ASSIGNMENT:ACCOUNTING FOR DECISION MAKING
You are required to write a 2000 word report/essay on analysis & interpretation of financial statements.
Information
The owner ofMelbourne Trading Corporation has provided you with the following financial information.
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Income Statement
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2014
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2015
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Budget year 2016
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|
Sales
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400,000
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405,000
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410,000
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Less Cost of Sales
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250,000
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260,000
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275,000
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Gross profit
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150,000
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145,000
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135,000
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Less Other expenses
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|
|
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Selling expenses
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50,000
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55,000
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56,650
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Administration expenses
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40,000
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42,000
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39,900
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Finance expenses
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10,000
|
11,500
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13,800
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Profit (before interest)
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50,000
|
36,500
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24,650
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Interest expense
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15,000
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18,000
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20,000
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Net profit
|
35,000
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18,500
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4,650
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|
|
|
|
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Statement of Financial Position
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2014
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2015
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Budget year 2016
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|
Current assets(Note: 1)
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93,000
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90,000
|
90,000
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Non-current assets
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90,000
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110,000
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212,000
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|
Total assets
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183,000
|
200,000
|
302,000
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Current liabilities(Note: 2)
|
28,000
|
42,000
|
80,000
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Non-current liabilities
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70,000
|
89,500
|
167,350
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Total liabilities
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98,000
|
131,500
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247,350
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Total equity
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85,000
|
68,500
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54,650
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Note: 1 -Current assets include:
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|
|
|
|
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23,000
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30,000
|
40,000
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| •Stock on hand |
40,000
|
45,000
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50,000
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Note: 2 -Current liabilities include:
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|
|
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35,000
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Required
You have been asked to analyse the company's financial statements and write a report to the company directors which:
a)Reports on the profitability and financial stability of the company
b)Makes recommendations to improve financial performance
Notes:
1.In your report the owner would like you to provide written answers in the form of a report style Format to each of the following questions regarding the accounts.
Question 1. Is the business providing its owners with a satisfactory return?
Question 2. Has the entity managed to control its level of debt?
Question 3. What has debt been used for?
Question 4. Have assets been effective in producing sales and profits?
Question 5. Have expenses been kept under control?
Question 6. Is the entity's short term liquidity sound?
Question 7. Has the Operating Cycle assisted the entity's liquidity position?
Question 8. Provide recommendations that will improve profitability, liquidity and financial stability.
2.Your report should include at least 4 graphs comparing ratios and an appendix that shows your calculations for each ratio. Below you will find a table that includes data and ratios that youmust complete and submit.
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Financial indicator
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Expressed as
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Expressed as
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Profitability
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Financial Stability
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Return on owners funds ratio
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%
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Short-term
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|
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Return on assets ratio
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%
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Working capital
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$
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Gearing ratio
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%
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Working capitalrate
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$
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Asset turnover rate
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$
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|
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Fixed asset turnover rate
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$
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Stockturnover rate
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days
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Stock turnover
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days
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Debtors turnover rate
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days
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Debtors turnover
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days
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Operating cycle
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days
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Profitratio
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%
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Long-term
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|
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Gross profitratio
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%
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Gearing ratio
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%
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Cost of goods soldratio
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%
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Interestcoverage rate
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$
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Selling expenseratio
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%
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|
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Administration expenseratio
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%
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|
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Finance expenseratio
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%
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Interest expense ratio
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|
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