Admiral Group Investment Appraisal and Financial Analysis Case Study

Admiral Group Investment Appraisal and Financial Analysis

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Introduction: Admiral Group Investment Appraisal and Financial Analysis

The company selected is considered to be associated as Admiral Group, which is deemed to be a major player in the investment and insurance sector of the UK. The main attributes of the company concerned, Admiral Group, can be identified based on determining its total insurance premium revenue collected in 2021, which accounts for numerical expressions of GBP 855 million (admiralgroup.co.uk, 2022)

Purpose of Report

The main purpose of this report is mostly associated with determining future investment possibilities and scenarios by contemplating financial and non-financial overviews. Further important aspects are associated with the detection of major problems as well as how those problems could be resolved to impact a favourable financial performance for the future considering the company selected Admiral Group.

Conclusion

On the basis of contemplating quantitative information from investment appraisal and capital budgeting techniques, it can be precisely obtained that the investment project is needed to be selected on grounds of superior net present value parameters. The qualitative aspects of this report also determine the lack of awareness contained by insurance products, which could easily deflate healthy future investment programmes for Admiral Group.

Recommendations

The main recommendation that is offered to the concerned management of Admiral Group is considered to be associated with proposing tactical plans and strategies to market and promote insurance products significantly. Insurance promotion should ideally be contemplated based on social media advertisements, which allows encouragement to rope in a bulk number of future potential insurance policy holders.

Motivation of Proposed Investment

Purpose

Key Issues and Problems Identified

The key issue and the problem identified is considered to be related with obtaining a higher financial figure of insurance claim disbursements needed to be contemplated by Admiral Group. The higher quantum of insurance claim disbursements is mainly ascertained due to lack of available facilities that track and process insurance claim settlements. Lack of adequate advertising is also considered a major challenge for Admiral Group.

Significance of Resolutions needed

In order to ascertain a better command and control of operational activities, it is perhaps considered that a better advertising and promotion technique is needed to be made. The tactical adjustment in advertising and promotion would welcome a higher number of buyers while operational stability needs to be resolved based on identifying adequate asset acquisitions needed to be made.

Process

Main Causes of the Problem

The main cause of the problem is identified as lack of adequate human resources as well as staff, which is mainly fuelled by to lack of stable recruitment strategies that are imposed and followed. As per statements and illustrations of Tang (2021), lack of adequate human resource planning for recruitment is deemed to be an instigating factor as it reduces operational stability as well as affects quantum and bulk of customers in the long-run.

Role of Casual Drivers

Role of casual drivers is identified to be a necessary factor as ideally the new investment plan by Admiral Group would focus on setting up new equipment that fast-track insurance premium receipts as well as claim settlements.

Proposition

Capabilities enabling required changes

The capabilities associated with enabling required changes in the new equipment proposed are considered to favourably influence the overall business accolades for the Admiral group to establish a higher propensity for sustainability.

Investment Appraisal Using Quantitative and Qualitative Information

Information from Quantitative Sources

Payback Period Computation

Calculation of Payback Period
Years	Cash Flows	Cumulative Cash Flows
0	-6,65,000.00	$ -6,65,000.00
1	2,49,800.00	$ -4,15,200.00
2	4,17,800.00	$ 2,600.00
3	93,100.00	$ 95,700.00
4	1,04,300.00	$ 2,00,000.00
5	3,82,900.00	$ 5,82,900.00
Payback Period (Years)	2.01

Table 1: Payback Period Computation

As per the above table of Payback period calculations and computations, it can be witnessed that the project recovers its initial cost of investment in approximately two years. Hence, the payback period of this new investment is considered to be positively placed,, as the ideal payback is deemed to be significantly lower than half the duration of the entire project. The payback period method is also considered to be beneficial for capital budgeting and investment appraisal as it allows the determination of project feasibility in simpler terms. Moreover, it is also helpful to determine what duration is needed for this new investment to recover its initial investment costs.

Accounting Rate of Return Computation

Calculation of Accounting Rate of Return
Years	Cash Flows
0	-6,65,000.00
1	2,49,800.00
2	4,17,800.00
3	93,100.00
4	1,04,300.00
5	3,82,900.00
Accounting Rate of Return	37.53%

Table 2: Accounting Rate of Return Computation

As per the above computation of the accounting rate of return in the table, it can be ascertained that the percentile value achieved is considered to be 37.53%. Ideally, the accounting rate of return for a project should be a bare minimum of 25% and hence this project successfully matches and meets the minimum criteria required for a healthy accounting rate of return for a project. The accounting rate of return can be further established as the viable proportion between cash inflows and cash outflows, which is beneficial to detect overall monetary feasibility available for this new project and investment.

Net Present Value Computation

Calculation of Net Present Value
Years	Cash Flows	Discounting Factor @ 18%	Discounted Cash Flows
0	-6,65,000.00	1.00	-6,65,000.00
1	2,49,800.00	0.85	2,11,694.92
2	4,17,800.00	0.72	3,00,057.45
3	93,100.00	0.61	56,663.53
4	1,04,300.00	0.52	53,796.78
5	3,82,900.00	0.44	1,67,369.12
Net Present Value	1,24,581.80

Table 3: Net Present Value Computation

As per the above table of net present value computation, it can be precisely observed that the numerical attribute of net present value that is achieved is considered to be 124,581.80.00. Hence, this project contains favourable numerical indicators and could be contemplated for selection as available returns are considered to be on the higher side. The NPV analysis is considered to be a favourable and perhaps the most important method to examine the future value viability of a project. The computation of net present value is deemed to be a fruitful prospect as it also involves the overall influence available for a project due to the cost of capital implementation and usage.

