ZBUS8108: Semester 1 2020 - Financial Analysis of Bean There Cafe

This report presents a financial analysis of Bean There Cafe, evaluating its performance based on the provided financial data. The analysis focuses on several key financial ratios, including the current ratio, quick ratio, debt-equity ratio, debt ratio, and asset turnover ratio. The current ratio of 5.62:1 indicates a strong ability to meet short-term obligations. The quick ratio of 2.22:1 further confirms this, demonstrating the cafe's capacity to cover short-term liabilities without relying on inventory sales. A debt-equity ratio of 20% suggests a healthy financial structure, with owner's funds exceeding debt. The debt ratio of 14% indicates a low level of debt financing, while the asset turnover ratio of 3.82 signifies efficient asset utilization. The report concludes that the cafe was running smoothly with a significant annual profit margin, making it an attractive acquisition opportunity. References to relevant academic sources are included to support the analysis.

Running head: ACCOUNTING AND FINANCIAL REPORTING
ACCOUNTING AND FINANCIAL REPORTING
Name of the Student
Name of the University
Author Note

1ACCOUNTING AND FINANCIAL REPORTING
Solution to question 1(b)
Critical review of the information provided by the owners of Bean There Café is done
with the help of the financial ratios that yields the following results:
Current ratio: Current ratio demonstrates the firm’s ability to meet its short-term obligations
(Abdul Kadim & Nardi Sunardi, 2018). As per the calculated financial results, the Current
ratio of Bean There Café as on 31st December 2019 is 5.62:1 against the standard benchmark

2ACCOUNTING AND FINANCIAL REPORTING
of 2:1. This depicts that Bean There Café have enough current assets to meet its short-term
liabilities.
Quick ratio: Quick ratio is reflected as a more concise and to-the-point measurement of the
firm’s ability to meet its short-term obligations without selling a single inventory. The
standard benchmark is considered to be 1:1. Here, the calculated Quick ratio is 2.22:1 which
states that Bean There Café had enough short-term assets other than its inventories to meet its
short-term obligations.
Debt equity ratio: Debt-equity ratio demonstrates the relationship between the owner’s
capital and the debt taken by the firm (Rubio & Carrasco-Gallego, 2014). The standard or
healthy debt-equity ratio is considered to be 50%. Here the calculated debt-equity ratio is
20% which signifies that the owner’s fund is higher than the debt taken by the firm and the
business is at a good stage.
Debt ratio: Debt ratio shows the relationship between total assets of the firm and debt taken
by the firm signifying the percentage of asset that is financed by debts taken by the firm. Here
for Bean There Café, the debt ratio is 14% against the set benchmark ranging between 30%-
60%. Here 14% debt ratio portrays that the investments are safe because major proportion of
the assets are not financed with debt.
Asset turnover ratio: Asset turnover ratio portrays the efficacy of the firm in using its assets
to generate revenue for it (Segal, Shaliastovich & Yaron, 2015). Here for Bean There Café,
the Asset turnover ratio is 3.82 which is considered good signifying that it generates
considerable sales revenue with lesser amount of Total assets.
So, it can be concluded that the business of Bean There Café was running smoothly
with an annual profit margin of 42% and it also can be stated that it was a good deal for

3ACCOUNTING AND FINANCIAL REPORTING
Screamin' Bean to take over the business as it is showing high potential of yielding even
better results in near future.
References
Rubio, M., & Carrasco-Gallego, J. A. (2014). Macroprudential and monetary policies:
Implications for financial stability and welfare. Journal of Banking & Finance, 49,
326-336.
Abdul Kadim, K., & Nardi Sunardi, S. (2018). Determinant Of Company’s Likuidity And It's
Implications On Financial’s Performance Of Ritail Trade Company’s In Indonesia At
The Period Of 2008–2017. Global and Stockhastic Analysis, 5(7), 235-247.
Segal, G., Shaliastovich, I., & Yaron, A. (2015). Good and bad uncertainty: Macroeconomic
and financial market implications. Journal of Financial Economics, 117(2), 369-397.