BUS5IAF: Comprehensive Financial Analysis and Budgeting Report

This report provides a comprehensive financial analysis of a company, covering various aspects such as sources of funds, risk and return analysis, financial statement projections, and profitability assessment. It evaluates different funding options like retained earnings, equity, and debt, emphasizing the importance of managing funds based on risk and return. The analysis of the company's financial statements reveals a net profit of $270,000 with a significant portion allocated to retained earnings, indicating strong profit management. Ratio analysis demonstrates competitive performance within the industry, with investment ratios suggesting favorable returns for stockholders. However, the liquidity ratio indicates a need for improved current asset management to better handle short-term debt. The report also assesses the total cost of capital, alternative projects, and future financial performance through budgeting analysis, highlighting the variability in sales and the importance of maintaining a strong cash position. The project evaluation reveals a negative net present value, advising against investment. Overall, the report suggests that while the company's financial performance is average, implementing new strategies and policies is crucial for improvement. Desklib provides access to similar solved assignments and resources for students.

Running Head: Introduction to accounting & Finance
1
Introduction to accounting & Finance

Introduction to accounting & Finance 2
Contents
Introduction.......................................................................................................................3
Financial position of the company....................................................................................3
Conclusion........................................................................................................................5
References.........................................................................................................................6
Appendix...........................................................................................................................7

Introduction to accounting & Finance 3
Introduction:
The report explains about the different financial position of a company. It explains
about the different funds which could be used by the company to raise the funds. At the same
time, it explains about the risk and return from both internal and external financial system. In
addition, it explains about the financial statement projection of the company and the
performance and profitability level of the company. More to it, it calculates the different
ratios of the company and explains about the position of the company in the market and the
industry. Further, it briefs about the financial position, risk and return of the company and
lastly, it briefs about the project evaluation of the company and budgeting of the company.
Financial position of the company:
The calculations and the analysis on the financial report of the company explain about
the different levels and the positions of the company. Through the analysis on the different
source of funds, it has been evaluated that there are various ways through which the company
could raise the funds. All is required by the company is to manage the funds according to risk
and return of the funds (Higgins, 2012). Though, according to the analysis, it has been found
that the retained earnings, equity and debt are good options for the company to raise the funds
for short term as well as long term.
Further, the study has been done on the financial statement of the company and the
performance and profitability level of the company. through the financial statement of the
company, it has been evaluated that the net profit of the company is $ 270000 out of which $
84000 have been transferred into retained earnings and rest amount has been given by the
company to its dividend holders which expresses that the company is managing and
enhancing a good amount of profit. Further, it explains that the cash inflow of the company is
$ 379000 which explains about the good liquidity position of the company. And lastly, the
balance sheet of the company express about the good financial position of the company
(Hilton & Platt, 2013).
Thirdly, the study has been done on the financial statement of the company and the
different levels of the company such as liquidity level, profitability level, solvency level etc.
through the financial statement and ratio analysis calculations of the company, it has been
evaluated that the position and the performance of the company is quite competitive with the
position of the industry (Ward, 2012). The investment ratios of the company explains that the

Introduction to accounting & Finance 4
company is a good choice for the purpose of investment as it is offering more returns to the
stockholders than the industry. Further, the liquidity ratio of the company explains that the
company is required to enhance the level of the current assets to manage the better liquidity
position in the industry. The current position explains that it would be difficult for the
company to pay the short term debt amount to the debt holders. Further, the efficiency,
leverage and profitability ratios of the company explain that this company is one of the good
options in the industry to make an investment (Renz & Herman, 2016). The ratios explain
that the company would offer huge returns to the investors and the stakeholders of the
company.
Further, the study on total cost of the company explains that the currently company is
required to pay 10.7% of total interest as the cost amount. It explains that the current cost of
equity, cost of preferences share and cost of debt of the company is 10.7% and the market
risk premium is 9.46% which explains that the current capital structure of the company is
quite better and at this point, the risk and the cost both of the company is quite competitive
(Schaltegger & Burritt, 2017).
In addition, the alterative projects have been studied for the company to make an
investment. And through the calculations and evaluation on the project, it has been found that
the project is offering negative net present value of the company which means if the company
would invest into the project than it has to bear the loss. Thus it is suggested to the company
to not to make an investment in the given project and must evaluate the other project which
would offer positive NPV and at the same time, the IRR of the project should be greater than
10.7% (Zimmerman & Yahya-Zadeh, 2011).
Lastly, the future forecasting has been done on the financial performance of the
company. The budgeting analysis of the company explains that the sales of the company
would be variable according to the season and thus the purchase and the inventory level of
the company would also vary. Further, the cash budget of the company explains that the cash
position of the company is average in starting of the year and it has been better at the end of
the year. In addition, the accounts receivable budget of the company explains about the huge
credit sales and good collection strategy of the company. At the same time, the accounts
payable budget also explains about the average payment strategy of the company. It explains
that the company is managing the strategies in a good manner (Brigham & Ehrhardt, (2013).
Though, the company is required to manage and maintain the cash position of the company in

