The assignment deal with the company, which is IskraCorp Pty Ltd, sells smart toys which is a medium sized business enterprise. The financial performance of the chosen company is advised and further interpretation is done accordingly. The retail business of the firm is analyzed and recommendations are made accordingly in order to bring certain changes to improve the efficiency of the firm (Kaplan and Atkinson 2015). Analysis of key financial ratios is performed in order to conduct an operation on the financial performance of the company. The financial strength of the company identified through the conducted analysis of the chosen company, which is IskraCorp Pty Ltd. In order to outperform the competitors the company needs to brush up the current financial performance of the company and improve it accordingly in order to outperform its competitors.
IskraCorp Ltd |
|||||
Balance sheet as at 31.12.2017 |
|||||
|
|
|
|
|
|
ASSETS |
($000) |
($000) |
LIABILITIES |
($000) |
($000) |
|
|
|
|
|
|
Current Assets |
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Inventory |
192 |
|
|
|
|
Total Current Assets |
|
192 |
Total Current Liabilities |
|
0 |
|
|
|
|
|
|
Non-current Assets |
|
|
Non-current Liabilities |
|
|
|
|
|
|
|
|
Land & Buildings |
500 |
|
Bank Loans |
568 |
|
|
|
|
|
|
|
Furniture, Fixtures & Fittings |
100 |
|
Mortgage Loans |
415 |
|
|
|
|
|
|
|
Plant & Equipment |
250 |
|
|
|
|
Total Non-current Assets |
|
850 |
Total Non-current Liabilities |
|
983 |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
983 |
|
|
|
|
|
|
|
|
|
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares |
180 |
|
|
|
|
TOTAL SHAREHOLDERS' EQUITY |
|
180 |
|
|
|
|
|
|
TOTAL ASSETS |
|
1,042 |
TOTAL LIABILITIES |
|
1,163 |
Profit & Loss Statement |
||
for the year ending 31 December 2018 |
||
|
($000) |
($000) |
|
|
|
INCOME |
|
|
Sales |
1,838 |
|
Total Income |
|
1,838 |
less Cost of Sales |
|
-937 |
GROSS PROFIT |
|
901 |
less OPERATING EXPENSES |
|
|
Wages |
-142 |
|
Rent |
-129 |
|
Motor Vehicle Running Exp |
-41 |
|
Insurance |
-42 |
|
Printing & Stationery |
-19 |
|
Heating & Lighting |
-22 |
|
Telephone, Postage & Internet |
-11 |
|
Total Depreciation |
-35 |
|
Total Operating Expenditure |
|
-463 |
EARNINGS BEFORE INTEREST AND TAX (EBIT) |
|
438 |
Interest |
|
-13 |
Tax |
|
-85 |
NET PROFIT |
|
340 |
Dividends declared |
|
204 |
Transfer to Retained Earnings |
|
136 |
Statement of Cash Flows |
||
for the year ending 31 December 2018 |
||
|
|
|
|
($000) |
($000) |
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
Cash received from Customers |
1,728 |
|
Cash paid to Suppliers |
-825 |
|
Cash Expenses |
-369 |
|
Interest Paid |
-59 |
|
Tax Paid |
-85 |
|
Pre-paid Expenses |
-37 |
|
|
|
|
Total Cash Flows from Operating Activities |
|
355 |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
Purchases of Land & Buildings |
-630 |
|
Purchases of Plant & Equipment |
-220 |
|
Purchases of Motor Vehicles |
-100 |
|
Mortgage Loan Repayments |
46 |
|
Total Cash Flows from Investing Activities |
|
-904 |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
Proceeds from issue of Corporate Bonds |
630 |
|
Proceeds from issue of Shares |
266 |
|
Proceeds from Bank Overdraft |
31 |
|
Dividends Paid |
-204 |
|
Total Cash Flows from Financing Activities |
|
723 |
NET CHANGE IN CASH |
|
174 |
+ Opening Cash |
|
-121 |
= Closing Cash |
|
53 |
Analysis of IskraCorp Pty Ltd on ASS2 Part – 2 B2
Statement of Cash Flows |
||
for the year ending 31 December 2018 ($000) |
||
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
Cash received from customers (Sales - A/R) |
1,728 |
