University Financial Analysis Report: Ice Cream Shop vs Coffee Shop

This report presents a financial analysis comparing an ice cream shop and a coffee shop to aid in an investment decision. The analysis utilizes ratio analysis, including liquidity, stock turnover, fixed asset turnover, gross profit margin, return on assets, total asset turnover, and debt ratios, over a three-year period. The analysis concludes that purchasing the ice cream shop is more beneficial due to its stronger financial performance, including higher current and stock turnover ratios, better gross profit margins, and efficient asset utilization. The report also considers factors like competition, location, and investment amount, recommending further due diligence and investment in sophisticated equipment for the ice cream shop. References from various accounting and financial reporting texts support the analysis.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
Accounting Financial Analysis Report
Name of the Student
Name of the University
Authors Note
Course ID

1ACCOUNTING FINANCIAL ANALYSIS REPORT
Table of Contents
Answer to Part B:.......................................................................................................................2
Reference List:...........................................................................................................................5

2ACCOUNTING FINANCIAL ANALYSIS REPORT
Answer to Part B:
As evident from the analysis performed a recommendation can be made by stating
that the purchasing the ice-cream would be beneficial for Hilary. This is because the
evidences obtained from the ratio analysis suggest that the current ratio for the Ice-Cream
shop over the three-year span ranging from 2015-17 has been on the higher side (Scott 2015).
Evidences obtained from the liquidity ratio suggest that the Ice-Cream Shop has higher ratio
and has the capability of paying their short-term obligations.
The higher current ratio signifies that the company has better opportunity of
expanding in future with sufficient amount of cash available to meet the short-term liabilities
(Schaltegger and Burritt 2017). On the other hand, the coffee shop has reported a relatively
lower amount of liquidity this signifies that the company is not able meet their short term
debt or meet its current liabilities sufficiently. The coffee shop does not have the better
opportunity of expansion in future.
Evidently it is noticed that Ice-Cream Shop has better stock turnover ratio through the
period of 2015-17. The stock turnover ratio signifies that the company is capable of paying its
short term obligations. With higher stock turnover ratio of Ice-Cream Shop this represents
that it is better able to manage its short term obligations (Williams 2014). The Coffee shop
reported a relatively lower stock-turnover ratio though the ratio has been within the
prescribed industry standard but the company may be facing the shortage in meeting its short
term debt obligations.
A strong recommendation can be made in the areas of stock turnover ratio for Ice-
Cream Shop as the ice-cream segment in the industry have reported a fixed asset turnover of
greater than the normal industry standard (Warren and Jones 2018). Additionally, the fixed
asset turnover ratio presented the metric in better understanding that the sales have been

3ACCOUNTING FINANCIAL ANALYSIS REPORT
derived by the company with its fixed assets. The better the Ice-Cream Shop is performing by
generating higher revenue per dollar of assets. Apart from the above stated factors due
diligence and good valuation forms the important factor in buying the Ice-Cream Shop than
opting to purchase the Coffee shop.
Recommendations can be made in the areas of Total Asset possessed by the Ice-
Cream Shop. As gauging into the total assets of Ice-Cream Shop an assertion can be bought
forward that the shop has better ability to generate sales from its assets (Henderson et al.
2015). The ratio computed significantly highlights the efficiency of the organization in using
its assets to derive sales revenue. This indicates that the company is using its assets to derive
sales revenue. The ratio also signifies that the total asset is within the industry standard of
3.12 and over the last three years the ratio has been remained stable.
An analysis has been performed in the areas of gross profit margin profit generated by
both the Ice-Cream Shop and the Coffee shop. Gauging into the gross profit margin the Ice-
Cream Shop has reported a better margin throughout the three-year span (Macve 2015).
Usually, a gross profit margin with better 25% or higher is regarded as favourable by
majority of the market analysis. Selecting a business is regarded as the important factor and
Hilary in purchasing the Ice-Cream Shop business should also gauge into the competition,
location and the sum that Hilary is looking to invest.
Additionally, a recommendation can be provided to Hilary that she must also look
into the healthy related industries or its competitors. To be more fair Hilary is also required to
make investment in the sophisticated equipment and a continuous flow of customers would
help in generating higher revenues (Deegan 2013). The return on assets ratio represents the
profit of the company in respect of the overall resources. The Ice-Cream Shop has reported a

4ACCOUNTING FINANCIAL ANALYSIS REPORT
strong net return on the assets in order to measure the profitability of the business in respect
to its total assets.
Recommending upon the total asset turnover the Ice-Cream Shop represents that the
shop has better performance and has generated profit in respect to the capital that is
employed. The total asset turnover has been on the increasing side and this ultimately
increases the profit margin effectively (Carlon et al. 2015). A recommendation can be
provided in this area that states that the company has efficient management and have
employed the assets to produce earnings. While the Coffee Shop has reported a weak total
turnover ratio. This represents that the company has not been successful in generating
sufficient amount of sales. Additionally, the total asset to debt ratio have been considered to
form a conclusion on the financial leverage of the Ice-Cream Shop.
The proportion of the total assets which is financed by the creditors, liabilities or debt
is relatively lower for the Ice-Cream Shop is lower and the company has higher proportion of
total assets. On a recommendation note the Ice-Cream Shop has better proportion of total
assets than its debt (Henderson et al. 2015). The decision of buying the Ice-Cream Shop
could be considered as the viable option rather than opting for the Coffee Shop. The pay-out
ratio represents the proportion of earnings that Ice-Cream Shop pays to its shareholders.
Gauging to the Ice-Cream Shop pay-out ratio typically expressed the percentage of dividends
that is paid out by the company in proportion to its cash flow.
The dividend pay-out ratio for the Ice-Cream Shop has been on the higher side as
ratio relatively stood higher than the Coffee-shop in comparison to the figures reported
during the span of three years (Schaltegger and Burritt 2017). Therefore, a recommendation
can be forward by gauging into the pay-out ratio that Hilary should move forward with the
plan of purchasing the ice-cream shop and this signifies that a higher proportion of cash is

5ACCOUNTING FINANCIAL ANALYSIS REPORT
available with the Ice-Cream Shop. With better prospects of dividend growth from increased
sales a recommendation can be provided that Hilary should move forward with plan of
purchasing the Ice-Cream Shop rather than opting for the purchase of Coffee Shop.
Reference List:
Carlon, S., McAlpine-Mladenovic, R., Palm, C., Mitrione, L., Kirk, N. and Wong, L.,
2015. Financial Accounting: Reporting, Analysis and Decision Making. John Wiley and Sons
Australia.
Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial
accounting. Pearson Higher Education AU.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues,
concepts and practice. Routledge.
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Warren, C.S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Williams, J., 2014. Financial accounting. McGraw-Hill Higher Education.