Accounting and Finance for Start-up and Ongoing Business Expansion

This article discusses various sources of funding for start-up and ongoing business expansion, profitability, efficiency, liquidity, leverage, and investment ratios in accounting and finance. It also provides solved assignments, essays, and dissertations on accounting and finance at Desklib.

Running head: ACCOUNTING AND FINANCE
Accounting and Finance
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Part 1(A):....................................................................................................................................2
Part 1(B):....................................................................................................................................3
Part 1(C):....................................................................................................................................4
Part 2:.........................................................................................................................................5
Part 3(A):....................................................................................................................................7
Part 3(B):....................................................................................................................................7
Part 3(C):..................................................................................................................................11
Part 3(D):..................................................................................................................................12
Part 3(E):..................................................................................................................................13
Part 4:.......................................................................................................................................13
Part 5:.......................................................................................................................................14
Part 6(A):..................................................................................................................................15
Part 6(B):..................................................................................................................................19
Reference and Bibliography:....................................................................................................20

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Part 1(A):
Start Up Business:-
1. Personal Investment - When borrowing you have to invest your personal money in the
form of cash or collateral on your assets, so that the bank will understand your commitment
towards the project.
2. Borrow from Family and Friends - This is the financial aid which you get either by spouse
or by your parents. another most important financiers are friends, the only difference to
family and friends finance is for family you need not pay the money back but for friends you
need to repay.
3. Venture Capital - They mainly look for the technology driven businesses such as
information technology, communications, and biotechnology. This type of finance involves
giving up some of your ownership in your business to the external party. they also expect a
good return on their investment, usually done when you start selling your company shares to
public.
4. Business Angels - Angels are generally rich individuals or retired company executives
invest directly in small firms owned by others. They not only provide finances but also give
their contacts and advises if needed. They usually invest $ 20,000 to $ 100,000. In turn for
their money they often involve a seat on the board of directors and an assurance of
transparency.
5. Grants and Subsidies - For some projects the government agencies provide aid to
companies. You can use this money to cover up some of the expenses in the company like
salaries, marketing, productivity improvement, etc. Technically, this grant of money from
government means you need not return the money back, but it is very tough to get a grant.

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6. Bank Loan - This is the most commonly used source of funding for any type of business. A
good idea of your project and a solid business plan are the main factors for getting loan. Most
of the banks offer start up financing to entrepreneurs and are even postponing the principal
payment for up to 12 months. BDC was a good example for this.
7. Credit Cards - It is a popular way of financing a start-up business. But it is useful for
stating up the small businesses. The business get access to a free credit period of around 30 -
45 days. Until the statement gets generated the credit will be without interest, with this it will
also have a feasibility to pay it in equated monthly instalments.
Ongoing Business Expansion:-
1. Bank Loan - This will be much easier and quick process, getting financial support for
ongoing business from bank. Bank will only see house your business is making profits,
considering the annual profits into account, the banks process the loan.
2. Equity Offering - In this case the company sells stock directly to public. Depending upon
circumstances, equity offerings can raise to a good amount of funds.
3. Debt Financing - Debt financing means borrowing funds from the money lenders like
creditors. It will be like repaying the funds with interest at a future specified time. mostly of
the time the creditors give on some collateral, almost like mortgage.
4. Franchising - Expanding the business is also one of the way to get finance for ongoing
business. Franchising your business expands the business and which brings the business in
franchise licensing fees.
Part 1(B):
Starting Widgets Business:-

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1. Personal Investment - Its nothing but the savings which you can invest in your business.
As Widgets comes under a small-scale industry, the budget requirement will be less.
2. Borrow from Family - This is a very easy financial aid which can give the company a good
kick start.
3. Credit Cards - As it is a small-scale business using credit card is very good because it has
45 days no interest and EMI options.
4. Business Angels - The other business heads can invest in this widgets business with a
benefit to try for much more new technologies. Ex:- Samsung, oppo, viva these all companies
can finance this small budget business and if they like the widget tools, then they can
introduce this new technology in their company products at less cost. It will be dual benefit.
5. Bank Loan - By considering the investment made by other sources the bank will also give
the loan easily, but the business idea and plan has to be made correctly.
Part 1(C):
Ongoing Business Expansion:-
1. Bank Loan - This option is very easy because the Bank who have given the loan at the time
of start-up will have good will towards the company, as they would have paid the previous
instalments. So, by considering the previous annual profits the bank can give extension loan
amount or new Loan.
2. Business Angels - This option is also best because, it’s like exhibiting the product before
making is much easier than after its made and brought into the market. surely there are some
angles who are much interested in funding this type of projects by expecting some returns or
only for promoting new technology to the world.

