Accounting Assignment: Sondiak Ltd's Financial Analysis

The assignment requires the calculation of various ratios for Sondiak Ltd, such as rate of return on total assets, rate of return on ordinary equity, operating profit margin, earnings per share, price-earnings ratio, dividend yield, dividend payout, current ratio, quick ratio, average settlement period for accounts receivable, average inventory turnover period, debt ratio, and times interest earned. It also involves indicating the effect of business transactions on financial statements, such as borrowing money, paying salaries, withdrawing cash, selling an old company car, purchasing a building, providing services to clients, receiving payments, paying insurance premiums, and making loan payments. The assignment aims to provide a comprehensive understanding of Sondiak Ltd's financial performance and the impact of business transactions on its financial statements.

Accounting
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TABLE OF CONTENTS
1. Calculating ratios of Sondiak Ltd for the year ended on 2017................................................1
QUESTION 2..................................................................................................................................2
a. Stating whether employees are considered as assets for the firm and need to be include in
balance sheet................................................................................................................................2
b. Stating the manner in which accounting information aid in economic decision.....................2
c. Indicating the effect of business transactions on financial statements....................................2
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1. Calculating ratios of Sondiak Ltd for the year ended on 2017
Particulars Sondiak Ltd Industry average
Rate of return on total assets 27% 22%
Rate of return on ordinary equity 33.04% 20%
Operating profit margin 14.2% 4%
Earnings per share $0.74 $0.45
Price-earnings ratio 15.5 12.0
Dividend yield Equity: 5.8%
Preference: 5.2%
5%
Dividend payout 62.7% 70%
Current ratio 2.20:1 2.5:1
Quick ratio (acid ratio) .99:1 1.3:1
Average Settlement period for
Accounts Receivable
25.80days or 14 times 28.1days or 13 times
Average inventory turnover
period
72.42 days or 5 times 60.83 days or 6 times
Debt ratio 52.5% 40%
Times interest earned 5 times 6 times
Assets turnover 1.9 1.8
Interpretation: In comparison to the industry benchmark, profitability aspect or condition
of Sondiak Ltd was good in the year ended on 30th June 2017. However, ROA results present that
Sondiak Ltd failed to generate high return from assets. Further, it has assessed that in comparison
to the industry less percentage of profit such as 63.1% distributed among the shareholders. Along
with this, current and quick ratio of Sondiak Ltd was also lower in 2017 as compared to the
industry average. However, but it was highly near to the standard current and quick ratio. Thus, it
can be presented that liquidity position of Sondiak Ltd was average but not good because it falls
below the industry average. Further, outcome of ratio analysis shows that business unit was
receiving money from debtors within the less time frames which in turn places positive impact
on working capital aspects. On the other side, stock turnover ratio of the firm presents that it had
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taken more time for selling and replacing stock as compared to standards. Efficiency ratio
evaluation also entails that in against to the leading business units, Sondiak Ltd made optimum
use of assets while carry out business activities and functions. By applying the tool of ratio
analysis, company was highly able to meet its interest expenses from operating profit generated
during the concerned year. Hence, it can be depicted that financial position and performance of
Sondiak Ltd was good and in line with the industry averages pertaining to the year ended on 30th
June 2017. In addition to this, time interest earned ratio of the company exhibits that it was not
highly able to honor debt payments as compared to the benchmark. Further, by doing
assessment, it has found that business unit was being overly geared and high in comparison to
the industry average. This in turn places direct and negative impact on the profit margin of an
organization. Thus, firm should consider industry benchmark and ideal ratio while taking
decision in relation to raising funds from sources like debt and equity.
QUESTION 2
a. Stating whether employees are considered as assets for the firm and need to be include in
balance sheet
Asset may be defined as a resource that is controlled by the business entity as a result of
past events. Along with this, it also includes resources from which future economic benefits are
expected to flow to the entity. Hence, in the context of restaurant, chef cannot be controlled by
the business entity. Moreover, they have freedom in relation to resigning or call in sick etc.
Further, it is not possible to quantify skills and abilities of chef in monetary terms and present the
same in assets side. Thus, due to all such reasons employees are not included in the statement of
financial position.
b. Stating the manner in which accounting information aid in economic decision
 The management team of an Australian Rugby League (NRL) club: Considering the
level of revenue generated through membership, management team of club can take
decision whether they should enhance the level of promotional expenses or not. In
addition to this, accounting information also provides high level of assistance in taking
decision about annual membership fees, purchasing of sporting equipments etc. Besides
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this, by undertaking monetary information can limit the amount pertaining to player’s
salaries.
 A factory manager of a motor vehicle plant: With the help of financial statement such as
cash flow manager of the motor vehicle plant can assess whether they have enough funds
for further investment or not. Thus, referring accounting information manager can take
decision in relation to investment or expansion. Along with this, accounting records
furnishes information to the manager about the costs of material, labor and overhead
(administration, selling & distribution). Hence, by undertaking such information,
manager can assess the areas where effectual measure needs to be undertaken for cost
control and profit maximization.
 The manager of Lifeline charity store: Financial information provides high level of
assistance to the manager of charity store in assessing income and developing plan in
relation to spending money for the welfare of others. Hence, records prevail in
accounting books helps charity store in making estimation about the pricing of second
hand goods. Through maintaining accounting records charity store can generate
information about the cost related to the collection and receiving donations, paid unpaid
staff wages and overhead expenditure. Referring all such information manager of charity
can develop strategies which in turn ensure optimum use of financial resources.
 A manager of human resources: By taking into account accounting information HR
manager can develop strategies for cost control associated with the employees. In this
way, accounting information helps in achieving right staff mix and taking decision about
training, staff wages as well as hiring and firing decisions.
c. Indicating the effect of business transactions on financial statements
Particulars Statement of
Financial position
Income Statement Statement of Cash
Flows
I. Borrow money on a
long-term basis from
a bank.
Liabilities: Debt
increases
Current assets: Bank
side increases
Incline in financing
activities
2. Pay salaries to
Cash decreases Expenses increases Decrease in cash from
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employees. operating activities
3. Withdraw cash by
the owner for private
use.
Liabilities: Capital or
equity decreases
Assets: Cash
decreases
Decline in cash flow
generated from
financing activities
4. Sell one of the old
company cars for
cash.
Fixed assets decreases
with the similar
amount
Cash level increases
Incline in investing
activities
5. Purchase building
for cash.
Fixed assets increases
from the amount of
building
Cash level decreases
Declining trend in
investing activities or
cash flow
6. Provide services to
a client with payment
to be received within
60 days.
Current assets:
Debtors increases
Sales level increases
7. Receive a bill from
in the mail from a
local carpenter for
some repairs he made,
to be paid within 14
days.
Increase to current
liability such as
creditors or accounts
payable
Expenses increases
and meanwhile profit
decreases
8. Receive a payment
from a client in the
rnail.
Current assets side
Debtors decreases
Cash increases
Increase in cash from
operating activities
9. Pay building
insurance for the next
6 months coverage.
Decrease in Assets:
cash
Insurance expense
decreases with the
prepaid amount and
thereby profit
increases
10. Make a loan
payment
Debt decreases Decline in cash flow
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