Beruflich Dokumente
Kultur Dokumente
1.1
___
SOURCES
OF
FINANCE
EXTERNA
L
INTERNAL
Long
term
Retained
profits
Depreciatio
n
Sale of
assets
Share
capital
Short
term
Loan
Capital
Ordinnary
shares
Mortgage
Preferenc
e shares
Debentur
es
Deferred
shares
Bank
overdraft
Short term
loans
Hire
purchases
Leasing
Industrial
specialists
Governme
nt
assistance
Debt
factoring
Trade bills
Credit
cards
Retained profits
Retained profits are an easy source of internal financing to use because they are liquid assets.
And this is one of the most important sources of finance for a business. Retained profits are
the portion of net income that a business has retained in the company and not paid out. It
represents the profits generated from sales after interest payments to lenders, taxes to the
government and payments to shareholders in the form of dividends. The remaining profit is
then retained or put back into the business and available for future spending by the company.
This is also described as ploughed back profit or undistributed profit.
(Business studies-2 /4th edition, K. Meetalawa)
Depreciations
Depreciation is the reduction in value of the companys fixed assets over its useful life due to
wear and tear and obsolescence. Accountants use depreciation as the tool to record the
reduction in the original value of an asset. Depreciation needs to be charged every year of a
fixed assets useful life to the income statement. In the balance sheet the original cost of the
fixed asset is reduced by the amount of depreciation. There are mainly two methods of
calculating the amount of depreciation.
1) Straight line method
A constant amount is charged every year over the useful life of the asset. In this
method, the number of years of use is estimated. The cost is then divided by the
number of years. This gives the depreciation charge which will be same for each year.
2) Reducing balance method
A decreasing amount is charged over the useful life of the asset. In this method, a
fixed percentage for depreciation is deducted from the cost in the first year. In the
second year and later years the same percentage is taken of the reduced balance (i.e.
cost less depreciation already charged). This method is also known as diminishing
balance method or diminishing debit balance method.
(Business accounting/ 11th edition, Frank wood)
Depreciation as a source of finance
Usually accountants record depreciation as an expense in the books of accounts. But in a way
it becomes a source of finance.
The purpose of depreciation is replacement of assets after the expired period. It is a kind of
provision of fund. Depreciation being non-cash expense, finds its way in to current assets
through charging. Although depreciation does not raise funds, it certainly saves funds.
Depreciation result in to reduction of taxable income and hence, income tax liability for the
period is reduced.
So because of the above reasons depreciation can be regarded as a source of finance.
(slideshare, 2015)
Sale of assets
Sometimes businesses sell off unwanted assets to raise funds. Large companies can sell part
of their organization to raise funds. Whenever a business sells of its assets and the cash
generated is used internally for financing the capital needs, it is called as an internal source of
finance by sale of assets.
Businesses always do not have surplus fixed assets to sell. The amount of fixed assets which
a company can sell has a limit. The funds generated from sale of assets will depend on the
value of the assets. Other than this the firm may also be able to sell existing assets that they
use to a specialist leasing company and then lease them back. This will give them access to
some capital though they are then burdened with annual leasing costs.
(bized, 2012)
Ordinary shares
Ordinary shares also known as equity shares are the most common form of shares. And also
these are the most risky type of shares as there is no fixed dividend rate (i.e. the dividend rate
will change according to the profits earned by the company). Ordinary shareholders have the
administration power. So that they can attend and vote on all the issues raised at the general
meeting of the company. But in paying dividend and capital re-payments the ordinary
shareholders get the chance after paying all other shareholders.
Preference shares
Preference shares offer their owners preferences over ordinary shareholders. Preference
shares have a fixed dividend rate. The preference shareholders are given priority in paying
dividend and repaying capital. But they dont have administration powers. There are 6 types
of preference shares as cumulative preference shares, non-cumulative preference shares,
participating preference shares, cumulative participating preference shares, redeemable
preference shares and non-redeemable preference shares.
