Financial Management and Analysis of Houzit Pit Ltd

This report provides a detailed analysis of the financial management and analysis of Houzit Pit Ltd, including cash flow analysis, examination of different budgets, variances, performances, and recommendations.

Running head: ADVANCE DIPLOMA OF LEADERSHIP
Manage finance
Name of the Student:
Name of the University:
Author Note

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Table of Contents
Task 2.........................................................................................................................................2
Development of variance report of Houzit Pit Ltd:...................................................................2
Cash flow analysis:....................................................................................................................2
Examination of different budgets:..............................................................................................3
Issues:.........................................................................................................................................3
Variances:...................................................................................................................................5
Performances:.............................................................................................................................5
Comparison of financial performances:.....................................................................................5
Responding to questions by CEO:.............................................................................................6
Recommendations:.....................................................................................................................6
Summary review of process of financial management:.............................................................7
References and Bibliography.....................................................................................................7

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Task 2
Development of variance report of Houzit Pit Ltd:
Cash flow analysis:
Cash flow analysis depicts the total amount of GST that has been collected and total
amount that has been paid. Total amount of GST collected has increased from $ 339425 to $

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509137 as against amount of GST paid that witnessed significant increase from $ 47652 in 1st
quarter to $ 100456 in 2nd quarter.
Examination of different budgets:
Issues:
Over the year, there has been increase in sales margin which is due to increasingly
discount offered by company that has contributed to generation of additional profits. Cash
flow of company is adversely impacted by the time that has been allowed for payment of
debtors (Aris Machmud et al. 2016). In addition to this, financial viability of business is
impacted by increasing interest rate charged by bank.
Sales budget:
It can be seen from table that there is considerable increase in amount of total sales
from 1st quarter to 4th quarter. This increase in total amount of sales is attributable to increase
in sales of kitchenware, bedroom decorative, gifts, lighting fixtures and decorative items.
Therefore, sales budget is generating favorable outcome at the end of 4th quarter.
Profit budget:

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The table above depicts that there is significant increase in amount of net profit in the
reported quarters. Total expense has initially decreased in 2nd quarter and thereafter it started
increasing in 3rd and 4th quarter. Amount of gross profit reported increased from 1st quarter at
$ 1459527 to $ 2189289 in 4th quarter. Percentage of gross profit reported remained constant
at 43%.
Aged debtor’s budget:

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Total amount of debtors has increased from $ 678850 in 1st quarter to $ 1018274 in 4th
quarter. For 90 days of debtor’s receivable, the amount of debtors is considerably lower
compared to 3o days and 60 days.
Variances:
From the above table, it is depicted that compared to budgeted sales, the actual
amount of sales made is more for 1st quarter. This is because of increasing sales due to
increased demand of products. However, there was decline in sales generated compared to
budgeted figures in the subsequent quarters due to discounts offered during school and public
holidays for generating increased amount of sales. In addition to this, the cost of goods sold is
expected to become costlier due to increase in cost of material resulting from recession. The
recession factor contributing to unfavorable economic conditions has contributed towards
rising operating costs (Khan and Jain 2017). Hozit also enhanced their operating activities
due to increased global pressure that has ultimate impact on increasing overall operational
costs. With regards to the budget preparation, the financial probity is that all the associated
financial transactions relating to debtors have been legally met and financially recognized.
Debtors ageing ratio:
2009/10 2010/11 2011/12
Trade Debtors $8,50,000 $9,75,000 $33,94,247
Sales $1,45,50,100 $1,57,14,108 $1,69,71,237
Debtor Days 21.3 22.6 73.0

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Performances:
Comparison of financial performances:
The actual gross profits reported by company are comparatively lower as against the
budgeted value, although the amount of budgeted sales is less compared to actual sales. The
reason attributable to lower actual gross profits reported by Houzit Pty Ltd is increased
amounts of discount offered to sync with the scenario prevailing in market. In addition to
this, compared to benchmark of industry that sets the wages and salaries at 11% of sales,
wages and salaries offered to employees are significantly higher. Nevertheless, the payment
made to debtors was made on time owing to increased sales and profits generated by
company. Advertising has helped organization in reducing demand for making customers
aware of ongoing scenario in the market (Gitman et al. 2015). Hence, it can be inferred that
Houzit was able to enhance level of profits by maintaining it through brand image and quality
of service in spite of rising inflation.
Responding to questions by CEO:
In spite of economic fluctuations and global pressure, company was successful in
maintaining level of profit margin. Rising inflation in economy can be tackled by company
by increasing sales using offering discounts as a tool. Nonetheless, the company is considered
as financially viable in accordance with current scenario that would lead to long term
strategic plans that is answerable on part of CEO. Maintenance of adequate level of gross
profit margin would assist company in offsetting the amount of estimated fall in profit levels.
Recommendations:
Houzit Pty Limited is required to take into account the present as well as past for the
computation and analysis of operational expense. Furthermore, budgets should be reviewed

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by company on regular basis and meeting the short term objectives for making necessary
adjustments. Moreover, it is required by company to review its production and sales budget in
event of introduction of any new product. Measures should be taken by company to reduce
the reasons associated with any unfavorable variances. This would help in attainment of
favorable financial position by removing any adverse circumstances. Moreover, efforts
should be taken by organization for dealing with any adverse budgetary impacts by
generating adequate level of profits.
Summary review of process of financial management:
Operating cost of business should be properly analyzed by management for efficient
operations of management. There should be reduction in credit period and for reduction of
errors, an automated system should be employed for generating invoices. Improvement in the
financial management process can be brought by employment of accounting software’s that
would help in reduction of errors (Chenhall and Moers 2015).

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References and Bibliography:
Aris Machmud, S.E., Ak, M.S. and Siti Rustiana Hamidah MSi, A., 2016, January.
Enhancing Managerial Performance through Target Costing and Budget Participation.
In International Conference on Accounting and Finance (AT). Proceedings (p. 18). Global
Science and Technology Forum.
Booth, P., 2018. Management control in a voluntary organization: accounting and
accountants in organizational context. Routledge.

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Chenhall, R.H. and Moers, F., 2015. The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, Organizations and
Society, 47, pp.1-13.
Gitman, L.J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson
Higher Education AU.
Hopper, T. and Bui, B., 2016. Has management accounting research been
critical?. Management Accounting Research, 31, pp.10-30.
Khan, M.Y. and Jain, P.K., 2017. Management Accounting: 7/e. McGraw-Hill Education.
Lavia López, O. and Hiebl, M.R., 2014. Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of Management
Accounting Research, 27(1), pp.81-119.
Otley, D., 2015. in Management Control. Critical Perspectives in Management Control, p.27.
Sponem, S. and Lambert, C., 2016. Exploring differences in budget characteristics, roles and
satisfaction: A configurational approach. Management Accounting Research, 30, pp.47-61.