Financial Analysis of a2 Milk Company

Running head: FINANCE
Finance
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1FINANCE
Table of Contents
Introduction................................................................................................................................2
Bad debt.....................................................................................................................................2
Financial ratios...........................................................................................................................3
Sustainability..............................................................................................................................5
Conclusion and recommendation...............................................................................................5
Reference....................................................................................................................................7

2FINANCE
Introduction
a2 Milk Company’s main business is commercialization of a2MC branded milk and
associated products those are supported by the ownership of intellectual property that helps in
identifying the cattle for the production of A 1 protein free milk products. The report will
focus on the financial position of the company through computing the ratios. Further, the
report will analyse the bad debt amount of the company for the year ended 2016 and the
method used by it for charging bad debt expenses. Based on the ratios the report will
comment upon the sustainability of the entity and provide the recommendation accordingly
(Thea2milkcompany.com, 2019).
Bad debt
From the annual report of the company dated 30th June 2016 it is identified that the
bad and doubtful debt expenses of the company for the year amounted to $ 69,000. The
company used allowance method to account its bad debt. Under this method, a reserve
amount is set aside for bad debts that are projected for the future. Reserve is made on the
basis of sales percentage that is generated in the particular period taking into consideration
the possible risk associated with certain customers (Cassell, Myers & Seidel, 2015). Under
allowance method initially debit entry is made to bad debt expenses and credit to the
allowance for the doubtful debt account which in turn increases the reserve. When the
particular bad debt is identified, allowance for doubtful debt account is debited and account
receivable is credited. Allowance for the bad and doubtful debt by a2 Milk Company for the
year was $ 112,000.