Business Evaluation Report - Twanji Variety Stores

This assignment requires students to calculate ratios for Twanji Variety Stores and analyze its profitability, management efficiency, and industry comparison. Students are then required to provide recommendations for improvement based on their analysis. The report should be well reasoned and include data from the financial statements.

School of Accountancy
115.112 Accounting
Assignment 2
Business Evaluation Report
Semester 1, 2019
Please note that this assignment is due before Monday 13 May 2019,
11 p.m. New Zealand Time
Assignment 2 will be marked out of 100 and will contribute 20% to your final
grade.

ASSIGNMENT 2 INSTRUCTIONS
How to Approach this Assignment
 Please read all instructions before starting the assignment.
 You should first study the relevant material in the text and make sure you understand
the concepts covered.
Naming Convention and backups
a. Use the following naming convention for the file that you create: use
your Last Name Student ID number as the name of the file [Do not change the file
extension or you (and the marker) will not be able to use the file]. For example, if your
Last Name is Smith and your Student ID number is 88888888; your file will be
smith88888888.docx
b. Once you have started working on an assignment you should make backups. It pays
to rename different versions of your work. A simple way to do this is to use the Save
as file instruction and add a number or letter to the end of the file name. (This allows
you to go back to an earlier version.)
Assignment brief
Ms Chusan operates a variety shop in downtown Tinatown called Twanji Variety Stores. She
has just received the financial statements for the year ended 31 December 2018. She is
disappointed that although sales have increased, net profit has decreased. She would also
like some honest feedback on her management of the business and what she could do to
improve.
Required:
(i) Use the information in Appendix A to calculate the ratios for the business for the year
ended 31 December 2018. (20 marks)
Note: The ratio calculations must be shown in the Appendix C, ANALYSIS RATIOS TO BE
COMPLETED on page 5 of this document. Your calculations on this sheet may be
typed or hand written and then attached at the end of your report. Calculations should
not appear in the body of the report. A list of analysis ratios for use with Cunningham is
included in Appendix B. The comparative ratios for 2017 and the industry are already
given in Appendix C.
Prepare a report for Ms Chusan with your answers to (ii) and (iii) in the Discussion/
Analysis section. Use relevant ratios from Appendix C to justify your answers.
(ii) Discuss the profitability of Twanji Variety Stores and explain why the profit has
decreased, although sales have increased. In your discussion, include how the
profitability aligns with that of the industry. (25 marks)
(iii) Explain to Ms Chusan how certain ratios indicate the efficiency of management and
what these particular ratios show about the management of Twanji Variety Stores and
how it compares with the industry as a whole. (20 marks)
(iv) Conclude with your recommendations as to how Ms Chusan should address the issues
raised in (ii) and (iii). (20 marks)
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Report formatting: (15 marks)
 Answers should be well reasoned, comprehensive and include data from the financial
statements and the ratios you calculated in Appendix C.
 Your report should range from 600 to 900 words (does not include Appendix C).
 Marks will be allocated for the presentation of your report (refer marking grid Appendix
D).
