Assessment Task
Introduction:
Assessment Task Two involves analyses of financial information of three small/medium sized organisations to evaluate the financial performance and financial position of each company. Evaluation of performance and position will consider both financial and non-financial considerations.
Instructions:
The attached document contains financial information for three (3) small/medium sized organisations along with questions which must be addressed.
Please read the instructions relating to submission very carefully before attempting the questions contained within the assignment and make sure that you answer all of the questions.
It is most important that you read the question requirements very carefully and understand what you are required to do. If you are uncertain or unsure of the question requirements, you must ask your local lecturer or tutor.
Assessment Tips:
When you are providing figures and calculating ratios, please take note of the following instructions. Failure to do so may result in lost marks.
Show the original figures as well as any ratios or percentage changes that you calculate. An efficient way to present these figures and ratios is in Word tables or in sections of Excel spreadsheets that are pasted into Word documents.
This will enable you to have headings which clearly label the figures and ratios, as well as headings which clearly show the formulas and calculations that have been done to obtain the results. Use the figures in the statements provided to do all calculations and to support all conclusions. Where multiple ratio calculations are performed, it is good practice to create a summary table of the ratio and result. This allows for easier comparison and analysis of the different ratio results.
Your own evaluation, in your own words is important. When you are asked to interpret ratios, it means to provide an explanation of what the ratio means in terms of this company.
This simply means tell me what the ratio measures and what it means for this company.
Referencing is most important in all academic work. It enables the reader to assess the reliability and relevance of the assumptions or assertions made.
Please ensure that all sources of information are appropriately referenced using the Harvard (author-date) method. This includes the textbook. If you use direct quotations from other sources, make sure that these are appropriately presented and referenced. The inclusion of a Bibliography in your submission is required and you will be penalised if you do not include one.
Small Business Analysis 1:
The following financial statements were prepared for the management of TEDA Ltd. The statements contain some information that will be disclosed in Additional Information at the end of the general purpose financial statements.
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TEDA Ltd
Income statement for the year ended 30 June 2015
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Sales revenue
Cost of sales
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$462500
307500
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Gross profit
Expenses (including tax and finance)
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155000
80000
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Net Profit after Interest and Tax
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$ 75000
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TEDA Ltd
Balance sheet as at 30 June 2015
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Current assets
Cash assets
Receivables (all trade)
Less: Allowance for doubtful debts
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$149625
9450
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$ 18900
140175
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Inventories
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126000
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Total current assets
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285075
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Non-current assets
Land
Building
Less: Accumulated depreciation
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113000
18900
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31500
94100
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Store equipment
Less: Accumulated depreciation
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23625
13625
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10000
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Total non-current assets
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135600
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Total assets
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420675
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Current liabilities
Payables (all trade)
Dividends - preference dividends
Payable - ordinary dividends
Other
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135450
1890
12600
6300
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Total current liabilities
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156240
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Non-current liabilities
10% mortgage payable
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31500
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Total liabilities
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187740
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Equity
Contributed capital: 6% preference shares
Ordinary shares
Retained earnings
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25000
126000
81935
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Total equity
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232935
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Liabilities and equity
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$420675
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Additional information
1. The balances of certain accounts at the beginning of the year are:
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Accounts receivable (gross)
Allowance for doubtful debts
Inventories
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$157500
(14175)
110250
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2. Total assets and total equity at the beginning of the year were $387,500 and $190,500 respectively.
3. Income tax expense for the year was $31,500. Net finance expenses were $3150.
Required:
Based on the information provided above, identify and calculate the principal ratios that a financial analyst might use that would give some indication of the following:
a. the entity's earning ability; (4 ratios are required)
b. the extent to which internal sources have been used to finance asset acquisitions; (1 ratio is required)
c. the rapidity with which accounts receivable are collected; (1 ratio is required)
d. the ability of the entity to meet unexpected demands for working capital; (1 ratio is required)
e. the length of time taken by the entity to sell its inventories. (1 ratio is required)
Small Business Analysis 2:
The following ratios have been calculated for TUSTPty Ltd, an entity special is in gin imported exotic perfumes.
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Current ratio
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2.1:1
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2.6:1
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Acid test or quick ratio
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1.8:1
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2.2:1
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Days inventory on hand
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122
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127
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Days debtors out standing
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30
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46
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Net Profit margin
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10%
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12.2%
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The ratios indicate an increase/decrease from the previous year.
Required:
Classify and discuss each of the ratios and explain what these ratios indicate about the entity's liquidity, asset efficiency and profitability?
Students are encouraged to do some research and find out what an increase/decrease in the ratio indicates, what the business could be doing that has resulted in the change, and is this change favourable or not?
Where possible you should provide a brief recommendation and lastly do not forget to reference and support your reasoning
Small Business Analysis 3:
Case Study Analysis:
The following table reports various financial ratios for Qantas and Virgin for 2012.
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Qantas Airways Limited
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Virgin Australia Holdings Limited
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EBIT margin
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1.85%
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3.50%
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ROE
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3.38%
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8.40%
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ROA
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2.12%
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3.29%
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Debt to Equity
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111.21%
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180.07%
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Current Ratio
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0.77
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0.65
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Net profit margin
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1.36%
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2.23%
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Required:
Given that the companies operate in the same industry, write a report of approximately 1000 words explaining what the ratios suggest about the companies' profitability, efficiency and liquidity.
It would be appropriate to classify your report into the three activity groups above and comment on each of these independently. Each activity group should be approximately 500 words
Simply writing a comparison of the financial ratios provided in the above table will not incur any marks.
You should look carefully at each of the ratios provided and analyse the reason for one entity having a higher or lower ratio than the other.
You will need to identify the connection between the ratios as this will reveal a lot of information that will be helpful in answering the question.
Do not hesitate to search outside the financial ratios provided. Your analysis should be supported with evidence of research.