FIN4001 Finance Report: Financial Analysis, Strategies & Investment

This finance report provides a detailed analysis of financial statements, investment appraisal techniques, and ratio computations. It covers topics such as gross profit ratio, asset turnover ratio, current ratio, quick ratio, stock turnover ratio, and debt-to-equity ratio. The report also includes an analysis of a company's financial health, break-even point (BEP), margin of safety (MOS), payback period, accounting rate of return (ARR), and net present value (NPV). Furthermore, it discusses the appropriateness of different investment criteria and provides recommendations based on the financial analysis. Desklib offers a variety of solved assignments and past papers to aid students in their studies.

Introduction To
Finance

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
QUESTION 1 ..................................................................................................................................3
a) Computation of several types of ratio for the year ending 31 march 2018-19.......................3
b) Analysis of the financial statement: .......................................................................................5
Question – 2 ....................................................................................................................................6
a) Opening statement of the financial status in the starting month of July 2015........................6
c) Describe the term of additional expenses ..............................................................................7
QUESTION 3...................................................................................................................................8
a) Computation of BEP ..............................................................................................................8
b) Find the Margin of Safety ......................................................................................................9
c) Ascertain the new tactics framed by the Jessica ..................................................................10
QUESTION -4 ..............................................................................................................................10
a) Analyses of pay back period, ARR and NPV.......................................................................10
b) Evaluate the productivity of the project for the investment purpose from the above part a.13
c) Discussion of the investment criteria....................................................................................14
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Finance is the process of arranging the money or capital for making the payment of any
type of expenses. It consist of the method of using the various types of fund, credit, investing the
capital and provide the loan to those enterprises which requires the highest effort for effective
utilisation of resources. There is the discussion and the analysis of the financial statements such
as the cash budget, net present value, computation of pay back period, and the rate of accounting
return (Gielen, and van der Krabben, 2019). Through this company can determine the capacity
to pay back the amount and to understand the monetary position of the businesses. The analysis
of the NPV helps to choose the viable project in terms of several projects. It aids to select that
plan which provides the best rate of return. The next part is the analysis of ratio like the liquidity
ratio, efficiency ratio, turnover ratio which helps to know the solvency position and the
availability of the cash in the businesses. It also helps to ascertain the profitability and the
efficiency of the operations. Company has also measured the BEP and the MOS which tells the
point at which revenue is equal to the cost. It also measure that the facility of bank overdraft with
cash budget or determine the cost which occur in the future.
MAIN BODY
QUESTION 1
a) Computation of several types of ratio for the year ending 31 march 2018-19
1. Gross profit ratio: It defines the relationship between the sales and the profit of the
organisation. It is measured by subtracting all the trading expenses of the company.
= ( Sales – Cost of goods sold) * 100 / Revenue
= (3495 – 2182) * 100 / 3495
= (1313/3493) * 100
= 37.58%
Interpretation: It helps to analyse the profitability earning capacity of the company. If the sales
is more than the expenses it means entity has earned gross profit and if expenses is greater then
the revenue it means enterprise has attained the gross loss (Gottschalk, and Poon, 2020). Higher
the gross profit is always good for the organisation. Company always try to keep the expenses
side low to earn the maximum profit of the company.

2. Assets turnover ratio: It shows the dependency of the assets on the revenue of the
company.
= Revenue / Mean of assets
= 3495 / 2898 * 100
= 120.85
Interpretation: It denotes the capacity of the firm to create the sales from the sale of the assets
to increase the efficiency. It helps to compare the total assets with the revenue of the businesses.
The high assets turnover ratio means the better efficiency of the company. The best assets usage
ratio is higher the percentage and the organisation has achieved the 120.85 % ratio that is lower
than the plan it describe the unfavourable state of the company (Hawkes, 2018). The enterprise
needs to increase the sale and utilisation of the assets in proper manner.
3) Current ratio: It refers to ability of the company to pay the short term obligations
from the current assets.
= current assets / current liabilities
= 1687 / 744
= 2.26 : 1
= Year 2018 – 418/505 = 0.83:1
Interpretation: In this ratio it is noticed that current assets of the company is higher than the
short term liabilities. It means businesses has enough assets to pay the obligations of the creditors
(Hu, Y.J. and Lin, 2019). The perfect current ratio is 2:1. The company has the assets ratio of
2.26 . This is to extract the large number of assets from the sales of the company.
4) Quick ratio: It relates to the capacity of the businesses to convert the assets in to cash
immediately. It is computed by deducting the stock or the prepaid expenses from the
current assets. The perfect acid test ratio is 1
= (Current assets – stock) / Quick liabilities
= ( 1687 – 150 )- 744
= 1537 / 744
= 2.06:1
= Year 2018 – (418-102) /502 = 0.62 :1

