Introduction to Finance: Calculation of Ratios, Cash Budget, Break Even Point, and Appraisal Techniques

Introduction to Finance

Contents
INTRODUCTION...........................................................................................................................1
Question 1........................................................................................................................................1
Calculation of ratios for year 2019 and year 2018 ......................................................................1
Significance of financial statements analysis .............................................................................3
Question 2........................................................................................................................................3
a) opening statement of financial position .................................................................................3
b ) monthly cash budget for 6 months ........................................................................................4
c ) Explanation of additional expenditures..................................................................................4
Question 3 .......................................................................................................................................5
a ) Calculation of Break even point (BEP)..................................................................................5
b) Margin of safety ( MOS ) for the year ended 2019 and 2020.................................................6
c) Discussion of the new strategy that has been formed by Jessica.............................................6
Question 4........................................................................................................................................7
(a) calculation of pay back period, Net present value and average rate of return........................7
Discuss the best method of appraisal technique..........................................................................9
Capital investment appraisal techniques....................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
Finance is general term which tells about various activities attached like banking services,
leverage debt or credit, money market, and other monetary investments. It represents
management of money and the procedure to required necessary funds. Finance word is used in
day to day operating life of any enterprise which should be managed with financial statement. It
are written document which signifies different economic activities and financial performance of
an organisation. They are usually audited by group of professional and government agencies to
ensure optimum reliability and utilize for many purposes by organisation (Elijido‐Ten and
Dumay, 2019). Financial statement most often consists of statement of profit and loss, statement
of financial position and statement of cash flow. This written report includes calculation of few
ratios and their analysis, NPV analysis which implies to choose most profitable project and it
also consider cash budget which analyse their cost which would occur in future.
Question 1
Calculation of ratios for year 2019 and year 2018
1. Gross profit margin = ( sales - COGS ) * 100 / sales
= ( 3495 – 2182 ) * 100 / 3495
= ( 1313 / 3495 ) * 100
= 37.57 %
Interpretation: It generally categorized into profitability ratio which makes comparison in gross
profit of an enterprise against with sales revenue. In the given question, gross profit comes out
37.57 % which is equivalent to 38 % that implies good as a growing sector company this is get
only after deducting the cost of these goods.
2. Assets usage ratio = total sales / average total assets
= 3495 / [( 3812 + 2503 ) / 2]
= 3495 / 3157.5
= 1.10 times
Interpretation : It categorized into efficiency ratio which assists every organisation to obtain
sales income from their held assets in terms of monetary value through using net revenue with
average total assets. In this ratio, it signifies higher the ratio better the organisation's efficiency.
When it comes to ideal ratio it is 2.5 times or more. In the given question, the assets usage ratio
1