Managerial Accounting Report: Triton Corporation Financial Analysis

This report provides a managerial accounting analysis of Triton Corporation, evaluating its financial performance across six operating divisions. The report utilizes tools such as the BCG matrix, ratio analysis, and relevant costing to assess the value contribution of each division. Key findings indicate that the bathroom accessories and pipes departments are underperforming and recommended for divestment. The report also identifies the factors influencing the payback period for equipment replacement and new development projects. Furthermore, the report suggests investment in improved techniques and investment appraisal techniques for future expansion and increased profitability, while also considering ethical and legislative aspects.

Managerial
Accounting
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EXECUTIVE SUMMARY
Management accounting is provisions of financial data used for the purpose of decision
making by the commercial entities. It provided various tools and techniques for the analysis of
financial position of business. Present report provides financial evaluation of Triton Corporation.
For this purpose various financial and non financial tools are used such as BCG matrix, ratio
computation and relevant costing. By considering performance of the company, conclusion has
been drawn that bathroom accessories and pipe departments are not able to add value in the
business. As a consequence, decision of divestment in these departments taken by company is
viable.
In order to better opportunities for future expansion, company is recommended to make
investment in improved techniques. With the implementation of these techniques, company will
be able to make reduction in cost and time consumption. Along with this, management of Triton
Corporation will be able to make increase in profitability of business. In order to select viable
project for expansion company is recommended to consider investment appraisal techniques. In
addition to this they are required to consider ethical and legislatory aspects.
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TABLE OF CONTENTS
Introduction......................................................................................................................................3
Main body........................................................................................................................................3
Section A......................................................................................................................................3
Section B......................................................................................................................................6
Section C......................................................................................................................................7
Section D......................................................................................................................................9
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
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ILLUSTRATION INDEX
Illustration 1: BCG Matrix...............................................................................................................6
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INDEX OF TABLES
Table 1: Financial summary of operating departments of Triton Corporation................................7
Table 2: Applicability of BCG Matrix.............................................................................................7
Table 3: Computation of financial ratios of Triton Corporation....................................................12
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INTRODUCTION
Managerial accounting is a field of finance which provides improvised provisions of
availing financial information in order to make better decisions for business. By making use of
these techniques, management of entity will be able to develop better control on their operational
activities for better performance of business. In addition to this, they will be able improve the
financial position in order to avail opportunities for growth and expansion (Kinney and Raiborn,
2012). This accounting includes preparation of management and financial reports in order to
provide accurate and reliable information to the managerial people while decision making
process.
Present project report is based on the evaluation of financial position of the Triton
Corporation. Stated company is engaged in manufacturing activities with six operating divisions.
In this report, analysis of six divisions will be done to assist the management of company in
making better decisions. For this aspect, various financial tools of managerial accounting will be
used such as ratio computation, investment appraisal techniques and budgetary tools. For this
aspect, practical applicability of these tools will be explained by considering the financial
information of business.
MAIN BODY
Section A
Evaluation of six operating divisions of company can be done by making use of BCG
growth share matrix. This matrix is developed by considering two assumptions. First assumption
says that increase in market share will result in increase in the generation of cash and its
equivalents. Second assumption is that increasing market share requires high investment in assets
for increment in capacity (Hill and Clarke, 2013). This aspect results in increase in cash
consumption. This matrix was developed on the observation that operating units of organization
can be mainly classified into four categories by considering its market growth and market share
factors. Description of these categories is enumerated as below- Dogs- This operating segment has low market share and growth. Due to this aspect, it
neither requires high cash consumption nor generates cash. Henceforth, dogs are said to
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be cash traps as they have little potential. This segment is required to be reinvested in
order to earn high profits. Question marks- Question marks have great potential opportunities thus; it requires high
consumption of cash. However, due to low market share, they are not able to generate
high cash. As a cumulative effect, it only makes increase in the net consumption.
However, this segment has potential to get converted into stars thus, it is required to be
carefully analyzed for the worth of further investment or not (Bhimani and Bromwich,
2009).
