Financial Statement Analysis for Nimbin

The report presents a comprehensive analysis of Nimbin's financial statements for the year 2016, including an income statement, balance sheet, and cash flow statement. It provides insights into the company's profitability, liquidity position, and investment activities. The report also explores various accounting concepts and theories, such as accruals, payables, receivables, and long-term debt.

ACCOUNTING FOR MANAGERS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
A) Analyzing financial performance of Nimbin....................................................................1
b. Commenting on the profitability, liquidity and solvency aspect of Nimbin pertaining to
2016........................................................................................................................................6
QUESTION 2...................................................................................................................................6
a. Assessing whether chef is an asset for the restaurant in monetary terms...........................6
b. Assessing the extent to which accounting information helps other entities in decision
making....................................................................................................................................6
c. Indicating the effect of business transactions on financial statements...............................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
In the business unit, manager conducts ratio analysis with the motive to get information
about the financial position and performance. In this, report will shed light on the profitability,
liquidity and solvency aspect of Nimbin. Besides this, it will provide deeper insight about the
manner in which business transactions affect financial statements.
QUESTION 1
A) Analyzing financial performance of Nimbin
Ratio analysis of Nimbin for the year 2016 along with the industry averages are as follows:
1. Return on total assets
Ratios
Formulas Nimbin Pty
Limited
Industry
average
Net income 4362
Average total assets
(29935+ 28045) / 2
= 28990
Rate of return on total assets
Net income /
Average total
assets * 100 15% 22%
2. Rate of return on ordinary equity
Ratios
Formulas Nimbin Pty
Limited
Industry
average
Net income 4362
Shareholder's equity 14215
Rate of return on ordinary
equity
Net income /
shareholders
equity * 100 31% 20%
3. Profit margin
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Ratios
Formulas Nimbin Pty
Limited
Industry
average
Gross profit 19900
Net profit 4362
Net sales 55000
GP margin
Gross profit / net
sales * 100
36%
NP margin
Net profit / net
sales *100
8%
4%
4. Earnings per share
Ratios
Formulas Nimbin Pty
Limited
Industry
average
Net income after dividend 4362- 50 = 4312
common shares outstanding 7200
Earnings per share
Net income –
preferred dividend
/ Weighted
average common
share outstanding .60 45c
5. Price-earnings ratio
Ratios
Formulas Nimbin Pty
Limited
Industry
average
Earning value per share .60
Market value per share 12
2

Dividend yield ratio MPS / EPS 20 12
6. Dividend yield
Ratios
Formulas Nimbin Pty
Limited
Industry
average
Cash dividend per share .38
Market value per share 12
Dividend yield ratio
Cash dividend per
share / market
value per share 3% 5%
7. Dividend payout
Ratios
Formulas Nimbin Pty
Limited
Industry
average
Total dividend 2702 + 50 = 2752
Net income 4362
Dividend payout ratio
Total dividend /
net income 63% 70%
8. Current ratio
Ratios
Formulas Nimbin Pty
Limited
Industry
average
current assets 12745
current liabilities 5780
Current ratio
Current assets /
current liabilities 2.21:1 2.5:1
3

9. Quick ratio (acid ratio)
Ratios
Formulas Nimbin Pty
Limited
Industry
average
current assets 12745
Closing stock 7000
Prepaid expenses -
current liabilities 5780
Quick or acid ratio
CA – (Stock +
prepaid expenses) /
CL
.99
1.3:1
10. Receivables turnover
Ratios
Formulas Nimbin Pty
Limited
Industry
average
Sales 55000
Average accounts receivable
(4100 +3675) / 2 =
3887.5
Sales / accounts receivable 14.15 times 13 times
11. Inventory turnover
Ratios
Formulas Nimbin Pty
Limited
Industry
average
COGS 35100
Average inventory 6965
Inventory turnover ratio 5.04 times 6 times
4

12. Debt ratio
Ratios
Formulas Nimbin Pty
Limited
Industry
average
Debt 9940
Equity 14215
Debt to equity ratio
Debt /
shareholders
equity .70:1 40%
13. Times interest earned
Ratios
Formulas Nimbin Pty
Limited
Industry
average
EBIT 7830
Interest expenses 1560
Times interest earned
EBIT / interest
expenses
(Weygandt,
Kimmel and Kieso,
2015) 5.02:1 6 times
14. Assets turnover
Ratios
Formulas Nimbin Pty
Limited
Industry
average
Net sales 55000
Average total assets
(29935+ 28045) /
2 = 28990
5