(bized, 2012)
Deferred shares
Deferred shares also known as promoters shares are those that have fewer rights in some
way than ordinary shares, i.e. the deferred shares have no voting rights and rank lower for
repayment of capital in the event of insolvency. And also the dividend may not be paid until a
certain date or until some triggering event has taken place, also it may not be paid until after
other classes of shares have been paid. The shares may not be tradeable until a certain date or
event. These shares are mainly allocated for the promoters of the company.
(moneyterms,
2014)
Issue of shares
The board of directors of a company can issue shares to the persons that they consider as
suitable to subscribe according to the provision of articles. There should not be a nominal
value for shares according to the company act and the board of directors should decide the
price of a share.
Types of share issues
There are 3 main types of share issues in a company.
1. Public issue
In here the company issues the shares to the public by publishing the prospectus (a written
invitation that invites persons to subscribe for shares and debentures of an incorporated
public company). This is sometimes known as primary issue since the company sells the
shares to the public directly.
2. Right issue
Issuing of shares to existing members of the company is called right issue. Usually right issue
price is less than the market price. When the company does not to increase the number of
shareholders, it can go to a right issue.
3. Bonus issue
These are shares that can be issued to the existing members free of charge by using company
reserves. Bonus issue is an additional gain for existing shareholders. Sometimes the bonus
shares are issued to the employees of the company to make them as owners.
(The key to Business Studies/ 3rd edition, M.A.Thasreef)
Loan Capital
Loan capital is the part of the companys capital structure which is raised by loans. Such
loans are usually over a stated period of time and pay fixed interest to the party who is
making the loan. At the end of the period the capital is repaid. This contrasts with share
capital where shareholders are entitled to a proportion of the companys profits usually by
way of dividends. Loan capital can be gained through long term bank loans, mortgage,
debentures, industrial specialists, government assistance etc.
Long-term bank loans
Banks offer a range of loans. They may be short-term or long-term with variable or a fixed
rate of interest. Banks will lend only if they are confident that the loan will be paid back.
They will insist on business records or the plan and ask for some form of security. Usually the
banks accept business assets as securities.
Mortgage
A mortgage is a loan specifically for the purchase of property. Some businesses might buy
property through a mortgage. In many cases, mortgages are used as a security for a loan. This
tends to occur with smaller businesses because they often need long-term funding to buy
premises and machinery. Thus, mortgage is a long term loan borrowed by mortgaging of land
or property as security.
Debentures
Debentures are another common means of finance used by companies who prefer debt over
the equity. The holder of a debenture is a creditor of the company, not an owner. The
debenture holders are entitled to an agreed fixed rate of interest, but have no voting rights.
The amount borrowed as debenture must be repaid on the date of expiry. Debentures also
involve some cost of issuing and they are collateralized by some assets of the company.
Industrial specialists
A number of organizations provide funds especially for business and commercial uses. These
specialists tend to cater for businesses which have difficulty in raising funds from
conventional sources.
Eg:- Venture capitalists
Government
Both central and local bodies have been involved in providing finance for business. Specially
for business startup schemes. Some firms may be entitled to get grants from government
depending on many reasons. These government grants often linked to incentives to firms to
incorporate in areas which are in need of economic development. These also encourage new
and emerging businesses to grow up in the markets they operate.
(Business studies-2 /4th edition, K. Meetalawa)
Bank overdraft
Most businesses have an account with a bank usually known as current account. The deposits
from a business are credited and the withdrawals are debited to their bank account. Most
banks know that businesses do not always receive money from sales at the point of sales
generate. Therefore differences will emerge in the money a business generates from its
turnover (cash inflow) and the money it has to pay for the costs it incurred (cash outflow).
Because of this firms face difficulties. In this type of situations it is appropriate for a business
to arrange an overdraft with a bank. An overdraft is an agreement with a bank to allow the
business to spend money it does not have; it is a form of a loan. Overdrafts can be obtained to
solve the issues created regarding cash inflows and outflows.
(bized, 2012)
Hire purchases
It is a method of buying goods through making installment payments over time. Hire
purchase is similar to leasing. In a hire purchase contract the good is leased to the buyer, but
he does not obtain the ownership of the good until the last installment is paid, whereas a
lessee in a leasing can never become the owner of the good.
