Assessment Task Two
Due: 11:00pm, Monday 26th September 2016 (Week 12)
Introduction:
Assessment Task Two involves analyses of financial information of three small/medium sized organisations to evaluate the financial performance and financial position of each company. Evaluation of performance and position will consider both financial and non-financial considerations.
Instructions:
The attached document contains financial information for three (3) small/medium sized organisations along with questions which must be addressed.
Please read the instructions relating to submission very carefully before attempting the questions contained within the assignment and make sure that you answer all of the questions.
It is most important that you read the question requirements very carefully and understand what you are required to do. If you are uncertain or unsure of the question requirements, you must ask your local lecturer or tutor.
Assessment Tips:
When you are providing figures and calculating ratios, please take note of the following instructions. Failure to do so may result in lost marks.
Show the original figures as well as any ratios or percentage changes that you calculate. An efficient way to present these figures and ratios is in Word tables or in sections of Excel spreadsheets that are pasted into Word documents.
This will enable you to have headings which clearly label the figures and ratios, as well as headings which clearly show the formulas and calculations that have been done to obtain the results. Use the figures in the statements provided to do all calculations and to support all conclusions. Where multiple ratio calculations are performed, it is good practice to create a summary table of the ratio and result. This allows for easier comparison and analysis of the different ratio results.
Your own evaluation, in your own words is important. When you are asked to interpret ratios, it means to provide an explanation of what the ratio means in terms of this company.
This simply means tell me what the ratio measures and what it means for this company.
Referencing is most important in all academic work. It enables the reader to assess the reliability and relevance of the assumptions or assertions made.
Please ensure that all sources of information are appropriately referenced using the Harvard (author–date) method. This includes the textbook. If you use direct quotations from other sources, make sure that these are appropriately presented and referenced. The inclusion of a Bibliography in your submission is required and you will be penalised if you do not include one.
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.
(8 marks)
TEDA Ltd
Income statement for the year ended 30 June 2015
Sales revenue
Cost of sales $462 500
307 500
Gross profit
Expenses (including tax and finance) 155 000
80 000
Net Profit after Interest and Tax $ 75 000
TEDA Ltd
Balance sheet as at 30 June 2015
Current assets
Cash assets
Receivables (all trade)
Less: Allowance for doubtful debts
$149 625
9 450
$ 18 900
140 175
Inventories 126 000
Total current assets 285 075
Non-current assets
Land
Building
Less: Accumulated depreciation
113 000
18 900
31 500
94 100
Store equipment
Less: Accumulated depreciation 23 625
13 625
10 000
Total non-current assets 135 600
Total assets 420 675
Current liabilities
Payables (all trade)
Dividends — preference dividends
Payable — ordinary dividends
Other
135 450
1 890
12 600
6 300
Total current liabilities 156 240
Non-current liabilities
10% mortgage payable
31 500
Total liabilities 187 740
Equity
Contributed capital: 6% preference shares
Ordinary shares
Retained earnings
25 000
126 000
81 935
Total equity 232 935
Liabilities and equity $420 675
Additional information
1. The balances of certain accounts at the beginning of the year are:
Accounts receivable (gross)
Allowance for doubtful debts
Inventories $157 500
(14 175)
110 250
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)
Use the following to show the appropriate ratio and your calculations
Ratio Calculation
=
Ratio Calculation
=
Ratio Calculation
=
Ratio Calculation
=
Ratio Calculation
=
Ratio Calculation
=
Ratio Calculation
=
Ratio Calculation
=
Small Business Analysis 2:
The following ratios have been calculated for TUST Pty Ltd, an entity specialising in imported exotic perfumes. (7 marks)
2012 2013
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 outstanding 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?.
Liquidity:(approx 100 words)
Asset efficiency: (approx 100 words)
Profitability: (approx 100 words)
Small Business Analysis 3: Case Study Analysis:
The following table reports various financial ratios for Qantas and Virgin for 2012. (20 marks)
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.
GET ANSWERS / LIVE CHAT