ACC00724 - Accounting for Managers - Assignment
Added on 2020-03-04
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Running Head: ACCOUNTING FOR MANAGERSAccounting For Managers Subject Code-Trimester No.- Student’s name- Word Count - 1500 Professor – University - Note: Figures in $ are to be considered as ‘000
ACCOUNTING FOR MANAGERS P a g e | 2Question 1:a). Current Ratio : Current Assets / Current Liabilities [CITATION Acc17 \l 16393 ].This ratio helps in analyzing the liquidity potential of a company. It also highlights the fact that how the company is readily available to transform their assets into cash [CITATION Acc17 \l 16393 ]. = $ (180742 / 105064) = 1.72Quick Ratio: Short term investments + Trade Receivables + Cash and cash equivalents / Current Liabilities [ CITATION Acc13 \l 16393 ].It determines the potential of the company whether the readily convertible assets are sufficient enough to pay off the short term liabilities. It is slightly more conservative when compared to the current ratio as it does not include inventories in it [ CITATION Acc13 \l 16393 ]. = $ (0 + 14,591 + 6271) = 0.20Thus, the data can be summarized as:ParticularsIndustry AverageSuper Cheap Auto GroupCurrent Ratio1.761.72Quick Ratio0.780.20Amongst the firms, companies, and industries, the current ratio being more than 1 is considered to be a favorable position. Data from the above table summarizes the fact that the current ratio of Super Cheap is slightly lower than the industry average. This proves that its other competitors are more liquid in nature in paying off their current liabilities. Currently, the industry considers 1.5 as a favorable current ratio due to prevalent external conditions. Still, many older firms are still following the parameter of 1 as current ratio. As far as the quick ratio is concerned, the higher it is, the better will be the position for a company[ CITATION Bus17 \l 16393 ]. The statistics of industry average shows a way better position thanSuper Cheap Auto Group. The industry average is ahead than Super Cheap by 0.58 basis points (0.78 – 0.20). This reflects the fact that Super Cheap Auto Group is facing difficulties when compared to the industry in meeting off their current liabilities. b).The data is summarized below :
ACCOUNTING FOR MANAGERS P a g e | 3YearParticularsCents per share2006Dividend82007Dividend10.5From the above data, it can be ascertained that Super Cheap Auto Group has increased their dividend payments by 2.5 cents per share (10.5 – 8). There are two reasons behind such increase in the dividend. Firstly, it is the increase in the level of earnings and secondly, it is the fall in the level of expenditures from 2006 to 2007. This indicates Super Cheap Auto Group’s growth in its course of operations. The level of net profit has also increased when compared from 2006 to 2007. Due to increase in the net profit, the company’s Earnings per share has increased from 15.5 to 21. The quantum of retained earnings has also increased by $ 12,753. Income on borrowings exceeds the expenditure on borrowings by $6934 from 2006 to 2007. From the overall scenario, it can be ascertained thatthe company is moving ahead to expand its business by adopting the route of long term finance [ CITATION For17 \l 16393 ]. c).Inventory Turnover = COS or COGS / Average Inventory [ CITATION The17 \l 16393 ].Where, COS = Cost of Sales, COGS = Cost of Goods Sold Average Inventory = (opening stock + closing stock) / 2 = $(135,021 + 159,880) / 2 = $147,450.5Inventory Turnover = $ 376,733 / $ 147, 450.5 = 2.55 timesInventory Days = 365 / Inventory Turnover = 365 / 2.55 = 143 days approx. Thus, it can be concluded from the above calculation that the inventory of Super Cheap Auto Group rotates for 2.55 times a year with 143 inventory days. The reason behind such low level of inventory turnover is the higher level of stock maintained by Super Cheap. The company is getting its funds blocked in its inventory and that is why it is having a lower level of inventory days[ CITATION The17 \l 16393 ]. d)The financial statements of Super Cheap Auto Group reflect the fact that the companyis moving ahead towards its growth and expansion at a faster pace. The same can be understood by the increase in the level of funds. Its main focus is on the borrowing of funds and then funding them back into the business by means of retained earnings. From here, the company is able to distribute higher level of dividend and is having higher earnings
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