 Guidelines for writing reports are given in Appendix E. It is also advisable to use the
Massey University resources regarding writing reports. Follow this link to the correct
section: OWLL Report
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Appendix A FINANCIAL STATEMENTS for TWANJI VARIETY STORES
Twanji Variety Stores
Income Statement
Year ending 31 December 2018
2018 2017
Revenue $ $
Sales (all on credit) 1,176,000 1,024,000
Less: Cost of Goods Sold 896,000 754,000
Gross Profit 280,000 270,000
Less: Expenses
Advertising 16,400 9,200
General 19,200 16,400
Insurance 15,200 14,000
Interest 4,100 2,800
Rent 58,400 58,400
Wages 120,800 89,800
Depreciation 8,800 8,800
Total expenses 242,900 199,400
Net income 37,100 70,600
Twanji Variety Stores
Balance Sheet
As at 31 December 2018
2018 2017
$ $ $ $
Owner’s Equity 335,200 326,800
Represented by:
Current Assets
Cash at Bank 8,800 35,400
Accounts Receivable 225,600 138,400
Inventories 96,000 120,000
Prepaid Insurance 4,000 3,200
334,400 297,000
Current Liabilities
Accounts Payable 94,200 98,200
Working Capital 240,200 198,800
Non Current Assets
Fixtures & Fittings 75,000 75,000
Accum. depreciation Fixture & Fittings 20,000 55,000 12,000 63,000
Equipment 120,000 120,000
Accum. depreciation Equipment 30,000 90,000 20,000 100,000
Total Non Current Assets 145,000 163,000
Non Current Liabilities
Long term loan 50,000 35,000
Net Assets 335,200 326,800
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Appendix B ANALYSIS RATIOS FOR USE WITH CUNNINGHAM
TYPE OF RATIO REFERENCE
PROFITABILITY Chapter/ Page
1 Profit Margin Ch. 7 p.294
(293)
Net Income x 100
Net Sales
2 Gross Profit
Percentage
Ch. 7 p.294
(293)
Gross Profit x 100
Net Sales
3 Return on Total
Assets
Ch.8 p.344
(343)
(Net Income + Interest Expense) x 100
Average Total Assets
4 Return on Owner’s
Equity
Ch.8 p.345
(344)
Net Income x 100
Average Owner’s Equity
EFFICIENCY
5 Inventory Turnover Ch. 8 p.346
(345)
Cost of Goods Sold
Average Inventory
6 Number of Days in
Selling Period
Ch. 8 p.347
(346)
365
Inventory Turnover
7 Accounts Receivable
Turnover
Ch. 8 p.348
(347)
Net Credit Sales
Average Accounts Receivable
8 Number of Days in
Collection Period
Ch.8 p.349
(347)
365
Accounts Receivable Turnover
LIQUIDITY
9 Current Ratio Ch. 8 p.338
(337)
Current Assets
Current Liabilities
10 Quick Ratio
Ch.8 p.339
(338)
Quick Assets
Current Liabilities
Where Quick Assets = Cash + Accounts
Receivable + Short Term Marketable
Securities + Short Term Notes Receivable
FINANCIAL
GEARING
11 Debt Ratio Ch. 8 p.341
(339)
Total Liabilities x 100
Total Assets
12 Interest Coverage Not in text Net Income + Interest Expense
Interest Expense
OTHER
13 Sales % Increase Not in text (Sales Year 2 – Sales Year 1) x 100
Sales Year 1
(2 edition in brackets)
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Appendix C ANALYSIS RATIOS TO BE COMPLETED
2018 2017 Industry Marks
1 Profit Margin 3% 6.89% 7% 2
2 Gross Profit
Percentage 24% 26.37% 25% 2
3 Return on Total
Assets
9% 17% 12% 4
4 Return on
Owner’s Equity
11% 23.2% 20% 2
5 Inventory
Turnover
8.30X 6.44X 7 X 2
6
Number of
Days in Selling
Period
44 Days
57 days 52 days 2
7
Accounts
Receivable
Turnover
6.46X 8.68 X 9.125 2
8
Number of
Days in
Collection
Period
56.5 days
42 40 2
9
Sales
Percentage
Increase 15%
3% 5% 2
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Appendix D Marking Grid
Student Name______________________________ ID __________________
Qualities Fail C Pass B Pass A Pass Max
Mark
Student
Mark
Calculation of ratios (i) 20
Addressing
requirement
(ii)
Work does not
address the
assignment brief or
the focus is very
inadequate.
0-11
Work makes some relevant
points but is not adequately
focused on the assignment
brief
12-15
Work displays an
understanding of the brief and
provides a range of relevant
evidence in answering it. 16-
19
Work which engages closely
with the assignment brief
and addresses its
implications as well as its
“surface sense” 20-25
25
Addressing
requirement
(iii)
Work does not
address the
assignment brief or
the focus is very
inadequate.
