Managing Financial Resources: Financial Statements, Ratios, and Cost-Plus Pricing

This article discusses the importance of managing financial resources and how to evaluate a company's financial performance through financial statements and ratios. It also covers the concept of cost-plus pricing and its problems. Additionally, it identifies the financial information needs of different stakeholders.

Managing financial
resources

Contents
Contents...........................................................................................................................................2
Assignment 1...................................................................................................................................1
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Q1. Identifying the various financial statements and financial ratios.........................................1
Q2. Interpret the financial ratios of the company........................................................................3
Q3. Identifying the financial information needs of different stakeholders..................................5
CONCLUSION................................................................................................................................6
Assignment 2...................................................................................................................................7
INTRODUCTION...........................................................................................................................7
MAIN BODY..................................................................................................................................7
Question 2. Identifying the meaning of cost-plus pricing and problems using this approach.....7
Question 3. Identifying the financial ratios of the company.......................................................7
Question 4. Analysing the terms..................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

Assignment 1
INTRODUCTION
Asset administration involves properly regulating and monitoring the numerous materials
employed to maintain the company's effectiveness (Chaston, 2017). It helps to improve the
functioning effectiveness of the business that would be conducted and performed by workers and
owners. It's critical to understand the corporation’s design and needs in terms of managing it
effectively that may be done by looking at the firm’s general function. The capacity to
effectively handle assets and other aspects aids in determining the total performance of a
company. This section examines a variety of profitability metrics and cash flows, as well as the
monetary information that is available to diverse participants. Apart from that, assessing the
value of cost-plus marketing and analysing the plan's flaws. This additionally includes the
multiple variations that aid in evaluating the company's success, resulting in a variety of
managerial advantages directed at boosting revenue.
MAIN BODY
Q1. Identifying the various financial statements and financial ratios
Finance reports are documents which reflect the monetary operations of a firm at the
conclusion of the term. It contains the formal documentation of all the firm's essential monetary
operations. These assist database consumers in measuring an organization's fiscal viability,
solvency, and efficiency. It is a representation of the agreement's monetary ramifications for the
business. Income reports are being employed to determine earnings and are a crucial component
of the yearly reports of the companies. The following is a summary of fiscal declarations:
 The balance sheet, commonly referred as the reports of fiscal situation, shows the assets,
liabilities, and ownership holdings at the conclusion of the bookkeeping term. This is an
essential part of the earnings account since it aids viewers of finance reports that are
searching for specific information regarding the firm's fiscal situation. This aids in
evaluating the corporation's performance and effectiveness, as well as the implementation
of critical key choices (Guerra-Mota, Aquino and Soares, 2018).
 Accounts of cash flow as it is a set of accounting reports which shows both cash inflows
and outflows from the firm's continuing activities as well as from external providers. It
also gives the shareholder an overview of all capital expenditures for commercial

operations and purchases throughout period, and therefore a summary of all exchanges.
The cash flow comprises 3 elements which could assist a trader in determining a
company's value. Operational actions, investing actions, and financing actions are the 3
categories of operations engaged in this. Every business does have its unique system for
calculating productivity and controlling working capital.
 Income statement is a fiscal report which most firms are using to track their fiscal success
through period. P&L accounts are the income and expenditure reports for a certain
period. Some of the following components can be used:
Inside a specific financial year, earnings relates to a firm's selling of products and activities.
This data could be collected from both money and credit payments and utilised to measure
productivity and enjoy a range of advantages.
P&L as after subtracting expenditures from earnings, the operating income is referred to as
profit or loss. If earnings surpasses spending, there would be a profit; if spending outweigh
earnings, there would be a deficit.
Expenditures as this is the cost of conducting operations which a firm accrues on a daily
basis. Wages and amortization are examples of operational costs.
Ratio assessment- It is the practise of evaluating a business's productivity and efficiency by
studying numerous types of fiscal information included in its accounting records. The exterior
researcher mostly uses this to assess several characteristics of the company, like revenue
measures, stability, and viability (Khan, Yang and Waheed, 2019). This is quite handy for
computing the accumulated results of various proportions. The following are among the
proportions:
 The solvency ratios measure a firm's borrowing burden to its holdings and yearly income
to determine its longer run monetary sustainability. The debt to capital ratio, debt ratio,
interest coverage ratio, and total assets ratio rare all comparable measures in this aspect.
These would be primarily used by authorities, institutions, employees, and investing
firms to evaluate a firm's viability, allowing it to take knowledgeable investing and other
choices.
 Profitability ratio as this metric assesses a firm's capacity to generate revenues and also
the expenses that go along with it. A larger profitability percentage indicates that the
operations of a company are much more lucrative and successful. This proportion is