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These two options are only much feasible options to improve the business. the others
like equity offering is not possible for this sort of companies, and franchise is like diluting the
ownership in this company.
Part 2:

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Part 3(A):
Part 3(B):
Profitability Ratio:
Return on Equity:- Return on equity measures net income less preferred dividends against
total stockholder’s equity. This ratio measures the level of income attributed to shareholders
against the investment that shareholders put into the firm. It takes into account the amount of
debt, or financial leverage, a firm uses. Financial leverage magnifies the impact of earnings
on ROE in both good and bad years. for this company Return on equity is continuously
decreasing from 24.1% in 2019 to 22.9% in 2021, That means ROE here of 24.1% suggests
that for every $1 in shareholder’s equity, the firm is generating $0.241 in net income.
Return on capital employed: Return on capital is calculated as operating profit (EBIT) by
total equity plus noncurrent liabilities. It is a measure of how efficiently a firm utilizes its

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assets. A high ratio means that the company is able to efficiently generate earnings using its
assets. for this company the ratio has been in an increasing manner from 12.9% in 2019 to
14.6% in 2021.
Operating Profit Margin: The operating profit margin is an indicator of the company’s
earning power from its current operations. This is the core source of the company’s cash
flow, and an increase in the operating profit margin from one period to the next is considered
a sign of a healthy, growing company. for the company the operating profit has been
increased from 12.74% to 18.84%, that shows the company's profit margin is in growth.
Gross Profit: The ratio of gross profit as a percentage of sales is an important indicator of
your company’s financial health. Without an adequate gross margin, a company will be
unable to pay its operating and other expenses and build for the future. if we compare the
gross profit of this company for the past 3 years its continuously increasing from 0.8% to
12.36%. In general, the company’s gross profit margin ratio should be stable. It should not
fluctuate much from one period to another. The gross margin is likely to change whenever
prices or costs change.
Efficiency ratio:
Average inventory turnover period: The inventory turnover period has been constantly
decreasing from 2019 to 2021 from 1507.6 days to 458.7 days.
Average settlement period: The settlement period shows the number of days it takes for a
business to turn its accounts receivable into cash. Should be considered in conjunction with
the terms of sale that a company or industry typically allows, for the present company it
varies from 17.67 days in 2019 to 27.72 days in 2021.

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Average settlement period (purchases): Its varying from 28 days in 2019 to 27.3 days in
2021.
Sales revenue to capital employed: This ratio is decreasing continuously from 2019 to 2021
with the 101.6% to 77.6%, showing that non-current liabilities are also decreasing.
Liquidity ratio:
Current ratio: The current ratio measures a company’s current assets against its current
liabilities. The current ratio indicates if the company can pay off its short-term liabilities in an
emergency by liquidating its current assets. In the present company it has been decreased
from 1.92 in 2019 to 1.10 in 2021. A low current ratio indicates that a firm may have a hard
time paying their current liabilities in the short run and deserves further investigation. It
means that even if the company liquidates all of its current assets, it would still be unable to
cover its current liabilities. A high ratio indicates a high level of liquidity and less chance of a
cash squeeze.
Acid Test Ratio: The acid-test ratio is a more conservative version of the current ratio.
Although the two are similar, the Acid-Test ratio provides a more rigorous assessment of a
company's ability to pay its current liabilities. It does this by eliminating all but the most
liquid of current assets from consideration. Inventory is the most notable exclusion, because
it is not as rapidly convertible to cash and is often sold on credit and also eliminates pre-
payments. in the present company it is in an increasing way from 0.47 in 2019 to 4.11 in
2021. This means that for every dollar of Company's current liabilities, the firm has $4.11 of
very liquid assets to cover those immediate obligations.
Leverage ratio:

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Gearing Ratio: A gearing ratio is a general classification describing a financial ratio that
compares non-current liabilities to owner's equity (or capital). Gearing is a measurement of
the entity’s financial leverage, which demonstrates the degree to which a firm's activities are
funded by owner's funds versus creditor's funds. In the present company the gearing ratio has
been reduced from 69.94% in 2019 to 63.79% in 2021.
Interest Cover Ratio: The interest coverage ratio, also known as times interest earned,
measures a company’s cash flows generated compared to its interest payments. The ratio is
calculated by dividing EBIT (earnings before interest and taxes) by interest payments. for the
present company Interest cover ratio has been increasing, in 2019 it is 5.6 times, in 2020 it is
6.4 times and in 2021 it is 7.02 times. The interest coverage ratio of 5.6 times indicates that
the firm’s earnings before interest and taxes are 5.6 times its interest obligations for the
period. The higher the figure, the less chance a company has of failing to meet its debt
repayment obligations. A high figure means that a company is generating strong earnings
compared to its interest obligations.
Investment ratio:
Dividends Pay-out Ratio: The dividend pay-out ratio is an indicator of how well earnings
support the dividend payment. Dividends are paid at the discretion of management, if the
percentage is too high (over about 75%) then the dividend could be cut. If the result is low
then the dividend payment could continue into the future. For this company the pay-out ratio
is constantly decreasing from 52.3% to 44.4% which means indicates the continuation of
dividend payment process.
Dividend Yield: A stock's dividend yield is expressed as an annual percentage and is
calculated as the company's annual cash dividend per share divided by the current price of the

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stock. In 2019 $2.16 share price creates a 4.25% yield, where as in 2021 $2.32 share price
created 4.19% yield.
Earnings per share: EPS is basically the profit that a company has made over the last year
divided by how many shares are on the market. this has been constantly increased in this
company from 2019 to 2021.
Price/earnings ratio (P/E): for this company it is decreased from 12.7 in 2019 to 11.04 in
2021. A high P/E ratio means investors are paying more for today's earnings in anticipation
of future earnings growth. The basic formula for calculating the P/E ratio is fairly standard.
Part 3(C):
Profitability Ratio: Return on Equity is Lower than the industry averages from 2019 to 2021
years. Return on Capital Employed is higher from 2019 to 2021 than the industry averages
which shows that the firm is in profit. Operating Profit Margin is lower than industry
averages in 2019, it has increased more than industry averages in 2020 and 2021. The Gross
Profit Margin is increased drastically over the years in comparison to industry averages that
shows that the company is doing good in earning profits.
Efficiency ratio: Average Inventory Turnover Period is very high over 2019 - 2021 in
comparison to industry averages, and can assume that the company is losing its current assets
in compare to industry averages. Average Settlement on Accounts Receivable and payable
both has decreasing trends when compared to the industry averages which says about the
increase of firms debits in the less period. Sales Revenue On Capital Employed is high than
industry averages in 2019 and 2020 then in 2021 it decreased than industrial averages,
showing the company’s growth in income compared to industrial averages.

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Liquidity ratio: Current ratio is very less than the industry averages in 2019 and it continued
to decrease in years 2020 and 2021. Acid Test Ratio is also very low in 2019, almost reach
the level of industry average in 2020 and increased in 2021 in comparison to industry
average.
Leverage ratio: Gearing Ratio is very much higher from 2019 to 2021 than the industry
averages. The Interest Cover Ratio is low in 2019 but it has increased over years 2020 and
2021.
Investment ratio: The Dividend Payet Ratio is much higher in 2019, but it is lower in 2020
and 2021 than industry averages means that the company is giving less than it is receiving.
The Dividend Yield is lower than the industry average for all the 3 years. Earnings Per Share
is lesser than industry averages in 2019 and 2020 but it was same in 2021 years. As was the
reason P/E ratio being higher than industry averages which shows that the company is losing
its debts but these all 4 ratios are depend upon the company's characteristics. the P/E ratio
should be lower to strengthen the firm.
Part 3(D):
In terms of Profitability and Efficiency Ratios, one can say that the given firm is
doing very well as it is gaining profit through its shorter accounts receivable period and
greater accounts payable period. It is also a possibility that the firm is gaining larger profit
compare to industry averages as per higher Gross Profit Ratio and lower Sales Revenue on
Capital Employed. the findings show that the firm is more liquid than industrial averages and
so, gaining profits more. the Leverage Ratio is also shows that the firm is having money on
capitals rapidly than the industry averages and so, having more debts for using that money.
the Investment Ratio is decreasing so, the firm is investing less on capitals and thus
decreasing its equity and higher P/E ratio shows that by less inventing on capitals, the firm is

