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.
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TEDA Ltd
Income statement for the year ended 30 June 2015
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Sales revenue
Cost of sales
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$462500
307500
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Gross profit
Expenses (including tax and finance)
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155000
80000
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Net Profit after Interest and Tax
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$ 75000
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TEDA Ltd
Income statement for the year ended 30 June 2015
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Sales revenue
Cost of sales
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$462500
307500
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Gross profit
Expenses (including tax and finance)
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155000
80000
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Net Profit after Interest and Tax
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$ 75000
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TEDA Ltd
Balance sheet as at 30 June 2015
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Current assets
Cash assets
Receivables (all trade)
Less: Allowance for doubtful debts
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$149625
9450
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$ 18900
140175
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Inventories
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126000
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Total current assets
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285075
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Non-current assets
Land
Building
Less: Accumulated depreciation
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113000
18900
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31500
94100
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Store equipment
Less: Accumulated depreciation
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23625
13625
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10000
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Total non-current assets
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135600
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Total assets
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420675
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Current liabilities
Payables (all trade)
Dividends - preference dividends
Payable - ordinary dividends
Other
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135450
1890
12600
6300
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Total current liabilities
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156240
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Non-current liabilities
10% mortgage payable
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31500
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Total liabilities
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187740
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Equity
Contributed capital: 6% preference shares
Ordinary shares
Retained earnings
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25000
126000
81935
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Total equity
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232935
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Liabilities and equity
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$420675
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Additional information
1. The balances of certain accounts at the beginning of the year are:
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Accounts receivable (gross)
Allowance for doubtful debts
Inventories
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$157500
(14175)
110250
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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.
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Current ratio
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2.1:1
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2.6:1
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Acid test or quick ratio
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1.8:1
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2.2:1
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Days inventory on hand
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122
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127
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Days debtors out standing
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30
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46
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Net Profit margin
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10%
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12.2%
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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.
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Qantas Airways Limited
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Virgin Australia Holdings Limited
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EBIT margin
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1.85%
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3.50%
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ROE
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3.38%
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8.40%
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ROA
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2.12%
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3.29%
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Debt to Equity
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111.21%
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180.07%
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Current Ratio
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0.77
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0.65
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Net profit margin
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1.36%
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2.23%
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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.