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MANAGING FINANCE TABLE OF CONTENTS

   

Added on  2020-06-06

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MANAGING FINANCE

TABLE OF CONTENTSQUESTION 1...................................................................................................................................1(i) Calculation of ratios...........................................................................................................1(ii) Analysis of ratios..............................................................................................................2iii) Explanation of four non-financial aspects which are used for improving businessperformance............................................................................................................................3QUESTION 2...................................................................................................................................3A) Significance of BEP analysis............................................................................................3B) BEP point in units and value.............................................................................................4C) Margin of safety in units and value...................................................................................5D) Profit and loss at sales of 8000 units.................................................................................5E) P&L when selling price declines to $42............................................................................5QUESTION 3...................................................................................................................................5I) Comparing payback period (PP) and NPV.........................................................................5ii) Evaluating and suggesting firm for investment decisions.................................................6QUESTION 4...................................................................................................................................8i) Listing out key functions and activities of a bank..............................................................8ii) Explaining three terms.......................................................................................................8iii) Significance of WC management for manufacturing company........................................8QUESTION 5...................................................................................................................................9i) Various pricing methods and suggesting the best strategy.................................................9ii) Calculating unit selling price and advising the management...........................................10QUESTION 6.................................................................................................................................10i) Comparing Fixed and Flexible Budgets............................................................................10ii) Importance of budgetary planning system.......................................................................11iii) Calculating profit and loss..............................................................................................11QUESTION 7.................................................................................................................................12i) Discussing given statement of budgeting..........................................................................12ii) Preparing different budgets..............................................................................................12REFERENCES..............................................................................................................................14

QUESTION 1(i) Calculation of ratiosRatio analysis is the best technique which used for the purpose of quantitative analysis ofcompany’s financial performance including various aspects like profit performance, efficiency,solvency, liquidity and others. Bellovida Ltd is a prestigious firm offering beauty products to theconsumers. Here, company’s financial performance is analyzed using various key ratios, asfollows: Ratio Calculations 20142013Gross profit 469648628793Sales 11643041344523Gross profit margin Gross profit/total sales*10040.34%46.77%Net profit -9036447651Sales 11643041344523Net profit margin Net profit before taxation/total sales revenue*100-7.76%3.54%Net profit after tax -14719640711Shareholder's fund 370989515282Return on capital employed (Profit before interest & tax/Aveage shareholders fund)-39.68%7.90%Credit purchase 686906709344Creditors 8166098420Creditors settlement period Average credit creditors/Total credit purchase*36543.3950.64Current assets $607,758.00$657,679.00Current liabilities $274,031.00$293,359.00Stock $338,826.00$310,934.00Current ratio (Current assets /Current liabilities)2.22:12.24:1Acid test ratio (Current assets - stock)/current liabilities 0.981.18Average trade debtors 160806186284.5Total credit sales 11643041344523Debtors collection period (Average trade debtors/Total credit sales)*36550.4150.57Debt 356432250000Equity 370989515282Gearing ratio Long-term debt/(debt + equity)0.49:10.33:11

(ii) Analysis of ratiosProfitability performance Bellovida Ltd’s gross profit came down from 46.77% to 40.34% in FY 2016 due tohuge decline in the total sales by 13.40% due to lack of market demand, poor quality products,availability of organic beauty products by competitors at economical charges and others. Indespite of this, as company operates worldwide, therefore, at international presence, firm alsosuffered issues like inflation, currency exchange rate and political landscape in different nations.Besides this, although selling, general and administration expenses were under the control ofmanger, still, high depreciation and rising cost of borrowing resultant fall in net profit. It hasresultant net loss of 7.76% on total sales indicates that firm had not performed strongly in themarket. Despite this, as company had made a provision of income tax worth 56832 which tendsto decline net profit, as a result, return on capital employed came downward from 7.90% to39.68% loss. Liquidity performance:Current ratio fallen from 2.24:1 to 2.22:1, still, it is above ideal ratio of 2:1 which statethat liquidity is properly managed by the firm to pay-off timely all of its deferred payment tosuppliers and other short-term debt. Due to high availability of stock at the end of the financialyear, acid test ratio came down from 1.18:1 to 0.98:1 which is closer to the benchmark of 1:1.Thus, the results presents that there is a sound management of liquidity status in the business. Efficiency performance: Creditor’s settlement period came down from 50.64 to 43.39 days shows that in this year,firm decided to pay their suppliers quickly by arranging required liquidity. However,, debtorscollection period remain constant to 50 days which shows that firm did not change its creditcollection policy considering their current liquidity status. Gearing ratio: The ratio reveals that this year, firm increased its leverage in its capital structure throughmore borrowings as in the earlier period, debt was just used in 33% out of total capital, whichgrown up to 49% this year. It may be to get tax benefit through interest deduction. Despite this,as due to loss, company may suffer issues to attract investors to put money in the business. The2

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