Comprehensive Financial Analysis: Accounting Services Pty Ltd Review

This report provides a comprehensive financial performance analysis of Accounting Services Pty Ltd (ASPL). It evaluates the impact of depreciation and uncollectible calculations on net profit, highlighting how alternative accounting approaches can improve financial outcomes. The analysis includes key financial ratios such as net profit ratio, return on assets, and return on equity, revealing insights into the company's profitability and asset management. Additionally, the report examines changes in the comparative balance sheet, noting improvements in liquidity and working capital. Furthermore, it discusses the influence of social factors, organizational structure, and economic conditions on ASPL's performance, suggesting strategies to overcome potential challenges. The document references established financial management theories and practices to support its findings.

Answer (vii):
(a):
Yes, the concern of the manager was right as current method of calculating the
depreciation and uncollectible has certainly impacted the net profit of the company. In case if
alternative accounting approach is used to calculate the depreciation and uncollectible than it will
improve the financial performance of the company. For example, if depreciation rate on building
has been reduced to 5 % as compare to 10% and depreciation rate on furniture is reduced to 10%
from 20% than it will increase the net profit from negative $1021.96 to $5448.83. The new
depreciation amount on building will be $6100 and new depreciation amount on furniture will be
$ 370. Further if uncollectible percentage is reduced to 2% as compare to 4% than it will further
increase net profit to $5768.83. The bad debt will change to $320 instead of $ 640. This
calculation clearly shows that use of alternative approach for depreciation has significantly
increased the net profit of the company (Brigham and Michael, 2013).
(b):
 Net profit ratio: Net profit ratio provides the percentage of profit earned on net sales. It
means how much company has earned after bearing all the expenses occurred in a
particular period. The net profit ratio of Accounting Services Pty Ltd (ASPL) is
calculated as -3.75% that indicates company has not generated enough revenue or amount
of expenses has increased too much higher level than the budgeted expenses.
 Return on Assets: This ratio provides percentage of income generated using the total
assets of the company. This ratio was -0.46 that clearly shows poor profitability position
of the company.
 Return on Equity: It provides percentage of net profit earned on total shareholder’s
equity. This ratio was calculated as -0.52 % which indicates poor management of the
company in relation to provide good profit on the owner’s capital (Lumby and Jones,
2007).
(c):
The analysis of comparative balance sheet shows 40% increase in cash and cash
equivalents that indicates good liquidity position. Account payable has been decreased by 17%
and owner’s capital increased by 18.36% that clearly shows the improved working capital and
decrease in debt equity ratio.
(d)
Impact of Social factors, Organizational Structure and Economic Conditions on the Performance
and means for their overcoming

 Social Factors: There is large impact of the social factors on the organizational
performance as it influences the goodwill of the company in the mind of its stakeholders.
As such, the business managers are recommended to disclose the non-financial
information relating to the measures adopted by the company for promoting social
development. This will help in improving transparency in the mind of stakeholders and
thus having a positive impact on its sales and consequently on the financial performance.
 Organizational Structure: The financial performance of the company can also be
impacted by the type of organizational structure as it influences the employee’s
satisfaction level. The organizational structure need to be flexible to provide authority to
the employees at workplace for gaining maximum benefits from their creativity and
expertise (Moles and Kidwekk, 2011).
 Economic Condition: The economic factors such as inflation, interest rate, GDP and
others have a large impact on the financial performance and growth of a company. This is
because the company; sales is heavily influenced by the market conditions and that
determines its future growth prospects. In this context, the company is required to
conduct an economic analysis for identifying the economic variables that favor and that
can prove to be an obstacle in relating to future growth of the company (Moles and
Kidwekk, 2011).

References
Brigham, F., and Michael C. 2013. Financial management: Theory & practice. Cengage
Learning.
Lumby,S and Jones,C. 2007. Corporate finance theory & practice. Thomson.
Moles, P. and Kidwekk, D. 2011. Corporate finance. John Wiley &sons.