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Question:
Analyze separately data with some innacuracies from my excel files and then from solution files (Do NOT analyze mistakes, analyze data) Very important suggestions provided for such a business.
 
 
Answer:
Introduction:

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. 

 
Advices on detailed analysis on Financial Report from ASS2 Part -2 
Analysis of IskraCorp Pty Ltd on ASS2 Part – 1 A2

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
AND SHAREHOLDERS' EQUITY

 

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
 SHAREHOLDERS' EQUITY

 

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. 

Analysis of IskraCorp Pty Ltd on ASS2 Part – 2 B3

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
SHAREHOLDERS' EQUITY

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
COST OF CAPITAL - SOLUTION

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
to calculate cost of
corporate bonds

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
 to calculate cost of ordinary shares

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
Cost of Capital

 

 

 

 

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. 

Analysis of IskraCorp Pty Ltd on ASS2 Part – 2 B5

PROJECT
EVALUATION - SOLUTION

 

 

 

 

 

 

 

 

 

Weighted Average
 Cost of Capital:

 

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
Sale of Asset

 

 

 

 

 

 

 

-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
 BUDGET - SOLUTION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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
BUDGET - SOLUTION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Analysis of IskraCorp Pty Ltd on ASS2 Part 3
Profitability Ratios:

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
Margin

13.80%

14.50%

15.40%

Gross Profit Margin

53.50%

49.60%

44.00%

Interpretation of the above computed profitability financial ratios:

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. 

 
Efficiency Ratio:

Years

2019

2020

2021

Efficiency  Ratios

Current Ratio

2.37

2.33

2.39

Acid Test Ratio

1.73

1.76

1.88

Interpretation of the above computed efficiency ratio:

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. 

 
Analysis on the future expectation ASS2 Part - 5

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.

Advices of IskraCorp Pty Ltd ASS2 Part – 6
Advices on part 1 of Part - 6:

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.

Advices on part 2 of Part – 6:

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. 

 
Limitations of IskraCorp Pty Ltd

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).

Conclusion

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.  

 
References

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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