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Accounting for Managers Assignment - Doc

   

Added on  2020-03-23

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1Running head: ACCOUNTING FOR MANAGERS 1Accounting for ManagersStudent’s NameInstitutionSupervisor’s NameCourse

2ACCOUNTING FOR MANAGERSQ.1 – Chapter 10 Problem 14Profitability - ROEReturn on Equity is referred as the net income, which is returned as a shareholder equity percentage. It is the difference between net income and shareholder equity, where net income is taken for the full financial year, while amount of preference shares are excluded from the shareholder equity (Tracey, 2012).Net IncomeShareholder Equity Excluding Preference shares20X420X520X620000150000 - 50000 = 10000020%11000144000 – 50000 = 9400011.70%2500143500 – 50000 = 935002.67%Profitability - ROETable 1: ROE of Efficient Distributors Ltd Profitability – ROAROA is the financial instrument for measuring net income obtained through total assets for a particular period. The formula is net income by average total assets. NOTE: ROA cannot be calculated for 20X4 due to lack of opening total assets.Net IncomeAverage Total Assets20X520X611000(266000 + 282000) / 2 = 2740004.01%2500(282000 + 287000) / 2 = 2845000.88%Profitability - ROATable 2: ROA of Efficient Distributors Ltd Comment SummaryThe ROE ratios indicated downfall in the net income of the organization, where the ratio have gradually decreased over the years due to low income. Considering the ROA, similar type

3ACCOUNTING FOR MANAGERSof result was obtained, where company has failed to manage their assets, which has led to low profits for the year 20X6.Gross MarginGross margin is helpful for determining the percentage of revenue from total sales. Thus, it the difference between direct expenses related to its production and selling (Tracey, 2012). Theformula of Gross margin is given below:Total revenue from sales = Cost of goods sold (COGS) / total revenue from salesTotal Sales RevenueCOGS20X420X520X62000009000055%1800008400053.33%1650007500054.55%Gross MarginTable 3: Gross Margin of Efficient Distributors LtdNet Margin Net margin helps in identifying the percentage of revenue, which is collected as a profit on selling each product or service (Tracey, 2012). The formula is given below:Net margin = net profit / revenue.Net ProfitTotal Sales Revenue20X420X520X62000020000010%110001800006.11%25001650001.52%Net MarginTable 4: Net Margin of Efficient Distributors LtdSelling RatioSelling ratio is also known as price-to-sales ratio, where the stock price of the organization is compared with its revenues (Tracey, 2012). According to the question, $1 is the stock price of

4ACCOUNTING FOR MANAGERSEfficient Distributors Ltd calculated as per share i.e. 75000/75000 = $1 and the total amount of equity shares is 75000.Total Sales RevenueSales per Share20X420X520X6200000200000/75000 = 2.67$1/2.67 = 0.37180000180000/75000 = 2.4$1/2.4 = 0.42165000165000/75000 = 2.2$1/2.2 = 0.45Selling Ratio / Price-to-Sales RatioTable 5: Selling Ratio of Efficient Distributors LtdFinance RatioFinance leverage Ratio is a kind of financial ratio, where total assets replace the debts in debt-to-equity ratio. It is also known as equity multiplier, which focuses on showing the difference between the average total assets and average amount of equity shares (Tracey, 2012). NOTE: calculation of 20X4 cannot be done due to lack of opening total assets. Ordinary share capital is assumed as equity share capital.Total AssetsAverage amount of Equity shares20X520X6(266000 + 282000) / 2 = 27400075000+75000/2 = 750003.65(282000 + 287000) / 2 = 28450075000+75000/2 = 750003.79Finance Ratio / Financial Leverage RatioTable 6: Finance Ratio of Efficient Distributors LtdComment SummaryGross margin ratio indicates slight fluctuations of the past years, which indicates the company retaining higher percentage on sales of each product, where they can meet their debt obligations. Net margin ratio has provided the exact percentage of profit earned after cutting the production, which resulted in greater decrease for the last two years. The price-to-sales ratio was evident in providing a slight increase in the value from the previous years. Lastly, the finance

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