Overview on Project Selection

On the basis of contemplating the above calculations from the payback period, accounting rate of return, and net present value computation, it can be precisely observed that positive figures have been achieved for all three methods. Hence, the concerned management of the Admiral group should select this project based on favourable numerical indicators. Higher investment appraisal numerical indicators also echo that future favorability in a project could be thoroughly welcomed when appropriate financial planning is contemplated (Busch et al. 2021). The overall project selection criteria are also conducive enough to ensure that long-term benefits can be achieved from the get-go.

The project selection shall also be considered based on determining the overall returns that could be fetched when this new investment for equipment is contemplated by the Admiral Group. Overall, the expected returns from this project are considered to be adequately balanced, which further possesses better opportunities to facilitate higher future returns for investors as well as Admiral Group, respectively. Favorability in terms of financial recognition can also be witnessed from this new investment, as better operational stability could be achieved, which could also maximise a higher load of insurance claim settlements. Moreover, the new equipment could also be strategically placed and positioned to ensure that a higher investor bulk is attracted through catchy advertisements and promotions, which nullifies potential requirements of hiring and recruitment.

Information from Qualitative Sources

Eight Factors needed to be considered

Calculation of Net Present Value
Years	Cash Flows	Discounting Factor @ 18%	Discounted Cash Flows
0	-6,65,000.00	1.00	-6,65,000.00
1	2,49,800.00	0.85	2,11,694.92
2	4,17,800.00	0.72	3,00,057.45
3	93,100.00	0.61	56,663.53
4	1,04,300.00	0.52	53,796.78
5	3,82,900.00	0.44	1,67,369.12
Net Present Value	1,24,581.80

Table 4: Sensitivity Analysis

The above table of sensitivity analysis has primarily assumed that changes in values have been considered as -20%, -40%, 20%, and 40% from the original values ascertained. The primary factor that is being considered for conducting sensitivity analysis is considered to be related to cash inflows and it can be detected that an increase in cash flows leads to an increase in the net present values obtained for all scenarios. According to Lai and Locatelli (2021), the sensitivity relationship between cash inflows and net present value is considered to be a direct one, as increases in one variable lead to increases in another. The second factor considered is related to the discounting factor, where an increase in the discounting factor leads to a decrease in net present values, while a decrease in the discounting factor is deemed to increase the net present value. Wang (2019) stated and idealised that this phenomenon is known as an indirect relationship between two variables. The indirect relationship can also be witnessed for investment values, while a direct relationship can be established with salvage values.

Critical Overview of risks, returns and their potential impacts on financial assessment

The overview of risks and the potential impacts on the financial assessment and performance of the Admiral group is considered to influence negative numerical traits, which could effectively wipe out healthy business positioning. As per critical statements and narrations of Govender et al. (2019), a higher proportion of risks or considered to be more harmful determinants that could easily reduce investor traffic as well as lead to losses in customer acquisition and retention. The overview of returns is perhaps considered to be a favourable and positive proposition for Admiral Group, which could effectively maximise future financial returns available for external stakeholders. Hence,, positive attributes from a new project could also stabilise and reinvigorate the healthy market and industrial determinants, which thereby solidifies competitive advantage and positioning. However, as critically viewed by Dawood (2021), this is often compromised in favour of maximising revenue share and profitability by organisations which therefore dilutes favourable prospects available from positive returns with a new investment or project.

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References

admiralgroup.co.uk, 2022, Insurance Premium Revenue [online], Available at: https://www.admiralgroup.co.uk/investor-relations/results-reports-and-presentations [Accessed on: 28.04.2023]

Busch, T., Bruce-Clark, P., Derwall, J., Eccles, R., Hebb, T., Hoepner, A., Klein, C., Krueger, P., Paetzold, F., Scholtens, B. and Weber, O., 2021. Impact investments: a call for (re) orientation. SN Business & Economics, 1, pp.1-13.

Dawood, S., 2021. Corporate Social Responsibility and MNCs: An Appraisal from Investment Treaty Law Perspective. Indon. JLS, 2, p.197.

Govender, I., Thopil, G.A. and Inglesi-Lotz, R., 2019. Financial and economic appraisal of a biogas to electricity project. Journal of Cleaner Production, 214, pp.154-165.

Guo, J., Zhou, Y., Ali, S., Shahzad, U. and Cui, L., 2021. Exploring the role of green innovation and investment in energy for environmental quality: An empirical appraisal from provincial data of China. Journal of Environmental Management, 292, p.112779.

Lai, C.S. and Locatelli, G., 2021. Economic and financial appraisal of novel large-scale energy storage technologies. Energy, 214, p.118954.

Tang, S.L., 2021.The Difference Between IRR and NPV in Capital Investment Appraisals. In Construction in the 21st Century 12th International Conference (CITC 12) (p. 1).

Wang, R., 2019. Research on the application of the financial investment risk appraisal models with some interval number muirhead mean operators. Journal of Intelligent & Fuzzy Systems, 37(2), pp.1741-1752.