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Profitability Ratios

Profitability Ratios

Gross Profit Ratio

Contemporary  Clothing

Modern Fashion

Sales

2425000

3735000

Gross Profit

475000

835000

Gross Profit Ratio

19.587

22.356

Net Profit Ratio

Contemporary  Clothing

Modern Fashion

Net Profit

32000

91000

Total Revenue

2425000

3735000

Net Profit Ratio

1.319

2.436

Operating Margin Ratio

Contemporary  Clothing

Modern Fashion

Operating Margin

113000

285000

Net Sales

2425000

3735000

Operating Margin Ratio

4.659

7.630

Return on Equity

Contemporary  Clothing

Modern Fashion

Net Income

32000

91000

Shareholders Equity

625000

750000

Return On Equity

5.12

12.133

Contemporary  Clothing

Modern Fashion

Efficiency Ratios

Total Asset Turnover Ratio

Net Sales

2425000

3735000

Average Total Assets

1250000

2000000

Asset turnover ratio

1.94

1.867

Accounts Receivables Ratio

Contemporary  Clothing

Modern Fashion

Revenue

2425000

3735000

Average Accounts Receivables

230000

610000

Accounts Receivables Ratios

10.543

6.122

Liquidity Ratios

Current Ratios

Contemporary  Clothing

Modern Fashion

Current Assets

640000

1280000

Current liabilities

325000

600000

Current Ratio

1.969

2.133

Quick Ratio

Contemporary  Clothing

Modern Fashion

Cash

70000

45000

Accounts Receivables

230000

610000

Current Liabilities

325000

600000

Current Ratio

0.923

1.091

Cash Ratio

Contemporary  Clothing

Modern Fashion

Cash

70000

45000

Current Liabilities

325000

600000

Cash Ratio

0.215

0.075

Leverage Ratio

Debt Equity Ratio

Contemporary  Clothing

Modern Fashion

Short term Debt

100000

150000

Long Term Debt

300000

650000

Total Equity

1250000

2000000

Debt Equity Ratio

0.32

0.4

On considering the financial health of Contemporary Clothing and Modern Fashion a recommendation can be provided concerning the acquisition of the two companies based on the financial ratio. Modern Fashion is most suitable for acquisition as gauging into the profitability ratio it is noticed that the gross profit ratio and the net profit ratio reported by Modern Fashion stood 22.35 and 2.43 respectively. While the contemporary clothing reported a lower gross profit ratio and net profit ratio of 19.58 and 1.31 respectively.

Considering the efficiency of Modern Fashion, the asset turnover ratio and accounts receivable ratio represented 1.86 and 6.12 respectively however the Contemporary Clothing reported a higher ratio of 1.94 and 10.54. Considering the liquidity position of Modern Fashion reported a current ratio of 1.09 and cash ratio of 0.075 while the Contemporary Clothing reported a current ratio of 0.92 and 0.21. An assertion can be bought forward by stating the it is better to acquire Modern Fashion since the company has reported a higher profitability ratio and liquidity ratio than Contemporary clothing.

On the event of the reliability of the above stated advise it can be stated that profitability aspects and the liquidity aspects of an organization makes the organization better placed in meeting its short term and long debt. Hence, as evident from the ratio analysis that is performed an assertion can be bought forward by stating that acquiring Modern Fashion would be a profitable venture since the company is better placed to meet its short term and long term debt. The profitability and liquidity position of Modern Fashion makes the company more attractive venture than Contemporary Clothing.

Investment decision can be defined as the decisions that are taken by the investors to conduce investment analysis by using the fundamental analysis and technical analysis. Investment decisions are generally supported by the decision tools (Drury, 2013). Financing decision is related to the decision relating to the liabilities and stockholders’ equity of an organization balance sheet such as decision of issuing bond. Financial managers are accountable for the financial health of the organization. They are responsible for producing reports, creation of strategies and undertakes the decision for long term financial goals of the organization.

Financial managers are responsible for helping the managers to make the financial decisions. Investment decision of the managers are associated with the careful selection of the assets in which the funds are invested by the firms (Cost, 2016). An organization has several options to invest their funds however it is the mangers of the firms that chooses the most appropriate investment that would introduce maximum benefit for the organization by deciding and selecting the most correct proposal in investment decision.