being employed by shareholders and many others to assess a firm's effectiveness and take
informed judgments regarding subsequent actions. Profitability measures like as return on
equity, return on asset, net income, gross margin, and return on capital employed are all
essential. They are important to determine the firm's results accurately.
 Whenever a firm is in fiscal problems and therefore is incapable to fulfil its creditors and
liabilities, the liquidity position estimates the organization's ability to fulfil a commitment
utilizing current resources. This could immediately turn its resources to currency and then
utilize these funds to settle down its outstanding obligations. The current ratio, acid
test ratio, and cash conversion cycle are only a few instances (Labaronne and Tröndle,
2021).
Q2. Interpret the financial ratios of the company
The following is the explanation of the company's monetary proportions:
Gross profit-
Year 2020
Gross profit 200000
Net sales 500000
GP Ratio 40
Gross margin is a productivity statistic which calculates the profit-to-sales proportion.
The gross profitability ratio for the business in 2020 would be 40%, that is an acceptable amount.
A larger gross profitability ratio indicates that the firm's cost of goods sold was well managed,
allowing it to pay additional costs like operations and financing. As a consequence, gross margin
is consistent.
Expense ratio-
Year 2020
Administration
expenses 101000
Net sales 500000
Expense’s ratio 20.2
The expense proportion is a calculation that determines the link among operational
expenses and selling prices (Ongan and Fortuna, 2021). These would be needed to figure out
what proportion of income certain operational costs absorb. This firm's expenditures are 20.2 %,

showing how much of the spending proportion is covered by earnings and how closely the
expenditure and selling ratios are linked, and also the firm's performance and quality.
Net profit-
Year 2020
Net profit 84000
Net sales 500000
Net profit ratio 16.8
The link among operating income and aggregate selling could be stated as a proportion.
Net profitability is calculated by subtracting gross earnings from operational costs and earnings
taxation. The Net Income Margin in the above column is 16.8%, indicating that the business is
much more successful and lucrative (Post and Altman, 2017). This proportion aids in the
evaluation of total efficacy, and the industry could undertake additional initiatives to strengthen
profits and productivity. Because of its capacity to effectively maintain profitability, the business
maintains a significant net profitability ratio.
Operating ratio-
Year 2020
Cost of goods sold 300000
Operating expenses 113000
Net sales 500000
Operating ratio 82.6
To evaluate a corporation's managerial effectiveness, the operational proportion measures
gross operational expenses to aggregate selling. The lesser the number, the better the firm's
ability to generate income and decrease expense. The firm's proportion is 85 % that is higher
than the goal set by administration. This indicates that now the firm's expenditures exceed the
quantity of revenue it has earned. Reducing the proportion improves firm performance, but the
productivity of the corporation decreases as a consequence.
Operating profit ratio-
Year 2020
Sales 500000
Cost of goods sold 300000
Operating expenses 113000

