Sensitivity Analysis

Sensitivity Analysis

Evaluating Renishow's Financial Performance, Policies and Strategies

The chairman's claim about the 50% increase of the turnover in the past 4 years is valid as reflected from the financials, moreover, the share prices are also portray a very stable and healthy position of the company. However, like Spectris, Renishow Plc. could not push its share price over its 2008 standings. Its desire to start a new product line is a good decision, which definitely will help the company grow. The strategies regarding the introduction of the new product line seem to be well researched, which indicates that the product line has great chances of being successful. Apart from that, the additional energy saver option will earn a competitive advantage and ensure good sales revenue.

In order to determine the viability of the project, it has to be properly analyzed through sensitivity analysis (Gitman, 2007, pp 30 - 134). The provided data is sorted and merged into a tabular representation for better analysis. The projected profit and loss statement is presented in Table 1 (appendix). The 7 years of sales from the new product line would earn Renishow Plc. a steady cash flow of £6,400,000 (after adding back the depreciation amount, the original profit otherwise would be £5,028,571). This can be used in evaluating the project viability by way of investment appraisal.

Similarly, in case the sales were decreased by 10% for each product, the forecasted profit and loss statement would slightly change. The sales revenues would decline, while all the costs are assumed to stay the same, which is presented in Table 3 (appendix). The new yearly cash flow would be £4,920,000 (after adding back the depreciation amount, the original profit otherwise would be £3,548,571).

Investment Appraisal of the Proposed Project

Investment appraisal is an extremely efficient technique of measuring the viability of ...