|
Cash paid to suppliers (Purchases - A/P) |
(825) |
|
Cash expenses (Operating expenses - Depn) |
(369) |
|
Interest paid |
(59) |
|
Pre-paid expenses |
(37) |
|
Net cash provided by operating activities |
|
438 |
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
Land and Buildings |
(630) |
|
Motor Vehicles |
(100) |
|
Plant and Equipment |
(220) |
|
Net cash used in investing activities |
|
(950) |
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
Proceeds from Bank Overdraft |
31 |
31 |
Mortgage loan repaymenets |
(46) |
|
Proceeds from issue of corporate bonds |
630 |
|
Proceeds from issue of shares |
266 |
|
Net cash provided by financing activities |
|
881 |
Net increase in cash |
|
369 |
+ Opening Cash |
|
121 |
= Closing Cash |
|
490 |
Interpretation based on the above computed cash flow statement:
Cash flow from the operating activities means the inflow and the outflow of cash, which means that the payment made to the creditors, and cash received from the debtors is the inflow of cash from the operating activity. IskraCorp Pty Ltd is able to generate positive cash flow from the cash from the operating activity which is satisfactory for the business. Cash flow from investing activity means that the inflow and outflow of cash from the capital investment of goods like purchase and sale of fixed assets. There is negative cash flow from the investing activity as there is purchase of land and building, motor vehicles, plant and equipment of IskraCorp Pty Ltd. Cash flow from the financing activity means the issue and redemption of the shares and debentures of the company which is the inflow and outflow of cash in the business. IskraCorp Pty Ltd has a positive cash flow from the financing activity as there is more issue than the payment of liabilities. Thus it is a satisfactory performance of IskraCorp Pty Ltd as it has positive cash flow from the financing activity.
FINANCIAL STATEMENTS - SOLUTION |
|||||
IskraCorp Ltd |
|||||
Balance Sheet as at 31 December 2017 ($000) |
|||||
ASSETS |
|
|
LIABILITIES |
|
|
Current Assets |
|
|
Current Liabilities |
|
0 |
Cash |
121 |
|
|
|
|
Inventory |
192 |
|
Non-current Liabilities |
|
|
Total Current Assets |
|
313 |
Bank Loans |
568 |
|
|
|
|
Mortgage Loans |
415 |
|
Non-current Assets |
|
|
Total Non-current Liabilities |
|
983 |
Land and Buildings |
500 |
|
|
|
|
Plant and Equipment |
250 |
|
TOTAL LIABILITIES |
|
983 |
Furniture, Fixtures and Fittings |
100 |
|
|
|
|
Total Non-current Assets |
|
850 |
SHAREHOLDERS' EQUITY |
|
|
|
|
|
Ordinary Shares |
180 |
|
|
|
|
Total Shareholders' Equity |
|
180 |
TOTAL ASSETS |
|
1,163 |
TOTAL LIABILITIES AND |
|
1,163 |
Profit and Loss Statement |
||
for the year ending 31 December 2018 ($000) |
||
Sales |
|
1,838 |
Cost of Sales |
|
(966) |
Gross Profit |
|
872 |
Wages |
(142) |
|
Rent |
(92) |
|
Motor Vehicle Running Expenses |
(41) |
|
Insurance |
(42) |
|
Printing and Stationery |
(19) |
|
Heating and Lighting |
(22) |
|
Telephone, postage and Internet |
(11) |
|
Depreciation |
(40) |
|
Total Operating Expenses |
|
(409) |
EBIT |
|
463 |
Interest |
|
(59) |
Profit Before Tax |
|
404 |
Tax (20%) |
|
(81) |
Net Profit |
|
323 |
Interpretation based on balance sheet and profit and loss statement:
The company’s balance sheet and profit and loss statement of the company is strong. In order to compete with the competitors of the company it is needed to further improve the performance. The company needs to increase the revenue by decreasing the cost. The limitation of such revenue will increase the tax burden. Company has to take initiative to reduce such cost burden.