 Stars- This segment represents the most effective part of portfolio. It is because, they are
able to generate high amount of cash due to strong market share. Portfolio of diversified
company is required to have stars in order to assure the future generation of cash.
 Cash cows- This segment act as a leader in a mature market. Due to this aspect, it is able
to provide more cash in comparison to its consumption (Kinney and Raiborn, 2012).
Value of cash cows can be determined by making use of discounted cash flow analysis or
present value method.
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Illustration 1: BCG Matrix
(Source: The BCG Growth-Share Matrix, 2015)

Table 1: Financial summary of operating departments of Triton Corporation
Electrical
Products
Floor
Boards
Car
Accessories
Industrial
Services
Bathroom
Accessories Pipes Total
Profit % 5.50 5.51 17.54 23.74 7.14 1.67 11.76
Product
Share 30.96 19.66 13.24 26.08 5.42 4.64
Material as
a % of total
cost 91.27 84.58 56.74 57.20 69.23 25.42 73.25
Table 2: Applicability of BCG Matrix
Department Segment as per
BCG Matrix
Description
Electrical
Products
Cash cow This segment has low growth rate but high product share.
This department requires high cost consumption in order
to make significant increase in the profits.
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Floor Boards Cash cow Similar to Electrical products, Floor boards is also covered
in the criteria of cash cow (Vanderbeck, 2012). However,
comparatively, it is providing high profit in less cost and
less market share.
Car Accessories Question mark Car accessories are providing good profits which show
potential growth opportunities. However, its market share
is quite low.
Industrial
Services
Star Industrial service segment represents the best part of
portfolio of Triton Corporation. It is because, it is
generating good cash and has high market share. In
addition to this, cost consumption of this department is
comparatively less.
Bathroom
Accessories
Dog Bathroom accessories have low market share and market
opportunities. This aspect shows that this department does
not have potential to provide effective profits to the
business. In addition to this, it is consuming high part of its
cost (The BCG Growth-Share Matrix, 2015)
Pipes Dog Similar to the bathroom accessories, segment of pipes is
also covered in the criteria of Dog. It is neither consuming
high cash nor it is providing high profits of the business.
By considering the above analysis, it can be noticed that bathroom accessories, pipes and
electrical products is adding less value but it requires high working capital consumption. Due to
these low value added items, profit of organization is reducing. In addition to this, market share
of Triton Corporation is adversely affected (Shim and et.al., 2008). Further, due to inappropriate
arrangement of portfolio segment, assets of business are not optimally utilized. As a
consequence, management of the organization will not be able to earn sufficient return on the
assets which will make reduction in their efficiency ratios.
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Section B
Analysis of sale strategy by considering BCG matrix
By considering the financial performance of department of bathroom accessories and
pipes, it can be noticed that both are providing fewer contribution to the profits of organization.
In comparison to other departments, it is providing fewer profits to company (Arai, Kitada and
Oura, 2013). Due to this aspect, decision of the management of sale of these departments is
appropriate. By making divestment in these options, they will be able to make utilization of these
resources in other departments in order to earn higher profits.
In accordance with the BCG matrix, products are classified as dogs that have low growth
rate and market share. Due to this aspect, this operating segment is not able to add value in the
assets of business. As a consequence, this segment is considered as negatively profitable. It is
because; invested amount in it can be used in other segments to earn high profits (Management
accounting, 2014). By considering this aspect, decision taken by Triton Corporation of sale of
bathroom accessories and pipes is viable, even though this department is able to earn profits.
