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## Introduction

Finance is the factor that greatly affect any business firm. In the current research study ratio analysis is done and firm business performance is measured. Comments are made on same by evaluating facts and figures of last five years. In middle part of the report, sources of finance are discussed and same are evaluated in context of firm Trainline. At end of the report, ethical factors that must be considered for launching an IPO are discussed briefly. In this way entire research work is done.

## Question 1

Critically analyses the company performance using ratio analysis over the period 2013 - 2016. For each year calculate 6 ratios only, and show the trend for these ratios over the 5 years

Table 1

Ratio analysis of Trainline

 2013 2014 2015 2016 Gross profit 67149 71051 79985 88740 Net sales 106005 107437 117633 134564 Gross profit ratio 63% 66% 68% 66% Net profit 39870 39182 34854 32931 Net sales 106005 107437 117633 134564 Net profit ratio 38% 36% 30% 24% Current assets 239882 135048 202375 197560 Current liability 128722 114602 143067 162990 Current ratio 1.863566 1.178409 1.414547 1.212099 Sales 106005 107437 117633 134564 Average debtors 168972.5 140057.5 107749 137415.5 Stock turnover ratio 0.627351 0.767092 1.091732 0.979249 Net profit 39870 39182 34854 32931 Equity 135585 41967 76821 56158 Return on equity 29% 93% 45% 59%

Interpretation

• Gross profit ratio: It is the ratio which is used to evaluate the firm profitability for the certain duration. This method is used to evaluate the firm performance in terms of control on direct expenses. These are those expenses that are related to the production process or service delivery. Table given above is indicating that gross profit percentage is increasing from 63% to 66%. It is clear that there is almost little gap in the values of the ratios from FY 2013 to 16. It must be noted that gross profit ratio remain stable in the range of 63% to 66%. However, in the current fiscal year some decline is observed in the gross profit ratio. In the FY 2013 ratio was 63% which increased to 66% in the next year, value plunged by 3% on year on year basis. Further, ratio value increased to 68% and growth rate in the gross profit ratio reduced to 2% from 3% on year on year basis. Finally, this growth rate comes to end in the FY 2016 from 68% to 66%. However, such decline is not so huge and it can be said that firm maintain stability in its performance.
• Net profit ratio: Net profit ratio is another important method that is used often ton evaluate the firm performance (Kumbirai and Webb, (2010). Most of times managers compute both gross and net profit ratio and by comparing both identify whether firm performance was good or bad. Net profit ratio was 38% in the FY 2013 which reduced to 36%, drop in value happened by -2% which is not big in number. One of the most interesting thing is that in further year’s net profit ratio value declined consistently. This is evident from the fact that net profit ratio value declined to 30% in the FY 2015 and further this rate reduced to 24%. So, overall scenario is that during the relevant time period even in single year firm net profit ratio does not improved which is not good for the business firm. Moreover, the rate of decline in the net profit ratio value increased from -2% to -6%. This reflect that Trainline give very poor performance in its business. On comparison of the gross and net profit ratio value lots of things can be identified in respect to company performance. Interesting fact is that gross profit ratio rose most of years apart from FY 2016. At same time net profit ratio value declined consistently. This revealed that Trainline have control on its direct expenses but it does not have any sort of control over its indirect expenses. This is the reason due to which indirect expense are increasing at sharp rate in the firm business instead of direct expenses.
• Current ratio: Current ratio is used by the managers to access the firm liquidity position for the specific duration (Cui and Ryan, 2011). This is the ratio which reflect the proportion of the current assets in the capital structure in comparison to current liability in the capital structure. The extent to which specific company can pay short term liability by using marketable security cash and receivables is measured by using mentioned ratio. It can be seen from the table that value of current ratio is reducing regularly from the 1.8 to 1.17 in the FY 2014. Performance become poor in the FY 2015 as value of the ratio reduced to 1.41 and 1.12 in the FY 2015 and 2016. This reflects that with passage of time firm capability to pay current liability by using cash, marketable security and receivables get reduced to some extent. Ratio value revealed that in the FY 2013 for every one unit of short term liability there was 1.86 units of current assets. Performance become poor and in the FY 2016 firm have only £1.21 of current assets for one unit of current liability. Thus, firm performance is not good but still it is in position from where it can pay all its short term liability by using current assets.
• Stock turnover ratio: Stock turnover ratio reflect the extent to which sales is generated by selling inventory in the market (Kieso, Weygandt and Warfield, (2010)). In other words it can be said that inventory turnover ratio reflect the number of times stock is turned over in to sales by the business firm. It can be seen from the table that stock turnover ratio of Trainline is increasing consistently from the 0.62 to 0.97. These values reflects that stock turnover ratio of the business firm increased at rapid rate in past few years. However, it is also a fact that stock turnover ratio value is very low and number of times stock converted in to sales is insufficient. Firm needs to improve value of this ratio to some extent. By setting such kind of target business firm can improve its performance.
• Return on equity: Return on equity refers to the return that is earned on the per unit of equity by the investors. In order to compute return on equity net profit value and shareholder equity value is taken in to consideration (Richardson, Tuna and Wysocki, (2010)). Higher is the value of return on equity more is the return investors gained for making investment in the business firm. It can be observed from the table that value of return on equity was 29% in the FY 2013 and it increased to 59%. Thus, it is clear that over past few years investors gain huge amount of money in lieu of investment they made in the business firm. It is also identified on analysis of figures that return on equity is fluctuating consistently at fast rate. In the FY 2013 it was 29% and increased to 93% in the FY 2014. After this sharp decline is seen in the firm performance on this front as return on equity reduced to 45%. From here again sign of improvement are observed and value of return on equity percentage increased to 59%. Thus, it is clear that firm is giving better return to the customers but at same time return on equity is fluctuating consistently which to some extent is matter of concern.