IskraCorp Ltd |
|||||||||
Balance Sheets as at 31 December ($000) |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
2018 |
2019 |
2020 |
2021 |
|
2018 |
2019 |
2020 |
2021 |
ASSETS |
|
|
|
|
LIABILITIES |
|
|
|
|
Current Assets |
|
|
|
|
Current Liabilities |
|
|
|
|
Cash |
490 |
435 |
491 |
576 |
Accounts Payable |
112 |
124 |
137 |
152 |
Accounts Receivable |
110 |
94 |
80 |
73 |
Bank Overdraft |
31 |
30 |
29 |
28 |
Inventory |
163 |
160 |
157 |
152 |
Income Tax Payable |
81 |
44 |
49 |
54 |
Pre-paid Expenses |
37 |
33 |
27 |
22 |
Total Current Liabilities |
418 |
305 |
324 |
345 |
Total Current Assets |
800 |
722 |
755 |
823 |
|
|
|
|
|
|
|
|
|
|
Non-current Liabilities |
|
|
|
|
Non-current Assets |
|
|
|
|
Bank Loans |
568 |
568 |
568 |
568 |
Land and Buildings |
1,130 |
1,130 |
1,130 |
1,130 |
Mortgage Loans |
369 |
332 |
299 |
269 |
Motor Vehicles |
100 |
100 |
100 |
100 |
Corporate Bonds |
630 |
630 |
630 |
630 |
less Depreciation |
(5) |
(15) |
(25) |
(35) |
|
|
|
|
|
Plant and Equipment |
470 |
522 |
621 |
708 |
Total Non-current Liabilities |
1,567 |
1,530 |
1,497 |
1,467 |
less Depreciation |
(25) |
(72) |
(124) |
(186) |
|
|
|
|
|
Furniture, Fixtures and Fittings |
100 |
111 |
123 |
136 |
TOTAL LIABILITIES |
1,985 |
1,835 |
1,821 |
1,812 |
less Depreciation |
(10) |
(20) |
(31) |
(43) |
|
|
|
|
|
Total Non-current Assets |
1,760 |
1,756 |
1,794 |
1,810 |
SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
Ordinary Shares |
324 |
321 |
318 |
308 |
|
|
|
|
|
Preference Shares |
122 |
122 |
122 |
122 |
|
|
|
|
|
Retained Earnings |
129 |
200 |
288 |
391 |
|
|
|
|
|
Total Shareholders' Equity |
575 |
643 |
728 |
821 |
TOTAL ASSETS |
2,560 |
2,478 |
2,549 |
2,633 |
TOTAL LIABILITIES AND |
2,560 |
2,478 |
2,549 |
2,633 |
|
|
|
|
|
|
|
|
|
|
Profit and Loss Statements |
|||
for the years ending 31 December ($000) |
|||
|
2019 |
2020 |
2021 |
Sales |
2,022 |
2,083 |
2,104 |
Cost of Sales |
(940) |
(1,050) |
(1,178) |
Gross Profit |
1,082 |
1,033 |
926 |
Wages |
(461) |
(367) |
(241) |
Rent |
(98) |
(104) |
(99) |
Motor Vehicle Running Expenses |
(44) |
(47) |
(45) |
Insurance |
(45) |
(48) |
(46) |
Printing and Stationery |
(20) |
(21) |
(20) |
Heating and Lighting |
(24) |
(25) |
(24) |
Telephone, postage and Internet |
(43) |
(46) |
(44) |
Depreciation |
(67) |
(73) |
(84) |
Total Operating Expenses |
(802) |
(731) |
(603) |
Operating Profit/EBIT |
280 |
302 |
323 |
Interest |
(58) |
(56) |
(55) |
Profit Before Tax |
222 |
246 |
268 |
Tax (20%) |
(44) |
(49) |
(54) |
Net Profit |
178 |
197 |
214 |
|
|
|
|
Ordinary Dividends Paid |
75 |
77 |
79 |
Preference Dividends Paid |
32 |
32 |
32 |
Dividends Paid |
107 |
109 |
111 |
Statements of Cash Flows |
|||
for the years ending 31 December ($000) |
|||
|
2019 |
2020 |
2021 |
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
Cash received from customers |
2,038 |
2,097 |
2,111 |
Cash paid to suppliers |
(925) |
(1,034) |
(1,158) |
Cash expenses |
(735) |
(658) |
(519) |
Interest paid |
(58) |
(56) |