Assets turnover ratio
Net sales / average
total assets 1.90
1.8 times
b. Commenting on the profitability, liquidity and solvency aspect of Nimbin pertaining to 2016
 Profitability: From assessment, it has been identified that net margin generated by
Nimbin in 2016 accounts for 8%. It is greater than the industry average which shows that
profitability aspect of Nimbin is sound.
 Liquidity: In the accounting year 2016, current and quick ratio of Nimbin was 2.2:1
& .99:1. In comparison to the industry averages liquidity position of the firm was lower
to some extent. Thus, it can be presented that liquidity position of the company was good
in 2016. Hence, business unit needs to make focus on maintaining assets that help in
meeting obligations (Robinson and et.al., 2015).
 Solvency: Outcome of ratio analysis shows that debt-equity ratio of Nimbin was 70% in
2016. On the other side, as per the industry average debt-equity ratio must be 40%. Thus,
to strengthen the solvency position firm is required to make balance in debt and equity
aspect.
QUESTION 2
a. Assessing whether chef is an asset for the restaurant in monetary terms
On the basis of cited case situation, restaurant is attaining success, as chef is preparing
delicious food. In this, chef is considered as an asset for the restaurant in non-financial terms.
Moreover, owner of restaurant cannot generate value by selling chef, only they can use the
services (Woodward, 2016). Thus, it is one of the main reasons due to which value of chef
cannot be included in balance sheet because it is not possible to realize the same in monetary
terms.
b. Assessing the extent to which accounting information helps other entities in decision making
 A manager of human resources: Financial information assists HR manager can make
assessment of employee productivity and profitability as per departments through the means
of accounting (Accounting Information and Managerial Decisions, 2016). By taking into
account such aspect, HR personnel of firm can set suitable remuneration for the personnel.
6

 A factory manager: Accounting information helps factory manager in evaluating the level
of expenses related to raw material, labor etc as compared to the former years. Thus, by
getting information about such aspect manager would become to develop suitable budgeting
framework.
 The management team of an Australian Football League (AFL) club: Club manager can
allocate fund to each activity on the basis of cash position in the financial statement.
 The manager of a second-hand clothing charity: By making assessment of accounting
information charity manager can identify the fund they have for investing in the welfare of
others. In this, by setting priorities as per the availability of fund charitable unit can take
suitable investment decisions.
c. Indicating the effect of business transactions on financial statements
Transaction Statement of
financial
performance
Statement of
financial position
Statement of cash
flows
Purchasing equipment
in against to cash.
- Incline in equipment
Increase in cash
Decrease in financing
activities
Providing services to
a client, with payment
to be received within
40 days.
Income will increase
because it is
considered as accrued
income
Asses will increase Operating
activities will
decrease
Payment of a liability. - Liability decreases
Cash will also
decrease
-
Investing additional
cash into the business
by the owner.
- Liabilities: Capital
increases
Assets: Cash will
increase
Increase in financing
activities
Collecting an account
receivable in cash.
- Assets: Receivables
will be cancelled with
respective amount.
-
7

Cash will increase
Payment of wages to
employees.
Net profit decrease - Decrease in operating
profit
Receiving electricity
bill in the mail, to be
paid within 30 days.
Expenses will
increase, profit
decreases
Liabilities will
increase
Increase in Operating
activities
Selling a piece of
equipment for cash
-  Assets: Value
of equipment
will decrease.
Further, cash
element of
balance sheet -
will incline
Investing activities
will increase
Withdrawal of cash
by the owner for
private use.
-  Liabilities:
Less drawing
from capital in
the liabilities
side. In other
words capital
will decrease
 Assets: Cash
will decrease
-
Borrow money on a
long-term basis from
a bank.
-  Assets:
Increase in
cash at bank
 Liabilities:
Increase in
long term debt
+ in financing
activities
8

CONCLUSION
From the above report, it has been concluded that profitability and liquidity position of
Nimbin was good during the year of 2016. Besides this, it can be inferred that accounting
provides high level of assistance to the entities in making appropriate economic decisions.
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