## Question 2

### Preparing a budget and sources of finance

Table 2

Cash budget for Trainline

 2017 2018 2019 Opening balance 0 66989.93 153634.3 Sales revenue 145882.7 158153.5 171456.4 Receivables 153121 Total 299003.7 225143.4 325090.7 Expenses Administrative expenses 63956.24 66646.05 69448.98 Finance cost 5067.523 4863 4863 Payables 162990 Total of expenses 232013.8 71509.05 74311.98 Net balance 66989.93 153634.3 250778.7

Interpretation

Net balance value is increasing regularly and this is evident from the fact that net balance value is increasing from 66989 to 250778. Thus, net balance value increased manifold and this happened because sales value is increasing consistently by 8% and at same time expenses elevate by 4%. Thus, it is clear that growth rate of revenue is much higher than expenses. This is the reason due to which net balance value is increasing regularly for the three year time period.

Major sources of cash for Trainline

For Trainline major source of cash is the sales revenue. Firm is earning sufficient amount of sales revenue in its business and due to this reason same is the major source of revenue for the business firm. Apart from this receivables are another source of cash for the business firm. Relevant firm is converting its receivables in to cash and due to this reason cash amount is increasing in the firm business (Irwin and Scott, (2010)). Retained earnings is the another source of finance that is available to the business firm. Retained earnings is considered as a part of sales revenue which remain after deducting all expenses from sales amount.  It can be said that out of all these sources of finance sales revenue is one from where firm is receiving huge amount of fund. Hence, it must try to increase its sales revenue amount as much as possible. In this regard, Trainline must make many efforts in respect to improvement of service in its business. Apart from this, it can also take some cost control measures in its business. By doing so cost can be reduced substantially and ticket price can be reduced which will lead to increase in sales revenue of the business firm. Such kind of strategy will prove useful for the firm.

## Question 3

### Evaluating sources of finance and project evaluation methods

There are number of techniques of the project evaluation that are used by the business firms. Some of them are NPV, IRR ARR and payback period method.  Out of all these methods IRR and payback period method is assumed appropriate method (Brown, Bird and Schalatek, (2010)). This is because IRR or internal rate of return is the method which reflect the real rate of return that can be gained on the project. Apart from this, payback period reflect the duration within which invested amount can be covered. Thus, by using both techniques firm can easily identify the return that can be earned on the project and duration within which same can be covered. Thus, it can be said that by using both methods better investment decisions can be made by the business firm.

## Question 5

### Critically discuss the ethical considerations that should be taken into account in assessing when the TrainLine should go for IPO

There are number of factors that must be considered while firm is going to launch its IPO in the market. Out of all these factors ethics must also considered for determining the time when Trainline must launch IPO in the market. It is observed many times that IPO is bring by the firm in the market and its portion remain unsubscribed. There are many investors who misinterpret such kind of things. Some investors think that firm shares will not give good return to them and they sold shares in the market. IPO remain subscribe when economic condition of the nation is not good (Sinha and Labi, 2011). Hence, in such kind of situation sometimes investors face huge loss on the investment that they made in the business firm. It is the ethical responsibility of the business firm to ensure that it is going to launch IPO on right time. This is because if same will not be done then due to fear factor investors will lose money they invested on the specific firm shares. There are many other ethical factors that firm must consider before launching its IPO. It is well known fact that on real share price premium amount is added and in this way share price is calculated. It is ethical responsibility of the business firm to ensure that it is charging reasonable amount of premium from the investors. In this regard it must be ensured that in the discounted cash flow valuation model correct value is taken in to account (Shen, Shen and Sun, 2012). Along with this, it must also be ensured that growth rate of revenue and other things is rightly estimated. Thus, it can be said that there are multiple ethical factors that must be taken in to consideration while firm is going to launch its IPO in the market.

## Conclusion

On the basis of above discussion it is concluded that ratio analysis is the one of the most important approach that is used to evaluate the firm performance. This is because by using this method performance of any business firm can be measured in multiple ways. Budget must be prepared by the firms very cautiously because by using expenses in the business is controlled and performance of the business firm is improved.  Thus, it can be said that budget is the one of the most important method and it must be cautiously used by the firm in its business.  Before launching an IPO some of the ethical factors must be considered by the managers so that investor’s interest can be protected in right manner. By doing so firm can create its good image among the stakeholders.

## References

• Brown, J., Bird, N. and Schalatek, L., (2010). Climate finance additionality: emerging definitions and their implications. Climate Finance policy brief. 2. pp.1-11.
• Caglayan, M. and Demir, F., (2014). Firm productivity, exchange rate movements, sources of finance, and export orientation. World Development. 54. pp.204-219.
• Crane, A. and Matten, D., (2016). Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
• Cui, X. and Ryan, C., (2011). Perceptions of place, modernity and the impacts of tourism–Differences among rural and urban residents of Ankang, China: A likelihood ratio analysis. Tourism Management. 32(3). pp.604-615.
• Irwin, D. and Scott, J.M., (2010). Barriers faced by SMEs in raising bank finance. International journal of entrepreneurial behavior & research. 16(3). pp.245-259.

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