(55) |
Tax paid |
(81) |
(44) |
(49) |
Pre-paid expenses |
4 |
6 |
5 |
Net cash provided by operating activities |
243 |
311 |
335 |
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
Plant and Equipment |
(52) |
(99) |
(87) |
Furniture, Fixtures and Fittings |
(11) |
(12) |
(13) |
Net cash provided by investing activities |
(63) |
(111) |
(100) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
Bank Overdraft |
(1) |
(1) |
(1) |
Mortgage loan repayments |
(37) |
(33) |
(30) |
Buyback of shares |
(3) |
(3) |
(10) |
Dividends paid |
(194) |
(107) |
(109) |
Net cash provided by financing activities |
(235) |
(144) |
(150) |
Net increase in cash |
(55) |
56 |
85 |
+ Opening Cash |
490 |
435 |
491 |
= Closing Cash |
435 |
491 |
576 |
Analysis of IskraCorp Pty Ltd on ASS2 Part – 2 B4
WEIGHTED AVERAGE |
|||||
SOURCE OF CAPITAL |
|
|
COST |
VALUE ($000) |
WEIGHT |
Bank Loans |
|
|
|
|
|
|
Before-tax cost of bank loans |
|
11.90% |
|
|
|
Market value of bank loans ($000) |
|
|
$568 |
16.7% |
|
|
|
|
|
|
Mortgage Loans |
|
|
|
|
|
|
Before-tax cost of mortgage loans |
|
8.20% |
|
|
|
Market value of mortgage loans ($000) |
|
|
$269 |
7.9% |
|
|
|
|
|
|
Corporate Bonds |
|
|
|
|
|
|
Credit spread |
208 |
|
|
|
|
Credit spread as a percentage |
2.08% |
|
|
|
|
Risk-free rate to be used |
1.87% |
|
|
|
|
Before-tax cost of corporate bonds |
|
3.95% |
|
|
|
|
|
|
|
|
|
Face value of all bonds ($000) |
$630 |
|
|
|
|
Coupon rate |
6.4% |
|
|
|
|
Number of coupon payments per year |
4 |
|
|
|
|
Total number of coupon payments |
12 |
|
|
|
|
Total value of coupon payments per year ($000) |
$40.32 |
|
|
|
|
Value of each coupon payment ($000) |
$10.08 |
|
|
|
|
Yield per coupon payment |
0.9875% |
|
|
|
|
Value of corporate bonds ($000) |
|
|
$673 |
19.8% |
|
|
|
|
|
|
Ordinary Shares |
|
|
|
|
|
|
Risk-free rate to be used |
3.47% |
|
|
|
|
Beta |
1.5 |
|
|
|
|
Market risk premium |
6.09% |
|
|
|
|
Cost of ordinary shares |
|
12.61% |
|
|
|
|
|
|
|
|
|
Number of ordinary shares (thousands) |
703 |
|
|
|
|
Ordinary share price |
$2.41 |
|
|
|
|
Market value of ordinary shares ($000) |
|
|
$1,694 |
49.7% |
|
|
|
|
|
|
Preference Shares |
|
|
|
|
|
|
Preference dividend per share |
$0.14 |
|
|
|
|
Preference share price |
$1.66 |
|
|
|
|
Cost of preference shares |
|
8.43% |
|
|
|
|
|
|
|
|
|
Number of preference shares (thousands) |
122 |
|
|
|
|
Market value of preference shares ($000) |
|
|
$203 |
6.0% |
|
|
|
|
|
|
|
|
|
|
$3,407 |
100.0% |
|
|
|
|
|
|
Tax Rate |
|
20% |
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
9.5% |
Interpretation of the above computed WACC:
The weighted average cost of capital of IskraCorp Pty Ltd is that 9.5% which means that the cost of capital of the firm. This is that the expected return the company. The company need to maintain the minimum return. The WACC formed by the capital structure of the company with weights of the company is multiplied by the related cost of the allocated capital. This is how the WACC of a company is formed.