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losing its debts, by summarizing all the ratios and comparing it all with the industry averages,
we can say that the firm is doing very well in terms of positive trend.
Part 3(E):
There are some problems in this analysis that I have found like there will not be
always depend on industry averages as they are derived from possible situations maybe the
firm is doing well in compare to its close competitors but it is also a duty of one to first
understand the characteristic of a business. the client is having mining business, then there
should be more investment ratio as the company has only debts through the capitals and
investments because the business is not with guarantee of gaining anything from its nature. it
is also likely with the seasonal businesses. but generally, the company will gain profits by
lower P/E ratios as there are more earnings than the price.
Part 4:

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Part 5:

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Part 6(A):

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5. Briefly analysing these budgets. Highlight any areas of concern and give advice to
your client:
Inventory Budget:
From the valuation of inventory budget, it could be identified that relevant purchases
need to be conducted by the company, which might help in supporting Inventory levels of the
organization. The relevant evaluation also indicates that adequate inventory levels were
maintained in the inventory budget, which helped in supporting sales requirement for the
organization. The inventory levels mainly allow organization to maintain the supply of
adequate raw materials, which could help in supporting the production system. Adequate
closing inventory required to produce relevant goods are maintained in the inventory budget
prepared for the organization. The decline in inventory levels during April due to reduction in
demand led to the decline of purchases conducted during the month. Moreover, the closing
inventory also rules from September to compensate the rising demand for products in
October. Furthermore, the purchases conducted in the inventory budget directly compliments
the need for adequate levels of finished products, which could support projected demand
from customers. The drafted inventory level could eventually allow the organization to

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support its production needs as and when required during the fiscal year (Stevenson and Sum
2015).
Cash Budget:
The cash budget mainly helps in identifying the overall cash inflows and outflows that
is conducted by the organization in next fiscal year. The cash receiving budget indicates a
positive inflow of cash in all the months of the fiscal year, where no negative payments or
halt in cash inflow can be identified. This is relatively a positive measure, which might allow
the organization to support its activities and maintain adequate level of cash. Moreover, the
sales received is mainly conducted on three different bases, where 10% of revenue is
collected from sales conducted 3 months ago, while 40% of the revenue is collected from
sales conducted 2 months ago and 50% of revenue is collected from seals conducted one
month ago. This eventually helps in collecting the adequate amount of receipts from
customers to support the rising demand for cash expenses (Barr and McClellan 2018).
The cash budget also helps in identifying the overall payment to suppliers which
needs to be conducted by the company. The identification of overall payments conducted to
the suppliers could eventually help in detecting the cash outflows that are conducted by the
organization. This identification of the cash outflows could eventually help in detecting the
net cash balance provided to the organization. relevant payments are conducted on two
different bases, where 50% of the purchased raw materials are paid on next month from the
Purchase month, while the other 50% is paid after 2 months from the Purchase month. This
eventually allows the organization to reduce the overall cash outflow from operations and
maintain the level of cash to support its operational activities. From the valuation of the cash
budget it could be identified that adequate closing cash value was present within the
organization to support its financing activities. this would eventually indicate if financial

