Business Report: Should Starbucks Acquire Roast Ltd?

Your role

You work in the finance department of Starbucks UK. Your Chief Financial Officer (CFO) has asked you to review the financial statements and other material sourced for you below, of Roast Ltd, an independent UK chain of coffee houses. The objective is to assist her in evaluating the attractiveness of the company as a target for acquisition by Starbucks.

Task

Business report with headings, sub-headings and paragraphs 1 mark Executive summary – key highlights/findings drawn from each task below to answer the central question: should Starbucks acquire Roast Ltd or not?

Using your own independent research, provide a top-line review (in bullet point format) of the current UK coffee house industry. This should include a summary of who the key players are, how well it is performing, and any challenges or opportunities that you find.

Business Performance Analysis

You will need to calculate and use appropriate ratios in your analysis for the sections required below:

Statement of Profit or Loss

Analyse and comment on the financial performance of Roast Ltd using all relevant information from exhibits 1 and 2. Your analysis should critically evaluate the lines of the Statement of Profit or Loss.

Analyse and comment on the financial position of Roast Ltd using all relevant information from exhibits 1 and 2. Your analysis should critically evaluate the lines of the Statement of Financial Position.

Statement of Cash Flows

Use the Statement of Cash Flows (exhibit 1) and identify what has happened to the cash position of Roast Ltd during 2018.

Calculate and explain Roast Ltd’s Operating Cash Cycle (OCC) for 2018 and 2017. 3 marks Critically evaluate the company’s 2018 dividend policy and explain whether you think Roast Ltd was right not to make a dividend payment in 2018.

Critically evaluate the investment appraisal information (exhibit 3).

Your evaluation should challenge the management forecast in the first part of your answer. Then, in the context of Roast Ltd, critically evaluate the following investment appraisal techniques considering the benefits and limitations of each technique. You need to give a clear assessment as to whether the company was right to proceed based on the results of each appraisal technique and what we now know.

Use the following sub-headings to structure your answer:

a Management Forecast
b Investment Appraisal Techniques
- Payback period
- Accounting Rate Of Return
- Net Present Value

Given that Roast Ltd is considering a further investment, this time into Italy of £400,000 from 2019, assess the benefits and drawbacks of two alternative sources of finance for this further investment, including an assessment of their appropriateness in this case. Give a clear conclusion as to what course of action you recommend.

The word limit is 3,500 words excluding numerical tables, bibliography and appendices. The executive summary is included in the word count.

To assist you with this task you have been supplied with the following information:
• Exhibit 1: Extracts from Roast Ltd’s Financial Statements for 2018, including the Statement of Profit or Loss, Statement of Financial Position, Statement of Cash flows and Statement of Changes in Equity.
• Exhibit 2: Notes from a meeting between the Loan Officer at Finance Bank and Roast Ltd’s Chief Financial Officer, Dan Shaw.
• Exhibit 3: Investment Appraisal – Romania expansion figures drawn up in 2016 for 2017 onwards.