Efficiency Ratios

Freida is more suited to the work of since experience of her education would help in guiding financial decision by creating, monitoring and enforcing the policies and process. Her duties as controller would be helpful in establishing, monitoring and enforcing internal controls (Schuster, 2015). Fritz on the other hand would be more suitable for the duties of treasurer since the education of Fritz in the areas of finance would be helpful in to safeguard the organization finances by working closely with the organization finances. Working as the treasurer Fritz would be better able to understand the aspects of financial reporting, bookkeeping and record maintenance.   

Difference between Commercial Bank, Investment Bank and Insurance Bank

Basis of Distinction

Commercial Bank

Investment Bank

Insurance Company

Meaning

Commercial bank are those banks that offers services such as accepting money for deposits, lending money etc (Prasad, 2014).

Investment bank are usually reffered as the financial institutions which provides services such as underwriting of shares, brokerage of shares etc.

Insurance companies are separate institutions that offers insurance to the customers and receive premiums from them. 

Offers

Standardized Services

Customer specific services

Insurance Services

Income

Fees and Interest Income

Fees, profit from the activities of trading or commission

Premiums and subscriptions from customers

The key differences between Mutual Fund, Hedge Fund and Pension Fund are as follows;

Basis of Distinction

Mutual Fund

Hedge Fund

Pension Fund

Meaning

Mutual fund is a trust where the savings of numerous investors are pooled collectively to purchase a diversified basket of securities at lower cost (Datar & Rajan, 2016).

Hedge fund is defined as the portfolio of investment in which some rich investors group their money to purchase assets (Bhimani et al., 2013). 

Pension fund signifies a retirement fund for employees that work as the retirement income when they end employment.

Management

Mutual fund is administered less aggressively

It is managed aggressively

Management of group of people’s retirement fund.

Return

Returns are absolute

Returns are relative

Returns are full amount

The key differences between primary market and secondary market is stated below;

  1. The securities that is issued previously in the marketplace are regarded as the primary market and the same is later registered on the recognized stock exchange for the purpose of purchase and sale is known as the secondary market (Velasquez et al., 2015).
  2. The charges of the shares in the principal marketplace is fixed, on the other hand the costs of the shares in the secondary market might differ in respect of the demand and supply of the shares that is being bought and sold.
  3. Primary market offers funding to the new businesses as well as to old businesses for the purpose of growth and development. On the other hand, the secondary market do not provides funding to the businesses since they are not engaged in the purchase or sale transaction.

Difference between capital market and money is stated below;

  1. Money market can be defined as the place where the marketable securities of short term are traded. On the other hand, a market where long term securities are created and traded is referred as the capital market (Lanen, 2016).
  2. The instructed that are traded in the money market carries lower amount of risk, therefore they are safe for investment, whereas securities that are traded in the capital market carries higher risk.
  3. Under the money market, the amount of liquidity is high however; under the capital market the amount of liquidity is relatively lower (Alawattage et al., 2017).

The major differences between the stock market and the fixed income market is method through which they generate profits for the investors along with the method through which they are traded with the level of risk carried by them (Lopez et al., 2015). Stock markets comprises of the purchase and sale of stocks performed on constant basis exchanges. All the Stock markets irrespective of their type can be volatile, goes through significant amount of highs, and lows in respect of the values of shares.

Fixed income market on the other hand are more commonly referred as the bonds market or comprises of the bonds that are issued by the federal government. Fixed income market generally carries lower amount of risk than the equity investments however, the fixed income market offers lower amount of risk than equity investments (Kokubu & Kitada 2015). Success under the stock market with equity investments comprises of the greater amount of research and requires constant follow-up of investments. However, under the fixed income market it does not require high amount of research since they carry lower degree of risk.   

In the Books of FNS Manufacturing

Cost Statement

For the year ended June 2005

Particulars

Amount

Amount

Opening Stock of Raw Materials

15000

Add: Purchase

120000

Less: Closing Stock

21000

Materials Consumed

 

114000

Add: Direct Labor

65000

Prime Cost

 

179000

Factory Overhead

Power, heat and light

2500

Indirect Material purchased and consumed

4500

Depreciation on Plant

14000

Depreciation on Building

7000

Indirect Labor

3000

Other Manufacturing Expenses

10000

Add: Opening Stock of W-I-P

14000

Less: Closing Stock of W-I-P

19000

36000

Factory Cost

 

215000

Administrative Overhead

 

 

Administrative Expenses

21000

Cost of Production

236000

Add: Opening stock of Finished Goods

70000

306000

Less: Closing Stock of Finished Goods

60000

Cost of Goods Sold

 