Operating profit ratio 17.4
The phrase "operation income" relates to the profits generated per selling revenue which
is employed to assess operational effectiveness. The firm's proportion is 17.4 %, showing that its
fiscal situation is improving (Psychogios and Prouska, 2019). It denotes that the corporation's
fiscal state is adequate, and it entails a variety of advantages and requirements. It could be
employed by shareholders to assess a company's success. As a consequence, the firm's
operational profitability is larger, and it beats its competitors.
Inventory turnover ratio-
Year 2020
Cost of goods sold 300000
Average inventory 87375
Inventory turnover
ratio 3.433476
The method of assessing expense, productivity, advertising, and procurement choices is
referred to as stock turnover proportion. It demonstrates how well a corporation's stock makes
money. The firm's proportion is 3.4 that is significantly lower than that of the industry's
recommended proportion. As a consequence, a greater percentage implies that the business is
offering things fast, whilst a smaller percentage shows that there is a lack of desire for
commodities. As a result, the firm's proportion is reduced, indicating organisational
ineffectiveness (Teffali, Matta and Chatelet, 2019).
Q3. Identifying the financial information needs of different stakeholders
 Clients as they are concerned about the firm's longer run existence as a trusted provider,
as well as selling cost increases. To evaluate the company's effectiveness, they will
require to examine at the fiscal reports and book value (Audette-Chapdelaine, 2016).
 Lenders as they are engaged in the firm and wish to understand regarding its stability and
reliability so that investors could conduct prompt operations and monitor the business's
financial situation.
 Rivals as they seemed particularly eager in the corporate accounting performance, which
they compared to their own to determine if they were growing or degrading. In order to
do so, they should monitor and control spending and revenues, and also review the

financial statements, capital structure, and cash position to analyse the potential
profitability and establish comparisons with other businesses.
 Upper executives evaluate the firm's operation and takes choices regarding monetary
outcomes, according to the directors of the corporation. They will prefer to have a better
and much more realistic financial statement in terms of determining the group's viability
and effectiveness (COSMIN and MIHAELA, 2019).
 Shareholders are individuals who engage in a firm with the hopes of receiving further
earnings in the term of payouts. They'll give greater attention to profitability measures
such as the operational profitability margin and capital payment percent, as well as the
finance statements that shows the firm's monetary performance.
 Financial intermediaries are such people who are passionate about the firm and would
like to see that its liabilities and other commitments are fulfilled. It aids in the evaluation
of a firm's efficiency by examining the business's financial performance and computing
the quick proportion to determine whether or not they could satisfy outstanding
obligations.
CONCLUSION
Monitoring assets, as per the research, will assist the firm regulate its total
productiveness that will be highly useful to the organisation. This report analyzes accounting
information, like net income, accounting records, and declaration of fiscal position, and other
accounting reports, which aid in evaluating a company's efficiency. Apart from that, the many
forms of ratios utilised in evaluating a firm's productivity are now being determined.
Understanding several income reports which have been employed by diverse participants to
evaluate the company's progress.

Assignment 2
INTRODUCTION
This paper calculates the organization's performance, and also the necessity of
comprehending the principles of cost-plus selling, the complexity of implementing this approach
in the firm, and the benefits of performing so. Apart from that, employing such measures to
evaluate an operational productivity and solvency would assist users in making smarter
judgments. Assessing the numerous deviations employed in the organisation to determine an
institution's expense and budgeting (Grosse and Meyer, 2019).
MAIN BODY
Question 2. Identifying the meaning of cost-plus pricing and problems using this approach
A method wherein a firm evaluates the expense of an item to the business and then
includes a proportion to the value to estimate the sales charge to the consumer is known as cost-
plus marketing. To calculate the sales costs and profits, a proportion is applied to the aggregate
value. This data is critical for establishing reliable price projections, especially for activities and
single-buyer items which were formerly made for specific clients. This approach is unacceptable
for determining the value of a commodity which would be marketed in a competing market
structure because it overlooks rival expenses.
The following are among the issues that can arise when employing this method:
 It misses business strategy, which is the most serious flaw. It also failed to evaluate
commercial viability. A cost is frequently determined regardless of whether or not a
certain customer would deem the goods to be fantastic investment at the moment.
 Pricing fragmentation is constrained by the lack, and the capacity to value for distinct
groups of the industry is severely limited. Fixing charges depending on how customer
needs things can assist you gain more customer ground. As a consequence, innovation is
restricted, and item originality and distinctiveness feel the consequences (Ibrahim, 2019).
Question 3. Identifying the financial ratios of the company
Current ratio-
Current asset 40000
Current liability 28000
Current ratio 1.428571

