Financial Analysis: Smart Computers Case

Financial Analysis Report: Smart Computers Case or Group Assignment Two

Instructions:

There are two optional cases available for you to complete this individual assignment. The Case Option One is expanded on the basis of the financial results you prepared in Group Assignment Two. The case Option Two is a hypothetical case – Smart Computers. You are required to work on only one of them for this assignment.

Each of the case options has different requirements from the other. However, the overall structure for this assignment is same. Therefore, the assessment weight and marks are equal to both options. Both of the case options require you to complete a financial analysis report, a budget and variance analysis, and CVP analysis.

You are generally advised to work on the Case Option One. The selection of Case Option Two will need the approval from the lecturer. The latest time for you to consult with your lecturer regarding your selection is 5:30 pm on Thursday, 21st February 2019.

Retrieve the income statement and balance sheet that you prepared in the Group Assignment Two. You prepare both of the financial statements for the subsequent two months on an estimate case for your business. You do not need to go through the recording of transactions, trail balance and balance- day adjustments again for the estimated financial statements. However, the amounts in the estimated financial statements must be logical. The balance sheets must be balanced. State your justifications for the estimated figures wherever are necessary. The financial statements of the consecutive three months can be presented in a comparative manner (see the statement format in Smart Computers case below). Extra marks will be considered for the preparation of the required financial statements.

The following financial statements are for Smart Computers, a sole trader, for the years ending 31 March 2017, 2018 and 2019. Smart Computers sells Dell computers in Mt Wellington area in Auckland.

STATEMENT OF COMPREHENSIVE INCOME
	2017		2018		2019
	$	$	$	$	$	$
Sales (all on credit)		1,000,000		1,500,000		2,400,000
Cost of Sales		399,750		574,000		774,000
Gross Profit		600,250		926,000		1,626,000

Selling Expenses
Advertising	50,000		100,000		194,000
Sales Bonuses & Delivery	35,000	85,000	56,000	156,000	84,000	278,000
Admin. Expenses
Insurance	40,000		40,000		40,000
Wages & Other	455,000	495,000	466,950	506,950	470,750	510,750
Financial Expenses
Bad Debts	15,000		48,000		144,000
Interest	35,250	50,250	55,050	103,050	80,250	224,250
Net Profit		-30,000		160,000		613,000

STATEMENT OF FINANCIAL POSITION
	2017		2018		2019
	$	$	$	$	$	$
Current Assets
Cash – Bank	25,000		-		-
Accounts Receivable	140,000		250,000		550,000
Inventory	60,000	225,000	101,000	351,000	188,000	738,000
Fixed Assets
Land	300,000		300,000		300,000
Buildings	1,500,000		1,500,000		1,500,000
less Accum Depreciation	-60,000	1,740,000	-90,000	1,710,000	-120,000	1,680,000
Total Assets		1,965,000		2,061,000		2,418,000

Current Liabilities
Bank Overdraft	-		40,000		125,000
Accounts Payable	80,000	80,000	192,000	232,000	466,000	591,000
Term Liabilities
Mortgage	300,000		300,000		300,000
Bank Loan	25,000	325,000	125,000	425,000	275,000	575,000
Total Liabilities		405,000		657,000		1,166,000

Owner's Equity
Capital, start	1,795,000		1,525,000		1,404,000
Net Profit	-30,000		160,000		613,000
Drawings	-205,000		-281,000		-765,000
Capital, end		1,560,000		1,404,000		1,252,000
Total OE and Liabilities		1,965,000		2,061,000		2,418,000

Additional information:

2016 Accounts receivable were 210,000

2016 Inventory were 35,000 The bank overdraft limit is $150,000.

The mortgage is due for repayment in 2020.

The industrial average ratios for similar businesses for the year ended 31 Mar 2019 are listed as follows.

Industrial average ratios for the year ended 2019
GP %	64.00%
NP %	21.68%
Return on equity %	39.98%
Current ratio	1.90 : 1
Liquidity ratio	1.15 : 1
Equity ratio %	56.3%
Inventory turnover (times)	8
Inventory turnover (days)	45.63 days
Acc. rec. turnover (times)	9
Acc. rec. turnover (days)	40.55 days

According to the information gathered for each case above, you are required to use the following suggested report structure to write a report to the manager or the owner of the case business you selected. The report will evaluated the profitability, financial stability and asset utilisation and suggest the future improvement of the business.

The word limit for this report is 1,500 words (±10%). You are advised to use the following structure for your report.

Use the figures in the statement of financial performance of the second accounting period of your case business, prepare a budget for the third period according to the following estimated adjustments.

Case Option One	Case Option Two
Sales increases by 30%
Cost of goods sold will be the same % of sales as in the second accounting period
Select a selling expense to remain a same % as it in the 2nd accounting period.	Sales bonuses & Delivery will be the same % of sales as in 2018
Select a selling expense that increases by 2% of the budgeted sales in the 3rd accounting period	Advertising will be 10% of the budgeted sales in 2019
Select a semi-variable cost (40% fixed, remainder varies in direct relation to sales)	Wages & Other is a semi-variable cost (40% fixed, remainder varies in direct relation to sales)
All other expenses to be same as the actual figures for the second accounting period

Based on both of the budgeted figures prepared for and the actual figures achieved in the 3rdaccounting period in each case option, calculate the variance and variance as a % of budget for each income statement item. Present your work as a variance
Determine each variance as F (favourable) or U(unfavourable).
Evaluate the variance report and briefly discuss any two variances that you would investigate first. Justify your answers with at least one reason for each

According to the figures in the budgeted income statement for the 3rd accounting period,

Categorise all the expense items in the income statement into variable, fixed and semi-variable expenses.
Calculate total fixed expenses, total variable expenses and variable costs perunit*.
Calculate the breakeven point in units. Show your workings. Round up the breakeven point figures to zero decimal
Calculate the number of units that have to be sold if the business wishes to earn a net profitof $500,000 in 2019.

For Case Option One, you will need to consult with the lecturer to determine a reasonable budgeted sales units. For Case Option Two, the budgeted sales units for 2019 is 2,000 units.

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