246000

Selling and Distribution Overhead

Selling Expenses

25000

Bad Debt

1500

26500

Cost of Sales

 

272500

Profit (Balancing Figure)

 

177500

Sales

 

450000

Particulars

Rate Per Hour

Overtime Hours

5

12

Rate Per Hour

Overtime Pay

Option A

7.5

90

Option B

Evening on Weekdays

7.5

37.5

Evening on Weekends

10

70

Option C

First eight Hours

7.5

60

Remaining 4 hours

10

40

Total Overtime Payment

297.5

Break-Even Analysis

Selling Price (P):

 $         250.00

Break-Even Units (X):

9 units

Break-Even Sales (S):

 $     2,150.00

[42]

Purchase Cost

$145

Bulb Cost

$5

Advertising and Sales Promotion

$200

Website Update Cost

$1,800

 $  2,150.00

Cost of Goods Sold

 $                   -  

per unit

Direct Labor

 $                   -  

per unit

Overhead

 $                   -  

per unit

Sum:

 $                   -  

Commissions

0.00%

per unit

Sum:

0.00%

 $              -  

Contribution Margin per unit (CM) = P - V

 $         250.00

Contribution Margin Ratio (CMR) = 1 - V / P = CM / P

100.0%

X = TFC / (P - V)

9 units

S = X * P = TFC / CMR

 $  2,150.00

 $               -  

9 units

 $      2,150.00

Break-even point can be defined as the level of sales where there is neither any profit nor any loss (Schaltegger & Zvezdov, 2015). The amount of revenue is the same as the total costs.

The importance of breakeven analysis are as follows;

  1. This process helps the business in ascertaining the true cost of executing business and their prices.
  2. The business owners are able to know the total amount of contribution each product and services generates on the overall profitability of the company.

Reference List:

Alawattage, C., Wickramasinghe, D., Tsamenyi, M., & Uddin, S. (2017). Doing critical management accounting research in emerging economies. Advances in Scientific and Applied Accounting, 10(2), 177-188.

Bhimani, A., Horngren, C. T., Sundem, G. L., Stratton, W. O., & Schatzberg, J. (2013). Introduction to management accounting. Pearson Higher Ed.

Cost, T. M. I. (2016). Cost and Management Accounting.

Datar, S. M., & Rajan, M. V. (2016). ACCT20053 Issues in Management Accounting: ACCT20076 Foundations of Management Accounting. Pearson Education Limited.

DRURY, C. M. (2013). Management and cost accounting. Springer.

Kokubu, K., & Kitada, H. (2015). Material flow cost accounting and existing management perspectives. Journal of Cleaner Production, 108, 1279-1288.

Lanen, W. (2016). Fundamentals of cost accounting. McGraw-Hill Higher Education.

Lopez-Valeiras, E., Gomez-Conde, J., & Naranjo-Gil, D. (2015). Sustainable innovation, management accounting and control systems, and international performance. Sustainability, 7(3), 3479-3492.

Prasad, A. D. (2014). Must Make Cost & Management Accounting Key to Building National Competitiveness. The MA Journal, 49(8), 9-10.

Schaltegger, S., & Zvezdov, D. (2015). Expanding material flow cost accounting. Framework, review and potentials. Journal of Cleaner Production, 108, 1333-1341.

Schuster, P. (2015). Cost and Management Accounting. In Transfer Prices and Management Accounting (pp. 1-4). Springer International Publishing.

Velasquez, S., Suomala, P., & Järvenpää, M. (2015). Cost consciousness: conceptual development from a management accounting perspective. Qualitative Research in Accounting & Management, 12(1), 55-86.

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[Accessed 24 April 2024].

My Assignment Help. 'Financial Ratio Analysis And Comparison Between Contemporary Clothing And Modern Fashion Essay.' (My Assignment Help, 2022) <https://myassignmenthelp.com/free-samples/115766-managing-financial-resources/capital-market-and-money-market-file-A9ED14.html> accessed 24 April 2024.

My Assignment Help. Financial Ratio Analysis And Comparison Between Contemporary Clothing And Modern Fashion Essay. [Internet]. My Assignment Help. 2022 [cited 24 April 2024]. Available from: https://myassignmenthelp.com/free-samples/115766-managing-financial-resources/capital-market-and-money-market-file-A9ED14.html.

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