Introduction to accounting & Finance 5
a better way. The current cash position explains about the average liquid position of the
company.
And the break even sales of the comapny is 513 units whereas the average sales of the
company is 530 units in lean season and average 750 units in peak season. It explains that it
is quite difficult for the company to achieve the break even sales. Though, the sales of the
company is quite lower and thus it is suggested to the company to enhance the level of sales
and the price so that the profitability level of the company could be more. Further, the
company is also required to make few more changes to comfortable achieve the level of
break even sales always (Brigham & Houston, 2012).
Conclusion:
Thus, through the above analysis, it has been found that the financial performance of
the company is average. It is required by the management of the company to adopt new
strategies and policies to make the financial performance better.

Introduction to accounting & Finance 6
References:
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice.
Cengage Learning.
Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Cengage
Learning.
Higgins, R. C. (2012). Analysis for financial management. McGraw-Hill/Irwin.
Hilton, R. W., & Platt, D. E. (2013). Managerial accounting: creating value in a dynamic
business environment. McGraw-Hill Education.
Renz, D. O., & Herman, R. D. (2016). The Jossey-Bass handbook of nonprofit leadership and
management. John Wiley & Sons.
Schaltegger, S., & Burritt, R. (2017). Contemporary environmental accounting: issues,
concepts and practice. Routledge.
Ward, K. (2012). Strategic management accounting. Routledge.
Zimmerman, J. L., & Yahya-Zadeh, M. (2011). Accounting for decision making and
control. Issues in Accounting Education, 26(1), 258-259.

Introduction to accounting & Finance 7
Appendix:
BUS5IAF - INTRODUCTION TO ACCOUNTING AND FINANCE
Mega Industries Ltd
Balance Sheet as at 31 December
2017
ASSETS
($0
00)
($0
00) LIABILITIES
($0
00)
($0
00)
Current Assets Current Liabilities
Inventory 206
cash 148
Total Current
Assets 354 Total Current Liabilities 0
Non-current
Assets Non-current Liabilities
Plant &
Equipment 270 Mortgage Loans 462
Furniture, 110 Bank Loans 582

Introduction to accounting & Finance 8
Fixtures &
Fittings
Land & Buildings 550
Total Non-
current Assets 930
Total Non-current
Liabilities
1,0
44
TOTAL LIABILITIES
1,0
44
SHAREHOLDERS' EQUITY
Ordinary Shares 240
TOTAL SHAREHOLDERS'
EQUITY 240
TOTAL
ASSETS
1,2
84
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
1,2
84

Introduction to accounting & Finance 9
Mega Industries Ltd
Profit & Loss Statement
for the year ending 31 December
2018
($000) ($000)
Sales 2,093
Cost of Sales 1,171
Gross Profit 922
Wages 152
Insurance 39
Printing & Stationery 20
rent 89
Heating & lighting 23
Telephone, Postage & Internet 19
Motor Vehicle Running Exp 44
Depreciation 44
Total Operating Expenses 430

Introduction to accounting & Finance 10
EBIT 492
Interest 94
Profit Before Tax 398
Tax 119
NET PROFIT 279
Transfer to Retained Earnings 84
BUS5IAF - INTRODUCTION TO ACCOUNTING AND FINANCE
Mega Industries Ltd
Statement of Cash Flows
for the year ending 31 December
2018
($000) ($000)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from Customers 1,967

Introduction to accounting & Finance 11
Cash paid to Suppliers -1,014
Cash Expenses -386
Interest Paid -94
Pre-paid Expenses -46
Total Cash Flows from Operating Activities 427
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Land & Buildings -650
Purchases of Plant & E quipment -250
Purchases of Motor Vehicles -120
Total Cash Flows from Investing Activities -1,020
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of Corporate Bonds 650
Proceeds from issue of Shares 335
Proceeds from Bank Overdraft 29
Mortgage Loan Repayments -42

Introduction to accounting & Finance 12
Total Cash Flows from Financing Activities 972
NET CHANGE IN CASH 379
+ Opening Cash 148
= Closing Cash 527
BUS5IAF - INTRODUCTION TO ACCOUNTING AND FINANCE
Mega Industries Ltd
Balance Sheet as at 31 December
2018
ASSETS
($0
00)
($0
00) LIABILITIES
($0
00)
($0
00)
Current Assets Current Liabilities
Inventory 165 Accounts Payable 116
Accounts
Receivable 126 Bank Overdraft 29
Pre-paid
Expenses 46 Income Tax Payable 119