PROJECT |
||||||||
|
|
|
|
|
|
|
|
|
Weighted Average |
|
Year |
|
1 |
2 |
3 |
4 |
|
|
9.5% |
Opening Book Value |
|
280 |
140 |
70 |
35 |
|
|
|
less Depreciation |
|
-140 |
-70 |
-35 |
-35 |
|
Tax Rate: |
20.0% |
Closing Book Value |
|
140 |
70 |
35 |
0 |
|
|
|
|
|
|
|
|
|
|
Cash Flow |
|
|
0 |
1 |
2 |
3 |
4 |
5 |
Revenue |
|
|
|
135 |
128.25 |
121.838 |
115.746 |
|
less Wages |
|
|
|
-41 |
-41 |
-41 |
-41 |
|
less Maintenance |
|
|
|
-9 |
-13 |
-17 |
-21 |
|
less Opportunity Cost (Rent) |
|
|
|
-15 |
-15 |
-15 |
-15 |
|
|
|
|
|
|
|
|
|
|
less Depreciation |
|
|
|
-140 |
-70 |
-35 |
-35 |
|
|
|
|
|
|
|
|
|
|
Incremental EBIT |
|
|
|
(70) |
(10.75) |
13.84 |
3.75 |
|
less Tax |
|
|
|
14.0 |
2.2 |
-2.8 |
-0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental Earnings |
|
|
|
-56.0 |
-8.6 |
11.1 |
3.0 |
|
|
|
|
|
|
|
|
|
|
plus Depreciation |
|
|
|
140 |
70 |
35 |
35 |
|
Initial Outlay |
|
|
-280 |
|
|
|
|
|
Net Working Capital |
|
|
-17 |
|
|
|
|
17 |
Salvage Value |
|
|
|
|
|
|
|
34 |
less Tax on Profit on |
|
|
|
|
|
|
|
-6.8 |
|
|
|
|
|
|
|
|
|
Incremental Free Cash Flows |
|
|
-297.0 |
84.0 |
61.4 |
46.1 |
38.0 |
44.2 |
PV of Incremental FCFs |
|
|
-297.0 |
76.7 |
51.2 |
35.1 |
26.4 |
28.1 |
NPV |
|
|
-79.5 |
|
|
|
|
|
Analysis of IskraCorp Pty Ltd on ASS2 Part – 2 B6
PART 6 (A) - SOLUTION |
||||||||||||||
INVENTORY BUDGET - SOLUTION |
||||||||||||||
increase |
decrease |
thousands |
2023 |
|
|
|
|
|
|
|
|
|
|
|
60% |
30% |
10% |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
Sales |
|
|
52800 |
52800 |
52800 |
73920 |
73920 |
73920 |
73920 |
73920 |
73920 |
52800 |
52800 |
52800 |
Cost of Goods Sold |
|
|
31680 |
31680 |
31680 |
44352 |
44352 |
44352 |
44352 |
44352 |
44352 |
31680 |
31680 |
31680 |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening Inventory |
|
|
260 |
260 |
260 |
286 |
286 |
286 |
286 |
286 |
286 |
260 |
260 |
260 |
- Cost of Goods Sold |
|
|
-31680 |
-31680 |
-31680 |
-44352 |
-44352 |
-44352 |
-44352 |
-44352 |
-44352 |
-31680 |
-31680 |
-31680 |
+ Purchases |
|
|
31680 |
31680 |
31706 |
44352 |
44352 |
44352 |
44352 |
44352 |
44326 |
31680 |
31680 |
31680 |
Closing Inventory |
|
|
260 |
260 |
286 |
286 |
286 |
286 |
286 |
286 |
260 |
260 |
260 |
260 |
CASH BUDGET - SOLUTION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct |
Nov |
Dec |
|
|
|
|
|
|
|
|
|
Sales |
|
|
52800 |
52800 |
52800 |
|
|
|
|
|
|
|
|
|
Purchases |
|
|
|
31680 |
31680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20 |
1 |
$000 |
2023 |
|
|
|
|
|
|
|
|
|
|
|
10% |
30% |
60% |
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
Sales |
|
|
52800 |
52800 |
52800 |
73920 |
73920 |
73920 |
73920 |
73920 |
73920 |
52800 |
52800 |
52800 |
Purchases |
|
|
31680 |
31680 |
31706 |
44352 |
44352 |
44352 |
44352 |
44352 |
44326 |
31680 |
31680 |
31680 |
430 |
180 |
120 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Received From Customers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
sales from 3 months ago |
|
|
5280 |
5280 |
5280 |
5280 |
5280 |
5280 |
7392 |
7392 |
7392 |
7392 |
7392 |
7392 |
sales from 2 months ago |
|
|
15840 |
15840 |
15840 |
15840 |
15840 |
22176 |
22176 |
22176 |
22176 |
22176 |
22176 |
15840 |
sales from last month |
|
|
31680 |
31680 |
