the market which leads to a worse situation of doing business in the market. As the government has initiated the lockdown for safety purposes and du to which consumer and employee both have become out of the market. This led to stop the production and selling of the product. Baxil Electronic has to face the tough situation of the market as the consumer will be less in the upcoming two years and the consumer will look for the cheaper substitute as the buying power has also been affected by COVID -19 impact on entire economic. Hence if the Baxil Electronics is planning to invest a huge amount then in the evaluation of the profitability of the project it should not avoid the impact of COVID-19 as it has already impacted the world economy adversely at a huge level which affects every financial proposal too (Jha, & Arora, 2019).

10. Conclusion

From the above deep discussion of the above financial project concerning the financial appraisal technique, it can be concluded that the above PDA product is beneficial from the company but it will be sensitive to the price and quantity change of the PDA product which can affect the profitability in future. And the other affecting factor such as coronavirus COVID-19 which has also impacted the business of every county and will also impact the PDA product production and sale Hence Company should consider the above mansion matters in its analysis.