In regards of fortune trading, a current ratio of 1.4 is a really solid situation in concerns of
credit control. A greater current ratio is better to something like a reduced current ratio since it
indicates that the business could satisfy its current borrowing commitments more easily. The
corporation's current ratio significantly risen as a consequence, showing suggesting it could meet
its shorter run commitments.
Quick ratio-
Current asset 40000
Inventory 12000
Current liability 28000
Quick ratio 1
The proportion in Fortune trading is 1 that is a positive indicator for the company. This
implies the corporation won't have to liquidate longer run resources to settle down its existing
obligations (Raimi, Shokunbi and Peluola, 2017).
Debt equity ratio-
Total liabilities 60000
Shareholder
equity 60000
Debt equity ratio 1
The proportion for Fortune trading is 1 that is not a good indicator for the business. It
indicates that the corporation is repaying its obligation with its personal funds and is a higher
volatility investing. Whenever a company's proportion is below 1, the company is far lesser
unstable as compared to when it is more than one.
Proprietary ratio-
Shareholder
equity 60000
Total asset 120000
Proprietary ratio 0.5
Fortune Trading does have a debt-to-equity margin of 0.5 that is not optimal given the
firm's reliance on borrowing for its activities. As a consequence, a greater percentage means the
plan is more stable and lenders are adequately supported.
Question 4. Analysing the terms
A fiscal budgeting is a corporate plan which allocates monies to various divisions and
operations in an attempt to effectively manage the firm's cash flow. A budget estimate is divided
into 3 sections:

 The firm's equipment and infrastructure, as well as every other investment securities, are
included in the investment spending estimate.
 The cash budgeting segment contains data on the firm's money inputs and expenditures.
Instead being fixed, the procedure of calculating a corporation's cash flow is flexible.
 Other budgeting, the much more important of these is the manufacturing plan, are
incorporated in the planned financial statements.
The disparity among real and projected activity is assessed using variability assessment. This
type of research is advantageous to corporate administration. If the selling forecast was $10000
and the actual selling is $8000, the variation evaluation will indicate a $2000 difference.
Negative variability has previously happened as a consequence of incorrect expenditure
forecasts. For instance, a company may put up $250000 for manufacturing and advertising. The
prices of paper, ink, and manpower are covered. They would, though, pay a maximum of
$265,000. This equates to a $15,000 budgetary gap.
Beneficial variations arise whenever the expense of producing a product is lower than the
expense estimated in the plan. A higher profitability ratio is required. If materials expenditures
originally planned at $30000 but came up at $28000, the $2000 difference is beneficial since
generating lower spending than anticipated is good for the corporation.
Whenever the real worth surpasses the anticipated or planned amount, favourable deviations
happen. Real earnings are expected to increase the quantity anticipated. If a company planned
$10000 for a cost and contributed $8000, the gap among the 2 numbers is $8000. It's a
good scenario, whether it's the $2000 excess or the favourable cost variations (Terskikh,
Katargin and Morozova, 2018).
Adverse variation as this will be the situation if basic supplies became less expensive as
anticipated, pricing remained weaker than anticipated, and personnel expenses were cheaper than
anticipated. For instance, if the projected costs are $200000 but the actual price is $250000, the
unfavourable variance is $50000, or 25%. As a consequence, if adequate computations are not
performed, the organisation will be losing revenue, leading in inefficient administration. It is
critical to precisely forecast prospective expenditures in terms of reducing expenditure in the
coming years.
The discrepancy among the benchmark manufacturing expense and the real expense of
manufacturing is referred to as direct manpower variations. There are 2 different kinds of

workforce variation. The disparities among the everyday price and the estimated price given for
the exact number of days performed are known as personnel price variations. At the normal pay
check, genuine days of work days, for instance, represent $43200. The mean price of direct
wages is $48,000 per year. Remove the real days of direct work at the notional price ($43200)
from the real direct work expense ($46800) to obtain at a $3600 adverse deficit.
CONCLUSION
As per the abovementioned study, an organization's comprehensive assets should be
managed effectively in a sequence for it to succeed in its operations. The firm is debating cost
plus marketing, its benefits, and the challenges it produces in the marketplace. In addition, the
topic of computing ratios such as the current ratio, quick ratio, proprietary ratio, and debt equity
ratio has been explored. Cash plan, deviations assessment, unfavourable variations, beneficial
deviations, positive deviations, negative deviations, and direct workforce deviations are all
concepts mentioned in this topic.

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