31680 |
31680 |
44352 |
44352 |
44352 |
44352 |
44352 |
44352 |
31680 |
31680 |
Total Cash Received From Customers |
|
|
52800 |
52800 |
52800 |
52800 |
65472 |
71808 |
73920 |
73920 |
73920 |
73920 |
61248 |
54912 |
FALSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments To Suppliers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
purchases from 2 months ago |
|
|
15840 |
15840 |
15840 |
15840 |
15853 |
22176 |
22176 |
22176 |
22176 |
22176 |
22163 |
15840 |
purchases from last month |
|
|
15840 |
15840 |
15840 |
15853 |
22176 |
22176 |
22176 |
22176 |
22176 |
22163 |
15840 |
15840 |
Total Payments to Suppliers |
|
|
31680 |
31680 |
31680 |
31693 |
38029 |
44352 |
44352 |
44352 |
44352 |
44339 |
38003 |
31680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Received From Customers |
|
|
52800 |
52800 |
52800 |
52800 |
65472 |
71808 |
73920 |
73920 |
73920 |
73920 |
61248 |
54912 |
- Payments to Suppliers |
|
|
-31680 |
-31680 |
-31680 |
-31693 |
-38029 |
-44352 |
-44352 |
-44352 |
-44352 |
-44339 |
-38003 |
-31680 |
- Wages |
|
|
-300 |
-300 |
-300 |
-348 |
-348 |
-348 |
-348 |
-348 |
-348 |
-300 |
-300 |
-300 |
- Operating Expenses |
|
|
-430 |
-430 |
-430 |
-430 |
-430 |
-430 |
-430 |
-430 |
-430 |
-430 |
-430 |
-430 |
Total Cash Paid |
|
|
-32410 |
-32410 |
-32410 |
-32471 |
-38807 |
-45130 |
-45130 |
-45130 |
-45130 |
-45069 |
-38733 |
-32410 |
Net Change in Cash |
|
|
20390 |
20390 |
20390 |
20329 |
26665 |
26678 |
28790 |
28790 |
28790 |
28851 |
22515 |
22502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening Cash |
|
|
90 |
20480 |
40870 |
61260 |
81589 |
108254 |
134932 |
163722 |
192512 |
221302 |
250153 |
272668 |
Net Change in Cash |
|
|
20390 |
20390 |
20390 |
20329 |
26665 |
26678 |
28790 |
28790 |
28790 |
28851 |
22515 |
22502 |
Closing Cash |
|
|
20480 |
40870 |
61260 |
81589 |
108254 |
134932 |
163722 |
192512 |
221302 |
250153 |
272668 |
295170 |
ACCOUNTS RECEIVABLE |
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
Opening Accounts Receivable |
|
|
79200 |
79200 |
79200 |
79200 |
100320 |
108768 |
110880 |
110880 |
110880 |
110880 |
89760 |
81312 |
+ Credit Sales |
|
|
52800 |
52800 |
52800 |
73920 |
73920 |
73920 |
73920 |
73920 |
73920 |
52800 |
52800 |
52800 |
- Payments Received |
|
|
-52800 |
-52800 |
-52800 |
-52800 |
-65472 |
-71808 |
-73920 |
-73920 |
-73920 |
-73920 |
-61248 |
-54912 |
= Closing Accounts Receivable |
|
|
79200 |
79200 |
79200 |
100320 |
108768 |
110880 |
110880 |
110880 |
110880 |
89760 |
81312 |
79200 |
ACCOUNTS PAYABLE |
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan |
Feb |
Mar |
Apr |
May |
Jun |
Jul |
Aug |
Sep |
Oct |
Nov |
Dec |
Opening Accounts Payable |
|
|
47520 |
47520 |
47520 |
47546 |
60205 |
66528 |
66528 |
66528 |
66528 |
66502 |
53843 |
47520 |
+ Credit Purchases |
|
|
31680 |
31680 |
31706 |
44352 |
44352 |
44352 |
44352 |
44352 |
44326 |
31680 |
31680 |
31680 |
- Payments Made |
|
|
-31680 |
-31680 |
-31680 |
-31693 |
-38029 |
-44352 |
-44352 |
-44352 |
-44352 |
-44339 |
-38003 |
-31680 |
= Closing Accounts Payable |
|
|
47520 |
47520 |
47546 |
60205 |
66528 |
66528 |
66528 |
66528 |
66502 |
53843 |
47520 |
47520 |
Interpretation of the above computed tables:
The inventory management of the company is satisfactory and the account receivables and the account payables of the company is also satisfactory. Thus in order to compete with the other competitors of the company, it is needed to further revise the statement and implement new strategy.
PART 6 (B) - SOLUTION |
|||
BREAK-EVEN ANALYSIS |
|||
|
|
|
|
Variable component of the wages cost? |
ΔWages /ΔUnits = ($300 - $348) / (2640 - 3696) = $ |
0.05 |
per unit |
Fixed component of the wages cost? |
Total Wages - Variable Wages = $348,000 - 3696,000 x $0.05 = $ |
180,000 |
|
Total value of all fixed costs? |
Operating Costs + Fixed Wages = $430,000 + $180,000 = $ |
610,000 |
|
Variable cost of raw materials? |
60% of the Selling Price = 60% x $20 = $ |
12.00 |
per unit |
Total value of all variable costS? |
Variable Wages per unit + Raw Materials per unit = $0.05 + $12 = $ |
12.05 |
per unit |
Break-even point? |
Fixed Costs / (Selling Price - Variable Costs per unit) = $610,000 / ($20 - $12.05) = |
76,686 |
units |
Years |
2019 |
2020 |
2021 |
|
Profitability Ratios |
|
|||
Return on Equity |
28% |
27.20% |
26% |
|
Return on Capital Employed |
12.90% |
13.60% |
14.10% |
|
Operating Profit |
13.80% |
14.50% |
15.40% |
|
Gross Profit Margin |
53.50% |
49.60% |
44.00% |
Return on equity measures the profitable growth of the company, which means that the IskraCorp Pty Ltd is efficient in converting the equity of the company into return. The standard ratio of Return on equity is 14% and bellow that indicates that the company is not effective in converting its assets into profitable return.
Return on Capital Employed measures the how effectively company is efficient in utilizing capital employed in the business by employing the debts and the other liabilities as well. The standard ratio of return on capital employed is 10% and more than this means that company is efficient in utilizing its capital fully and effectively. IskraCorp Pty Ltd has been effective in return on capital employed as year after year the return on capital employed of the company is increasing which indicated a good economic growth.
Operating Profit margin of a company indicates that the after considering all the variable expenses and the other operating expenses of the company how much profit the company is generating out of it. The standard operating profit margin of a company is 11% and above that indicates company is effective in generating profit by considering all the operating cost. IskraCorp Pty Ltd has been effective in operating profit as the operating profit of the company is high each and every year which means that the after considering all the operating cost the company is generation profit. The operating profit of the company is increasing each and every year (Tayeh, Al-Jarrah and Tarhini 2015).
Gross profit margin measures the financial health of a company which means that higher the gross profit margin the better is the profit of the company from the sales generated by the company. The standard gross profit margin of a company is 35-40% and in case of IskraCorp Pty Ltd, the gross profit of the company is decreasing year after year. But the performance of the company in terms of the gross profit margin is satisfactory as it meet the given standard.
