TMH Limited Financial Performance: Detailed Balance Sheet Analysis

This report provides a comprehensive financial analysis of TMH Limited, focusing on the revision of the balance sheet and profit analysis between 2012 and 2013. It includes adjustments related to depreciation, dividends, and the purchase of a new building, alongside the balancing of accounts payable and long-term borrowings. The analysis incorporates graphical representations of profits and Return on Capital Employed (ROE), revealing a profit increase from $81,000 in 2012 to $94,000 in 2013 and a stable ROE around 46%. The report assesses the company's success in meeting its targets for liabilities and profits, noting a variance in the profit target. Recommendations for improvement include careful analysis of profit margins, pricing strategies, and cost reduction methods to enhance overall financial performance and attract investors. Desklib provides this student-contributed report along with a wealth of study tools for students.

Running head: FINANCE 0
Finance

FINANCE 1
Part 1
Original
Revise
d
Original Balance sheet 2013 2012 Revised Balance Sheet
Debit
Credi
t 2013 2012
Current assets
Cash 52000 46000 52000 46000
Accounts Receivable 134000 10000 124000 134000
Inventory 156000 176000 156000 176000
Total Current Assets 208000 356000 332000 356000
Land 140000 140000 140000
Building 290000 310000 290000
Less : Accumulated
Depreciation
-
120000
-
105000
-
120000
-
105000
Total Land and Building 325000 330000 325000
Total Assets 681000 662000 681000
Liabilities
Current Liabilities
Expense Payable 155000 124000 6000 155000 124000
Accounts Payable 197000 167000 197000
Total Current Liabilities 321000 322000 321000

FINANCE 2
Long Term Borrowings 139000 87000 139000
Total Liabilities 460000 409000 460000
Owner's Equity
Ordinary Share capital 50000 45000 50000 45000
Retained Earnings 176000 203000 176000
Profits 94000
Total Owner's Equity 221000 253000 221000
Total Liabilities 662000 681000
The statement of the financial position is revised in accordance with certain
adjustments. The adjustments related to the financial statements have been taken into
consideration regarding the depreciation, dividend and the purchase of the new building
worth $125000 has been purchased. The accounts payable has been arrived at by the way of
the balancing figure. Long term borrowings have been paid by the company up to $52000.
The profits and the adjustment of the dividend have been done below accordingly (Wan,
Zhang, Gui & Xu, 2016).
Working of the Retained Earnings
Retained
Earnings
13 12 11
Opening Balance 176000 180000 180000
Dividend Paid 67000 -85000

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profits 94000 81000
Closing balance 203000 176000 180000
Part 2
Analysis through tables and graphs
Graphical Representation
Profits 2012 2013
81000 94000
2012 2013
70000
75000
80000
85000
90000
95000
100000
Series1
(Source: By author)
The above graph represents the profits of TMH Limited for the year 2012 and 2013.
Return On Capital Employed

FINANCE 4
ROE 2012 2013
Return on
Earnings 81000 94000
Capital
employed
17600
0
20300
0
ROE 46.0 46.3
2012 2013
45.8
46.0
46.2
46.4
Series1
(Source: By author)
Aims
Particular
s
2012 Addition
al
2013
Liabilities
32100
0 32100
35310
0
Profits 81000 16200 97200

FINANCE 5
Comparison
Chart
Particul
ars
2013
Actu
al
2013
Estimat
ed
Varian
ce
Liabiliti
es
3220
00 353100 31100
Profits
9400
0 97200 3200
Liabilities Profits
0
5000
10000
15000
20000
25000
30000
35000
Series1
(Source: By author)

