Assignment : Financial Statement Analysis
Ace Hardware is a leading family business that specialises in the manufacturing and wholesale distribution of floor tile products. Over the past two years Ace Hardware has experienced difficult operating conditions. John, the company accountant, has prepared the income statement and balance sheet for the prior two years for a management meeting. The owners of Ace Hardward have asked John to evaluate the financial statements and prepare an evaluation of operating capability to present to senior management. 60 percent of sales are made on credit.
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Profit and Loss
|
|
201X
|
|
|
201Y
|
|
|
Total Income
|
|
14,543,837
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|
|
11,981,782
|
|
Less Cost of Sales
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|
10,752,813
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73.9%
|
|
8,967,229
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77.1%
|
|
Gross Profit (Loss)
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|
3,791,024
|
26.1%
|
|
3,014,553
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22.9%
|
|
Total Other Income
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|
86,363
|
0.6%
|
|
-
|
3.3%
|
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Less Expenses
Administrative Staff Costs
|
|
2,385,760
|
16.40%
|
|
1,719,171
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14.35%
|
|
Advertising and Marketing Support
|
|
140,470
|
0.97%
|
|
75,500
|
0.63%
|
|
Bad Debts
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|
68,534
|
0.47%
|
|
63,057
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0.53%
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|
Administrative Overhead
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|
280,600
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1.93%
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|
290,238
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2.42%
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|
Freight and Cartage
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10,210
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0.07%
|
|
21,681
|
0.18%
|
|
Hire of Plant and Equipment
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|
103,828
|
0.71%
|
|
118,016
|
0.98%
|
|
Bank Charges
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|
25,573
|
0.18%
|
|
20,749
|
0.17%
|
|
Light and Power
|
|
49,176
|
0.34%
|
|
42,017
|
0.35%
|
|
Lease of MV
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|
28,160
|
0.19%
|
|
2,201
|
0.02%
|
|
MV Running Costs
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|
332,103
|
2.28%
|
|
249,192
|
2.08%
|
|
Rent
|
|
328,307
|
2.26%
|
|
321,177
|
2.68%
|
|
Repairs and Maint
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|
35,367
|
0.24%
|
|
18,875
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0.16%
|
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Telephone
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|
67,899
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0.47%
|
|
63,170
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0.53%
|
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Travel
|
|
21,398
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0.15%
|
|
8,516
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0.07%
|
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Total Operating Expenses
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|
3,877,386
|
26.7%
|
|
3,013,560
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25.2%
|
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Net Operating Profit (Loss)
|
|
1
|
|
|
993
|
|
| Balance Sheets |
201X |
201Y |
| Current Assets |
|
|
|
Cash at Bank
|
-
|
-
|
|
Trade Debtors
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1,116,467
|
875,607
|
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Stock on Hand
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1,697,220
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1,231,111
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Total Current Assets
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2,813,687
|
2,106,718
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| Fixed Asets |
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|
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Furniture & Fitting - At Cost
|
43,511
|
43,511
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Less Accum Depn Frn & Fitting
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(36,606)
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(37,543)
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Plant & Equip - At Cost
|
1,329,334
|
1,329,334
|
|
Less Accum Depn - Plant & Equip
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(1,045,363)
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(1,096,991)
|
|
Motor Vehicle - At Cost
|
863,042
|
840,728
|
|
Less Accum Depn - Motor Vehicle
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(707,518)
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(720,326)
|
|
Office Equipment - At Cost
|
368,650
|
368,650
|
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Less Accum Depn - Office Equip
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(302,075)
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(319,537)
|
|
Total Fixed Assets
|
512,975
|
407,826
|
| Investments |
|
|
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Shares in Listed Company
|
96,788
|
96,788
|
|
Loans & Deposits
|
153,782
|
153,782
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|
Total Investments
|
250,570
|
250,570
|
|
Intangible Assets
|
|
|
|
Trademarks & Patents
|
867
|
27,958
|
|
Goodwill - At Cost
|
5,430
|
5,430
|
|
Formation Expense - At Cost
|
1,000
|
1,000
|
|
Total Investments
|
7,297
|
34,388
|
|
Total Non Current Assets
|
770,842
|
692,784
|
|
Total Assets
|
3,584,529
|
2,799,502
|
|
Current Liabilities
Bank Overdraft
|
98,917
|
116,643
|
|
Trade Creditors
|
1,394,198
|
1,181,797
|
|
Loan At Call - To Directors
|
149,354
|
137,586
|
|
Total Current Liabilities
|
1,642,469
|
1,436,026
|
| Deferred Liabilities |
|
|
| Loan - Unsecured - business Partner |
1,819,577
|
1,326,934
|
| Total Deferred Liabilities |
1,819,577
|
1,326,934
|
|
Total Liabilities
|
3,462,046
|
2,762,960
|
| Equity |
|
|
|
Profit B/F
|
1
|
993
|
|
Settled Capital
|
50
|
50
|
|
Accumulated Trust Funds
|
31,027
|
31,027
|
|
Retained Profits
|
91,405
|
4,472
|
|
Total Equity
|
122,483
|
36,542
|
Questions:
1. Calculate the following ratio's for the two financial years:
a. Current
b. Quick
c. Debt
d. Inventory Turnover for year Y only
e. Accounts Receivable Turnover for year Y only
f. Gross Profit Percentage
g. Profit Margin
h. Return on Total Assets for year Y only
i. Return on Owner's Equity for year Y only
2. Write a short report that compares the business' performance in 201X with that in 20XY regarding its liquidity, financial flexibility, operating capability and profitability.
You are required to take the trial balance and information provided and create the adjusted trial balance. Using the adjusted trial balance you are then required to construct a Statement of Financial Position (balance sheet) and a Statement of Income (profit and loss). You may use and present your solutions in excel or word.
The report must be presented in essay format with an introduction, body and conclusion and all external references must be referenced using APA 6th edition referencing style. Word count should not exceed 1,000 words.