Reference no: EM131221176 , Length: word count:2000

Accounting for Business Assignment - Small Business Analysis and Interpretation

Small Business Analysis 1: The following financial statements were prepared for the management of TEDA Ltd. The statements contain some information that will be disclosed in Additional Information at the end of the general purpose financial statements.

TEDA Ltd Income statement for the year ended 30 June 2015
Sales revenue Cost of sales	$462500 307500
Gross profit Expenses (including tax and finance)	155000   80000
Net Profit after Interest and Tax	$  75000
TEDA Ltd Income statement for the year ended 30 June 2015
Sales revenue Cost of sales	$462500 307500
Gross profit Expenses (including tax and finance)	155000   80000
Net Profit after Interest and Tax	$  75000

 

 

TEDA Ltd Balance sheet as at 30 June 2015
Current assets Cash assets Receivables (all trade) Less: Allowance for doubtful debts	$149625    9450	$  18900   140175
Inventories		126000
Total current assets		285075
Non-current assets Land Building Less: Accumulated depreciation	113000   18900	31500   94100
Store equipment Less: Accumulated depreciation	23625   13625	10000
Total non-current assets		135600
Total assets		420675
Current liabilities Payables (all trade) Dividends - preference dividends Payable - ordinary dividends Other		135450 1890 12600     6300
Total current liabilities		156240
Non-current liabilities 10% mortgage payable		31500
Total liabilities		187740
Equity Contributed capital: 6% preference shares Ordinary shares Retained earnings		25000 126000   81935
Total equity		232935
Liabilities and equity		$420675

Additional information

1. The balances of certain accounts at the beginning of the year are:

Accounts receivable (gross) Allowance for doubtful debts Inventories

$157500 (14175) 110250

2. Total assets and total equity at the beginning of the year were $387,500 and $190,500 respectively.

3. Income tax expense for the year was $31,500. Net finance expenses were $3150.

Required: Based on the information provided above, identify and calculate the principal ratios that a financial analyst might use that would give some indication of the following:

a. the entity's earning ability; (4 ratios are required)

b. the extent to which internal sources have been used to finance asset acquisitions; (1 ratio is required)

c. the rapidity with which accounts receivable are collected; (1 ratio is required)

d. the ability of the entity to meet unexpected demands for working capital; (1 ratio is required)

e. the length of time taken by the entity to sell its inventories. (1 ratio is required)

Small Business Analysis 2: The following ratios have been calculated for TUST Pty Ltd, an entity specializing in imported exotic perfumes.

Current ratio	2.1:1	2.6:1
Acid test or quick ratio	1.8:1	2.2:1
Days inventory on hand	122	127
Days debtors out standing	30	46
Net Profit margin	10%	12.2%

The ratios indicate an increase/decrease from the previous year.

Required: Classify and discuss each of the ratios and explain what these ratios indicate about the entity's liquidity, asset efficiency and profitability?

Students are encouraged to do some research and find out what an increase/decrease in the ratio indicates, what the business could be doing that has resulted in the change, and is this change favourable or not?

Where possible you should provide a brief recommendation and lastly do not forget to reference and support your reasoning.

Small Business Analysis 3: Case Study Analysis: The following table reports various financial ratios for Qantas and Virgin for 2012.

	Qantas Airways Limited	Virgin Australia Holdings Limited
EBIT margin	1.85%	3.50%
ROE	3.38%	8.40%
ROA	2.12%	3.29%
Debt to Equity	111.21%	180.07%
Current Ratio	0.77	0.65
Net profit margin	1.36%	2.23%

Source: Information from Financial Aspects, www.financialaspects.com.au.

Required: Given that the companies operate in the same industry, write a report of approximately 1000 words explaining what the ratios suggest about the companies' profitability, efficiency and liquidity.

It would be appropriate to classify your report into the three activity groups above and comment on each of these independently. Each activity group should be approximately 500 words.

Simply writing a comparison of the financial ratios provided in the above table will not incur any marks.

You should look carefully at each of the ratios provided and analyse the reason for one entity having a higher or lower ratio than the other.

You will need to identify the connection between the ratios as this will reveal a lot of information that will be helpful in answering the question.

Do not hesitate to search outside the financial ratios provided. Your analysis should be supported with evidence of research.

Words: 2000

References: 12 Harvard.