Years |
2019 |
2020 |
2021 |
Efficiency Ratios |
|||
Current Ratio |
2.37 |
2.33 |
2.39 |
Acid Test Ratio |
1.73 |
1.76 |
1.88 |
Current ratio of the company measures the company’s ability to pay off the short term debts and the current liabilities of the business. The investors of the company looks for the good current ratio of the company which is 2:1. IskraCorp Pty Ltd current ratio is good which will automatically drag the investor’s attentions. Thus the financial performance of the company is efficient.
Acid test ratio or quick ratio is a liquidity ratio measures that the company has short term assets to meet up its immediate liabilities. The standard acid test ratio of the company is 1:1. Thus it can be said that IskraCorp Pty Ltd is effective in meeting up its immediate liabilities as the acid test ratio of IskraCorp Pty Ltd is satisfactory. The acid test ratio of IskraCorp Pty Ltd is increasing gradually year after year which is a good sign.
According to the analysis of the project from part 5 as the NPV which is Net Present Value is negative which is -79.5. Thus before accepting to invest in any big project it is important to identify the NPV of the project. NPV or Net Present Value means that the inflow and outflow of cash during a stipulated period of time. Negative NPV of a company means that cost of the company exceeds the revenue of the company in the project. As NPV is -79.5, so the company will not have positive flow of cash in the business. For this purpose, the project will not be accepted as NPV of the project is negative.
From the inventory budget solution it is analyzed that opening inventory purchase is added and the cost of goods sold is deducted. From that the closing inventory is obtained. From the solution of cash, budget total cash received from customers is more than payment made to supplier. The net cash is shown in the cash budget solution. From the accounts receivable budget solution the net receivables is increasing month after month. From the accounts payable budget, the closing accounts payable is increasing month after months.
From the break even analysis, it can be analyzed that the company needs to concentrate on variable cost of raw material. The company cannot change the fixed cost as fixed cost remains fixed. The cost on wages must be considered while calculating BEP of the company.
The limitations of the business of IskraCorp Pty Ltd are that the company needs to improve the condition of the business in order to compete with the competitors of the related business. In order to survive in such a competitive business the company must taken certain initiatives to improve the overall productivity of the business (Balazs et al 2016). Satisfactory performance is not enough when it comes to competition with the other companies. Thus it is an important matter which is needed to be taken care of by the management of the company in order to improve the efficiency of the business (Yermack, D., 2017).
Thus, it can be concluded that according to the conducted detailed analysis performed on the chosen company, which is, IskraCorp Pty Ltd the overall financial position of the business is satisfactory. In order to compete with the competitors of the same business it is needed to concentrate on the efficiency ratios of the company. According to the conducted analysis, IskraCorp Pty Ltd needs to improve the efficiency of the business in order to compete with the competitors of the related business (Flammer 2015). The cash flow of the firm is good because the company has been able to bring positive inflow of cash in the business and thus it will bring further efficiency so that the company can work on some of the new projects (Qiu, Shaukat and Tharyan 2016). As per the profitability ratios the company has been able to generate efficient revenue for the business by considering the cost associated with the business. Generating revenue is an important role for each and every company and thus by considering the required cost it is important to convert the revenue into more productive.
Flammer, C., 2015. Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach. Management Science, 61(11), pp.2549-2568.
Qiu, Y., Shaukat, A. and Tharyan, R., 2016. Environmental and social disclosures: Link with corporate financial performance. The British Accounting Review, 48(1), pp.102-116.
Tayeh, M., Al-Jarrah, I.M. and Tarhini, A., 2015. Accounting vs. market-based measures of firm performance related to information technology investments. International Review of Social Sciences and Humanities, 9(1), pp.129-145.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Balazs, A.G., Liu-Barker, X.C., Foiles, D.L., Thomas, M.P.I. and Lee, R.E., Intuit Inc, 2016. Methods, systems, and articles of manufacture for implementing adaptive levels of assurance in a financial management system. U.S. Patent 9,444,824.
Yermack, D., 2017. Donor governance and financial management in prominent US art museums. Journal of Cultural Economics, 41(3), pp.215-235.
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