Management Accounting Report: Mandrake Motorcycles Financial Analysis

This report analyzes the financial statements of Mandrake Motorcycles from a management accounting perspective. It begins with an overview of the assignment, then proceeds with a detailed analysis of the company's financial data. The analysis includes horizontal and vertical analysis of the balance sheet and income statement, as well as a ratio analysis to assess the company's liquidity, profitability, and solvency. The report identifies key trends and potential concerns, such as a decrease in sales, increasing liabilities, and a decline in return on assets. It also examines the implications of these findings for a potential business deal, highlighting the need for Monk to gather additional information before making a decision. The report emphasizes the importance of considering various financial statements and relevant information, including the statement of cash flows and notes to the financial statements, to gain a comprehensive understanding of a company's financial health. Finally, the report concludes with references to supporting academic literature.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Requirement [a]..........................................................................................................................2
Requirement [b].........................................................................................................................4
Requirement [c]..........................................................................................................................4
Requirement [d].........................................................................................................................6
References..................................................................................................................................8

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Requirement [a]
Horizontal Analysis
Balance Sheet
Income Statement

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Vertical Analysis
Balance Sheet
Income Statement

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Requirement [b]
Requirement [c]
It can be seen from the above horizontal, vertical and ratio analysis of Mandrake
Motorcycle that there are certain specific aspects that Monk needs to probe in the upcoming

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meeting with Bob Sherman before accepting the offer of dealership. These matters are
discussed below:
 According to the horizontal analysis, there is decrease in the total assets of Mandrake
Motorcycles in the year 2018 as compared to the previous year. More specifically,
there is a decrease in the value of property, plant and equipment where total current
assets of the company increases. The same aspect can be seen from the vertical
analysis as it shows that the percentage of fixed assets of the total assets decreases in
2018 from 2017; and the percentage of total current assets of the total assets increases
in 2018 as compared to 2017. Increase in total current assets indicates the increase in
liquidity of Mandrake Motorcycles, but the decrease in fixed assets is not good for the
business. Monk needs to clarify this aspect in the meeting (Williams & Dobelman,
2017).
 It can also be seen from the same analysis that the year 2018 witnesses increases in
the total current liabilities of Mandrake Motorcycles as compared to the previous
year. As per the vertical analysis, the amount of total current liabilities in the total
assets increase in the year 2018 as compared to the previous year. This indicates
towards the fact that the amount of total liabilities of Mandrake Motorcycles increases
in 2018 from 2017. This can be considered as an essential fact that Monk need to
discuss in the meeting with the owner of Mandrake Motorcycles (Post & Byron,
2015).
 One important aspect that can be seen from the above analysis that there is a decrease
in the net sale of Mandrake Motorcycles in the year 2018 as compared to 2017. At the
same time, it can also be seen that the total operating expenses of Mandrake
Motorcycles increase in the same year as compared to 2017. It indicates that the
company is facing hurdle in managing their business expenses that leads to the

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decrease in the operating income. These are essential issues that need to be considered
by Monk at the time of the meeting with Bob Sherman (Soin & Collier, 2013).
 It can be seen from the above ratio analysis that there is decrease in the return on
assets ratio of Mandrake Motorcycles in 2018 from 2017. This aspect indicates
towards the decreased efficiency of the company to manage their assets for producing
profit. This is an essential aspect that Monk needs to probe into at the time of the
meeting (Fullerton, Kennedy & Widener, 2013).
 According to the results of the ratio analysis, massive increase can be seen in day’s
sales in inventory in 2018 as compared to 2017; that is 316.582 days from 195.702
days. This aspect indicates towards the fact that Mandrake Motorcycles is holding
their inventory for long period or they are not able in clearing their inventory as
quickly as the previous year. Decrease in sales can be considered as a crucial reason
for this increase in day’s sales in inventory. This is a crucial aspect that Monk needs
to consider (Lavia López & Hiebl, 2014).
 It can also be seen from the ratio analysis that the debt-to-equity ratio of Mandrake
Motorcycles decreases in 2018 as compared to 2017; and the increase in shareholder’s
equity can be considered as the reason for this. Thus, it is needed for Monk to probe
into the matter that why Mandrake Motorcycles increases equity capital in capital
structure as compared to debt capital. This is an essential aspect for Monk in the
meeting (Adler, 2013).
The above-discussed aspects are some crucial aspect that Monk needs to raise in the
meeting with the owner of Mandrake Motorcycles, Bob Sherman. Information on these
aspects would help Monk in making the correct decision about the deal.

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Requirement [d]
At the time to enter into a business deal, the involved parties are needed to take into
consideration information on different aspects of the business. More specifically, when one
business is entering into a business partnership with another company, the company is needed
to analyse the financial performance as well as financial position of the company in order to
ascertain whether the company can run the business for long-haul. When considering the
financial statements of the companies, it is needed to ensure that they are audited financial
statements. It can be seen from the provided case study that Mandrake Motorcycles has
provided Monk with only two audited financial statements of the business; they are the
audited balance sheet and audited income statement. However, Monk has not received any
other financial information from Bob Sherman, the owner of Mandrake Motorcycles (Garcia,
2013).
From these two provided financial statements of Mandrake Motorcycles, Monk would
be able to know about the financial performance and financial position of the business.
However, he would not be able to know about the change in financial performance and cash
flow information of the company as he has not been provided with the financial statements
like the statement of change in equity and the statement of cash flows (Garcia, 2013). Apart
from this, there is other information required by Monk for accepting the deal; such as the
trend of sales, trend in overall demand of Mandrake Motorcycles, customer base of the
company and many others. At the same time, it is also needed for Monk to consider the
analysis and evaluation of the information in the notes to the financial statements of the
company because this information would provide Monk with deep insight about the financial
standing of the organization (Webster, 2014). In this situation, taking the crucial business
decision based on the provided limited information would not be accurate for Monk due to
the possibility that he could miss certain crucial aspects that need to be considered. For this

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reason, in the meeting, Monk is needed to ask for the required information from Bob
Sherman about the business for making the correct decision (Webster, 2014).

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References
Adler, R. (2013). Management Accounting. Routledge.
Fullerton, R. R., Kennedy, F. A., & Widener, S. K. (2013). Management accounting and
control practices in a lean manufacturing environment. Accounting, Organizations
and Society, 38(1), 50-71.
Garcia, M. J. R. (2013). Financial education and behavioral finance: New insights into the
role of information in financial decisions. Journal of Economic Surveys, 27(2), 297-
315.
Lavia López, O., & Hiebl, M. R. (2014). Management accounting in small and medium-sized
enterprises: current knowledge and avenues for further research. Journal of
Management Accounting Research, 27(1), 81-119.
Post, C., & Byron, K. (2015). Women on boards and firm financial performance: A meta-
analysis. Academy of Management Journal, 58(5), 1546-1571.
Soin, K., & Collier, P. (2013). Risk and risk management in management accounting and
control.
WEBSTER, A. (2014). Financial decision making under uncertainty. Academic Press.
Williams, E. E., & Dobelman, J. A. (2017). Financial statement analysis. World Scientific
Book Chapters, 109-169.