Interpretation: It generally see the realization of the quick assets to change them in to the cash
quickly. It helps to pay back the amount of the current liabilities. The good position of company
is that when quick assets matches with the quick liabilities of the company (Huang, and Chan,
R.C 2018). The Liverton businesses is at stable position when they are able to cope up their
current liabilities.
5) Stock turnover ratio: It is related with the holding period of stock in the company. It
means in how much time enterprise is able to convert their products in to sale.
= ( Average stock / COGS) * 365
= 150 / 2182] *365
= 25.09 days
Interpretation: It states that how many days stock will be lie in the warehouses of the
businesses. Company always try to maintain the balance because neither the situation of under
stock or over stock is good for the businesses. Company always attempt to clear the stock in
quick manner.
6) Debt to equity ratio: The ratio that deals with the long term obligations of the businesses
and it shows the solvency of the entity in the long time.
= Long term fund / Equity
= Year 2019 – 914/2898 x 100 = 31.53%
= Year 2018 - 552/1951 x 100 =29.29 %
Interpretation: It show the position of the organisation to finance the long term debts from the
shareholders fund of the businesses. It shows the proportion of the equity or debt invested in the
company. The idea debt equity ratio is 1:1. The lower debt equity is best for the businesses it
shows businesses has less amount of borrowed fund and has higher amount of internal
(fundsIori, and Mantegna, 2018).
b) Analysis of the financial statement:
It is the evaluation of the internal or the external estimation of the company financial
statements to take the decisions which is related with the investment. The study of the monetary
documents helps to measure the financial health of the company. It guides to understand the
financial position of the entity. This research consist of the deep analysis of the financials to gain
the attention of the monetary functions. There are three statements such as the balance sheet,
income statement and the cash flow statement that is prepared by every organisation. This

information is utilized by both the internal or the external users of the enterprise (Khan, 2019).
There are various authorities such as the government, suppliers, employees, investors and the
shareholders of the corporate used this accounting records for taking the relevant decision. The
internal analysis like internal audit that aids to monitor the internal performance of the company
by proper managing the internal management of the business. This furnishes to take the right
decision at right time to correct the financial sources of the fund.
Question – 2
a) Opening statement of the financial status in the starting month of July 2015
The Sassy clothing businesses has pay more payment and received the less receipts from
the month of August to November. Company has incurred more expenses therefore business has
to open the overdraft account. The manager of the organisation has to discuss with the head of
the bank for taking short or long term loan, extend the limit of credit for the short duration of
time, and provide the loan at less interest rate (Khattak, 2020). The organisation requires
overdrafts it has one of the merit is that it provides more flexibility as comparison to the loan
and there is no charge of penalty to pay the money earlier than the advanced. The owner of the

businesses needs to take permission from the lender to borrow the permanent facility of overdraft
and needs to deposit the message their borrower. This can be done by the business through the
official website or in the descriptive way.
c) Describe the term of additional expenses
The company must include all the cost of the month from July to December like bills,
rent, operating expenses, electricity, office and administration cost or the payment make to the
creditors. Overdraft facility helps the company to avail the facility of more finance and has not
left out with any amount (Maxfield, 2019). It aids to handle the time frame of mismatch flow of
funds and to sustain the good track record. By availing the facility of overdraft the company is
able to due the payments or cost at time. The further expenses will help the companies to carry
out the operations of the businesses.
QUESTION 3
a) Computation of BEP

b) Find the Margin of Safety
c) Ascertain the new tactics framed by the Jessica
The two strategy has been observed from the above computations. This has estimated that
there is more monetary risk in the new strategy. The BEP from the new or the old method are
69848 and 63882 respectively. It denotes that how much units or quantities of the product is sold
to receive the variable expense or the constant amount of the manufacturing. The both of the
companies have received the unfavourable margin of safety (Mohamed, and Ali, 2022). The
Jessica has earned more loss or risk in comparison to the last month by using the new strategy.
The company has to lower the fixed expenses to decline the over all cost of manufacturing unit
to sustain the more profit. The manager has to rise the fixed assets with the amount of 1,45,000
and this is high and has impact on the cost unit of the production.

QUESTION -4
a) Analyses of pay back period, ARR and NPV
Pay back period