0-9
Work makes some relevant
points but is not adequately
focused on the assignment
brief
10-12
Work displays an
understanding of the brief and
provides a range of relevant
evidence in answering it. 13-
15
Work which engages closely
with the assignment brief
and addresses its
implications as well as its
“surface sense” 16-20
20
Conclusion (iv) Steps to profitability
not adequately
identified or are not
relevant 0-9
Recommends at least two
steps each to improve
profitability and
management though
proposals are limited. 10-
12
Recommends at least two
significant steps each to
improve profitability and
management and proposals
are appropriate 13-15
Clearly Recommends at
least two significant steps
each to improve profitability
and management and
proposals are highly
relevant. 16-20
20
Report Format Format not followed
0-6
Format somewhat followed
7-9
Format partly followed10-12 Format almost or fully
followed 12-15 15
Total 100
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APPENDIX E: GUIDELINES FOR WRITING REPORTS
You are required to apply analysis ratios and then submit a short report to the owner of the
business. There are many options with regard to layout for such reports, and some
guidelines are outlined below. However, any reasonable layout will be suitable. Remember
that these reports are necessarily short, and thus need to be focused, concise and
summarised.
The following extract may be of assistance:
‘Writing reports gives practice applying theoretical concepts to a real-life context. If you are
planning a career in an organisational context, it is likely that at various stages in your career
writing reports will be required. Learning to write a report, therefore, is not just a method by
which your lecturers evaluate you; it is also part of professional development, and a way of
learning business principles, integrating them into your critical mind.
Organisations call for reports when they have difficult decisions to make. They therefore
require the author to exhibit investigative skills, judgment and the ability to write persuasively.
Writing persuasively for a report, means that you need to appear to be objective. You are
required to produce proof or evidence to support your ideas. It is not enough to recommend a
course of action; you need to explain why this is the best solution, what its short and long
term results will be, and explain the reasons.
Remember above all that a report is a practical project. A report assumes that someone has
a problem and they want guidance on how to deal with the problem. If you are writing for a
particular person, keep that person in mind. Focus on their needs and recommend a solution
that can be implemented. Be specific: avoid generalisations …’.
(Emerson, L. (2000). Writing Guidelines for Business Students. pp. 32-33. Palmerston North,
Dunmore Press.)
Note that the report must include:
 Title Page
 Heading (To, From, Date, Re)
The following is an example of a basic report structure (to follow the heading):
Introduction
1. identify subject, context and specific problem.
2. define specific objectives
Discussion/Analysis
1. sub-divide into logical units
2. use headings and arrange into logical sequence
3. present evidence to support conclusions
4. focus on objectives (the specific problem)
Conclusions/Recommendations
1. relate to objectives
2. follow from facts
(Extract from Emerson, L. (1998) Report Writing, p. 2. Student Learning Centre, Massey
University.)
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Your assignment report does not require an index, introductory letter etc. Fuller guidance may
be found on the Massey website:
http://owll.massey.ac.nz/assignment-types/business-report-writing-resources.php
Assignment Queries
Please feel free to keep in touch with the 115.112 team regarding this assignment, preferably
through the Assignment 2 forum. That way all students benefit and often we have found that the
best way of learning is through discussion with your peers as well as teaching staff.
Please note that this assignment is at individual, not group level. Discussion is fine but
do not post your answers to the assignment on STREAM through discussion forums, as
that will lead to penalties. If you are uncertain, please contact the teaching staff.
There are a large number of students in this paper, but that does not mean that you are not
each individually very important to us. We value each student and will try to provide appropriate
guidance to the best of our ability.
Assignment submission
Just below the main heading on the Assessments page on Stream there is a link “All
assignments can be submitted by clicking here”. Follow the prompts. STREAM records the
submission date and time. See the Course Guide for policies re extensions and late
submissions. Penalties will be applied to late submissions for which an extension has not been
granted, but note below the cut off time of a week after the due date, after which no
assignments will be accepted for marking.
Return of marked assignments
You will be informed when your marks are available. A break-down of the mark will be given on
a marking sheet will be available at the same point as where you uploaded your assignment.
Note that the normal turnaround of assignments is three working weeks. However we will be
working to return the assignment sooner than that.
There will be feedback in the form of suggested solutions and overall comments by the marker.
All the best with your assignment!
The 115.112 Teaching Team
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