Financial Performance and Liquidity Analysis of Xpress Cuts

This report provides a detailed financial performance and liquidity analysis of Xpress Cuts, a hair salon company. The analysis begins with an overview of the company's cost of sales, which, at 17.54% of revenues, is higher than the industry average but attributed to the company's premium services and competitive strategy. Operating expenses are shown to be efficiently managed, with the business effectively controlling costs related to advertising, insurance, and salaries. The report then examines the current ratio, which is 1.01, below the industry standard of 2:1, indicating a weak liquidity position. The report suggests that the company's liquidity could be improved by managing the operating cash cycle more effectively. The report concludes by referencing the ATO guidelines and benchmarks used in the analysis and the need for proactive management strategies to maintain a healthy financial position. References to books and journals are included to support the analysis.

FINANCIAL ACCOUNTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................1
REFERENCES................................................................................................................................2

ASSESSMENT
Report on the performance of company and the liquidity status
Xpress Cuts is hair dressers company whose performance over the years have been good
and considerable. It could be evaluated that the cost of sales of company is only 17.54% of the
total revenues where the industry average by ATO given for the turnover below $150000 is
between 12% to 17%. The cost of sales is suggested to be around 14% where of Company is
17.54% which is considerably higher. It has to bring its cost of sales up to the benchmarks
provided by the industry average. The cost of sales of Xpress cuts is high as it offers higher
benefits and facilities as compared with the other competitors for gaining larger market share and
giving tough competition. The cost of sales will be higher in the initial period for attracting new
customers as the prices are kept at lower and the services provided are costly (Ganc, 2018).
However the profit margins are kept at safer side for meeting the other expenses of the Express
Cuts.
Operating expenses of the express cuts are 9.6% of total revenues which are significantly
lower. Xpress cuts is able to carry out the expenses of the business such as advertising ,
entertainment insurance and subscriptions and other expenses in a cost efficient manner. The
main expenses are of rent and for salaries and wages. Xpress Cuts employees professional hair
dressers for providing excellent services to the client. As per the ATO guidelines for hair
dressers total expense turnover should range between 51 % - 68% and average total expenses at
59%. The expenses are very low as compared with key benchmarks given by ATO. This shows
that the Xpress Cuts is effectively managing the business and is having adequate returns.
Current Ratio
The current ratio of Xpress cuts is 1.01 where the standard current ratio for the companies
is 2:1. Current ratio is measured for verifying the ability of company in meeting the short term
obligations with the available current assets. It is very essential for the business to have sufficient
liquidity for carrying out the business operations appropriately. The current ratio is below the
industry average that shows the liquidity position of Xpress Cuts is not strong. The current assets
are equal to current liabilities of the business where it requires the current assets to be twice of
short term obligations. From the balance sheet it could be evaluated that the company is having
obligations for accounts payable and for GST.
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The liquidity position of the company may be weak due to the ineffective operating cash
cycle where the debtor collection period is greater that the creditor payment period. The
management has to take steps and actions for improving the liquidity position of the entity
(Bunker, Cagle and Harris, 2019). If the liquidity position falls lower than present level it will
reflect negative image of the firm.
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REFERENCES
Books and Journals
Ganc, M., 2018. Level of the current liquidity ratio versus financial efficiency of dairy
cooperatives. Problems of Agricultural Economics.2(355).
Bunker, R.B., Cagle, C. and Harris, D., 2019. A Liquidity Ratio Analysis of Lean vs. Not-Lean
Operations. Management Accounting Quarterly. 20(2). p.10.
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