FINANCE 6
Financial Analysis
From the above graphs it can be observed that the profit of the TMH Limited in the
year 2012 is $81000 and in the year 2013 it increased to $94000 as compared to the previous
year, acceleration by $13000. Similarly the Return on Investment of the TMH Limited in
2012 was 46% whereas in the year 2013 it was 46.3%. The company TMH Limited has set
the target of increasing the liabilities by not more than 10% and to increase the profit by 20%.
The TMH has achieved the target to increase the liabilities by not more than 10%, but failed
to achieve the targets of the profits (Nobes & Stadler, 2015). From the above calculation it
can be concluded that the liabilities are within the boundaries and the increase has been very
minimal. The actual liabilities amounted to the $322000 whereas the estimated or aim of the
TMH Limited was to keep the liabilities within the limit of 10% (Australian Government,
2018). Eventually the liabilities are within the cover set by the TMH Limited. Apart from
this the balance of fixed assets has been increased due to purchase of the new building worth
$125000, and the old buildings have yet not been disposed of. The expenses have been
increased by $31000 and the income on the other hand has been increased only by $13000.
The inventory has been decreased by $20000. The overall cash has been increased.
Room for improvement
Talking about the profits the actual profits amounted to $94000 whereas the estimated
profits of the company are $97200. For this purpose the company had a variance of $3200.
The company need to work upon this area and can improve by adoption of some of steps.
The figures of inventory shall not be calculated on the basis of the estimation. The
profit margins needs to analysed carefully, due to this the company can identify the low
margin or loss making items which were the reason of the decrease in the profits at the first
place. This way the company can stop selling the products at a low margin and can focus on
the potential areas (Kwok, 2017).

FINANCE 7
If the overheads are going up the company needs to increase the selling price to
maintain a margin of the profit. For example if the profit margin is 50% and there is an 11%
increase in the price than ultimately the customers can lose the 18% of your customers which
is not worse than before.
Remove the unprofitable products and services from the company to maintain a solid
gross margin by the company. Once the company has identified the profitable businesses the
company shall keep a focus on the same to invest the energy and the resources shall e
channelized in that direction only. This will also save the cost to the company (Gitman,
Juchau & Flanagan, 2015).
The profit of the company can be improved increasing the conversion rate. If the sales
conversions are increased, it is the fastest method to escalate the profits of the business. The
current pricing strategy shall also be increased to make a significant impact on the net profit.
Hence the correct costing of the products is necessary to review the products regularly and to
keep a balance between the prices accordingly (Henderson, et al 2015).
The overall direct costs shall also be reduced to get an idea of the company’s real
costs. One of the ways of reducing the direct costs is to have the bargaining or the negotiation
skills. Another way to reduce the prices is to eliminate and replace the costs for unnecessary
purchases. An in-depth analysis of the direct costs can determine the areas in which the
company is spending normally and excessively.
Normally the company can take the cash discounts from the suppliers to showcase the
credibility of the company that even after borrowing the money they have an ability to pay in
time with the minimal cash discount (Altitude Advisory, 2017).

FINANCE 8
Therefore, the TMH Limited shall focus on improving the existing condition of the
profits and shall improve the same so that the overall performance of the business can be
revamped and that will attract the investors to invest in the company (Pattipeilohy, 2016).

FINANCE 9
References
Altitude Advisory, (2017). Retrieved From
https://www.altitudeadvisory.com.au/resources/business-improvement/top-7-
strategies-to-improve-profit/
Australian Government, (2018). Property Plant and Equipment, Retrieved from
https://www.legislation.gov.au/Details/F2005B00678
Gitman, L. J., Juchau, R., & Flanagan, J. (2015). Principles of managerial finance. New
York: Pearson Higher Education AU.
Henderson, S., et al (2015). Issues in financial accounting. New York: Pearson Higher
Education AU.
Kwok, B. K. (2017). Accounting irregularities in financial statements: A definitive guide for
litigators, auditors and fraud investigators. California: Routledge.
Nobes, C. W., & Stadler, C. (2015). The qualitative characteristics of financial information,
and managers’ accounting decisions: evidence from IFRS policy changes. Accounting
and Business Research, 45(5), 572-601.
Pattipeilohy, C. (2016). A comparative analysis of developments in central bank balance
sheet composition. New York: Springer.
Wan, J., Zhang, R., Gui, X., & Xu, B. (2016). Reactive pricing: an adaptive pricing policy for
cloud providers to maximize profit. IEEE Transactions on Network and Service
Management, 13(4), 941-953.

FINANCE 10