Financial analysis of sale decision of two departments
Electrical
Products
Floor
Boards
Car
Accessories
Industrial
Services Total
$M $M $M $M $M
Sales 40.00 25.40 17.10 33.70 116.20
Cost of Sales
Materials 34.50 20.30 8.00 14.70 77.50
Salaries & Wages 1.20 1.80 2.10 3.00 8.10
Other Cost 2.10 1.90 4.00 8.00 16.00
37.80 24.00 14.10 25.70 101.60
Profit Before
Interest and Tax 2.20 1.40 3.00 8.00 14.60
Profit % 5.50% 5.51% 17.54% 23.74% 12.56%
Resources available from divestment of two departments 12.40
Additional profit on this resource consumption 1.56
Total profit 16.16
Change in profit (16.16-15.2) 0.96
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In accordance with the above analysis, it can be noticed that sale of two departments will
provide minimum additional profit of .96 $M. This profit has been computed by making profit
statement without considering the operating activities of bathroom accessories and pipes of
Triton Corporation. Further, cost incurred on these two departments has been utilized for
resources for other four departments (Kaimenaki and Cohen, 2011). This aspect has provided
additional profit of 1.56 $M and total profit after sale of these two departments is 16.16 $M.
Both practical and financial evaluation shows that sale of bathroom accessories and pipes
departments is a viable decision for the maximization of profits. In addition to this, other
departments have good market share (Arai, Kitada and Oura, 2013). Thus, it will provide better
opportunities for growth and expansion. Further, management of Triton Corporation will be able
to focus on their core activities in order to operate in an effective manner.
Section C
Identification of factors that influence duration of payback period for the purpose of
equipment replacement programmes and new development projects
Pay back period is part of investment appraisal techniques. By the computation of this
pay back period, time period is determined in which company will be able to recover the amount
of initial investment (Bardy, 2006). In accordance with the approach of pay back period, project
will minimum pay back period is attractive for the company. There are various factors which
affect the duration of payback period. Description of these factors is as follows- Inflow- Inflow are net earnings earned by the equipment or new development project. In
situation where replaced asset and development project is productive then it will provide
higher inflow (Burns and et. al., 2004). Due to this aspect, company will attain pay back
period earlier. On the other hand if project is not able to provide good inflow then there
will be delay in the duration of payback period. Initial investment- Initial investment is the amount investment by the business
organization for the purpose of purchase of equipment or implementation of development
project. If high amount is invested by company, then payback will time consuming. On
the other hand, if amount of investment is low, the business organization will be able to
have quick recovery of the invested amount.
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 Trend of inflow- Pay back period of the project is also affected by the trend of inflow. It
is because, concept of pay back period is based on the recovery of initial investment. In
situation where, inflow had increasing trend for the beginning, then pay back period will
be achieved earlier (Kaimenaki and Cohen, 2011). However, in situation where, inflow of
the project is less in beginning and it is increasing after passage of some time then pay
back period will be delayed. This aspect shows that pay back period of the investment
project will be affected by the increasing or reducing or stable trend of the inflow.
 Duration of project- Duration of the project affect the inflow of the project by which pay
back period is affected. Investment project with higher duration will be able to provide
early recovery of amount of initial investment (Kate-Riin, 2012).
Triton Corporation is required to consider above described aspects while selection of
investment project. On the basis of these factors, company will be able to select profitable
project with minimum pay back period (Shim and et.al., 2008). This approach will make increase
in duration of post pay period by which revenue of company will be enhanced.
Analysis of relative importance of the strategic aim of reducing gearing and continuation of
investment in modernization programmes
Gearing ratio is computed for the measurement of proportion of debt funds in comparison
to equity. This ratio depicts the financial risk of the company which is subjected to the
obligations of business. High gearing ratio shows high proportion of debt which can lead to the
situation of insolvency (Shim and et.al., 2008). In addition to this, higher ratio also indicates
high deal of leverage in which company is making use of debt for the continuation of business
activities. Reduction in gearing in financial position of the company is also essential because it
shows stability in business (Correia and Flynn, 2012). In addition to this, high gearing will
require increase in payment of interest obligations which will make reduction in the profitability
of business.
In present competitive era, business organizations are required to make continuous
improvement in their operational activities in order to achieve competitive advantage. In
situation where, company will not be focused towards the improvement, then rivalry firms will
take away the market share of the firm (Vaivio, 2008). Due to this aspect, management of the
Triton Corporation should make investment in the modernization programmes. With these
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