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progress of the budget in maintaining adequate levels of cash from operations (Dudin et al.
2015).
Accounts Receivable Budget:
Revaluation of accounts receivable it also indicates irrelevant changes in closing
accounts receivable value throughout the period of 2023 fiscal year. This account receivable
budget is mainly conducted to address the level of accounts receivable value that is left by the
organization to collect from its suppliers. Accounts receivable budget has fairly been negative
from April to October, where no adequate sales were conducted by the organization due to
reduced demand from customers. In addition, the financial this decline in overall receivable is
we mainly due to the low sales conducted each month by the organization. Accounts
receivable value is mainly dependent on the sales and on the credit capability of the
organization. However, the declining sales may be reduced the overall receivables from
customers, which could be viewed as an income for the organization. This declining sales
revenue mainly reduced and forced the accounts receivable budget to become negative for 7
months in the fiscal year (Maxwell et al. 2015).
Accounts Payable Budget:
Accounts payable budget has also seen negative values for around 7 months in the
fiscal year, due to the reduced purchases net is conducted by the organization. this decline in
overall closing accounts payable value is due to the reducing demand from customers for the
product of the organization. In addition, the decline in demand mainly instigated a fall in
sales quantity, which in turn reduced the overall accounts payable of the organization.
Nevertheless, at the end of December positive value for accounts payable budget can be seen,
which is due to the rising demand for raw materials by the organization. However, the
declining value of accounts payable mainly indicated the reduction in cash outflow, which

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will be conducted by the organisation. this decline in value is also a positive attribute for the
organisation where no for the payment needs to be conducted due to high congestion of
credit. on the other hand, this negative value of accounts payable budget also indicates the
declining demand from customers, as no further production is needed by the organisation
(Morgan et al. 2016).
Part 6(B):
7. Advise whether the client can comfortably achieve the breakeven level of sales based
on firm’s recent performance and its budgeted level of sales:
From the valuation of the breakeven analysis, the organization mainly needs 1910
units to maintain the level of no profit no loss, which could help in making adequate
investment decisions. This budgeted break even analysis mainly indicates that the overall
level of Quantity that is needed by the organization to survive the competitive market.
However, the budgeted values indicate a total sales of 2530 unit by the organization which is
higher than the breakeven point needed. this indicates the fair profits that will be enjoyed by
the organization during the fiscal year. break even analysis mainly helps in identifying the
values that is needed by the organization to sustain the competitive market (Palia 2014).
Hence, both performance of the budget and level of sales are adequate for the organization.

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Reference and Bibliography:
Barr, M.J. and McClellan, G.S., 2018. Budgets and financial management in higher
education. John Wiley & Sons.
Dillon, C.R. and Casey, J.E., 2016. Elasticity of breakeven prices between agricultural
enterprises. Texas Journal of Agriculture and Natural Resources, 4, pp.33-36.
Dudin, M., Kucuri, G., Fedorova, I., Dzusova, S. and Namitulina, A., 2015. The innovative
business model canvas in the system of effective budgeting.
Farber, D.A., 2014. Breaking Bad: The Uneasy Case for Regulatory Breakeven
Analysis. Cal. L. Rev., 102, p.1469.
Galligan, J.J. and Annunziato, A., 2017. Education Funding Crisis in the Suburbs: The
Impact of the 2007-09 Recession Recovery Policies and the New York State Tax Levy Cap
on School District Financial Planning Practices. Journal for Leadership and
Instruction, 16(1), pp.9-14.
Healey, J. and Tordoff, W. eds., 2016. Votes and Budgets: Comparative Studies in
Accountable Governance in the South. Springer.
Khurshid, R., Tabish, S.A., Hakim, A., Khan, A. and Singh, Y., 2014. Break-even analysis of
MRI facility at a large tertiary care teaching hospital of North India. IJMAHS, 2, pp.220-222.
Maxwell, S.L., Rhodes, J.R., Runge, M.C., Possingham, H.P., Ng, C.F. and McDonald‐
Madden, E., 2015. How much is new information worth? Evaluating the financial benefit of
resolving management uncertainty. Journal of Applied Ecology, 52(1), pp.12-20.

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Morgan, K.L., Callan, P.L., Mark, A., Niewolny, K., Nartea, T.J., Scott, K.H. and Hilleary, J.,
2016. Farm Financial Risk Management Series. Part III, Introduction to Farm Planning
Budgets for New and Beginning Farmers.
Palia, A.P., 2014. Target profit pricing with the web-based breakeven analysis
package. Developments in Business Simulation and Experiential Learning, 35.
Reger, D., Madanat, S. and Horvath, A., 2015. The effect of agency budgets on minimizing
greenhouse gas emissions from road rehabilitation policies. Environmental Research
Letters, 10(11), p.114007.
Stevenson, W.J. and Sum, C.C., 2015. Operations management. New York: McGraw-Hill
Education.