Leasing
Leasing is an agreement where lessor (seller) allows the lessee (buyer) to use a property for a
fixed sum or an agreed installment. Rather than buying a new asset a business can lease
assets depending on their finance situations. Leasing is mainly two types.
i.
ii.
Operating lease term of the lease is short compared to the useful life of the asset or
piece of equipment being leased. The ownership, risk and reward remain with the
lessor. Thus insurance and maintenance is done by lessor and at the end of the leasing
duration lessor has the right to transfer the asset to another party.
Finance lease term of the lease is equal to the life time of the asset and risk and
reward remain with the lessee. Therefore insurance and maintenance is done by
lessee. At the end of the leasing period lessor will transfer the title to lessee.
(Managing Financial Resources and Decisions text book)
Debt factoring
A debt factoring involves a business to sell business' invoices to a third party at a discount to
a factor which is a specialized third-party finance company. The factor first evaluates the
business to understand how it operates and assesses the receivables to determine whether they
are collectible which are key factors when drawing up the agreement and calculating the
discount. The factor then processes the invoices and the business lending the invoices is able
to receive loans based on the expected payments on the invoices. Debt factoring allows
businesses to receive cash immediately for invoices.
(Ask, 2015)
Trade bills
Trade bill is a bill of exchange drawn on and accepted by a trader in payment for goods.
These can be discounted only at rates higher than the rate for bank bills.
(Businessdictionary, 2015)
Credit cards
A credit card is a small card issued to users as a system of payment. It allows the card holder
to buy products based on the holders promise to pay for these products later. The issuer of
the card creates a revolving account and grants a line of credit to the consumer from which
the user can borrow money for payment to a merchant or as a cash advance to the user. Credit
card has a credit limit which is decided by the issuer of the card based on the assets and the
ability to repay of the customer. An interest is charged on each and every transaction done
through the card.
(Business studies-2 /4th edition, K. Meetalawa)
From the above sources of finance the sources which are best suitable for a partnership
business are retained profits, bank loan, bank overdraft, hire purchase, and mortgage.
1.2
___
Retained profits
This source of finance is only available for a business which has been trading for more than
one year. It is when the profits made are ploughed back into the business. This is internal
source of finance
Retained profits dont have to be repaid because its the business profit. Therefore no
interest is payable.
But these are not available to a new business and also business sometimes may not make
enough profit to plough back.
Bank Loan
This is money borrowed at an agreed rate of interest over a set period of time. This is an
external source of finance.
Set repayments are spread over a period of time which is good for budgeting and the business
may have enough funds for its operational activities by obtaining a bank loan.
These can be expensive due to interest payments. If the interest rates increase the amount
which have to be repaid will be increased. And also banks may require security on the loan.
Bank Overdraft
This is where the business is allowed to be overdrawn on its current account which means
they can still write cheques, even if they do not have enough money in the account. This is a
short-term source of finance
Bank overdraft is a good way to cover the period between money going out of and coming
into a business. And if used in the short-term it is usually cheaper than a bank loan.
Though its cheaper still the company should pay an interest on the amount overdrawn. And
this can be expensive if used over a longer period of time
Hire Purchase
This method allows a business to obtain assets without the need to pay a large lump sum up
front. Hire purchase involves paying an initial deposit and regular payments for a set period
of time.
Using hire purchase businesses can have the use of up to date equipment immediately.
Payments are spread over a period of time which is good for budgeting. And once all
repayments are made the business will own the asset.
Though the firm owns the asset hire purchase is an expensive method compared to buying
with cash.
Mortgage
This is a loan secured on property. Mortgage can be repaid in instalments over a period of
time. The business will own the property once the final payment has been made.
In mortgage the business has the use of the property. And payments are spread over a period
of time which is good for budgeting. Once all repayments are made the business will own the
asset
Mortgage is an expensive method compared to buying with cash. And if business does not
keep up with repayments the property could be repossessed
(ehow, 2015)
1.3
___
Business finance means money or funds required and used by business firms. Financing
means making money available when needed. Finance is the lifeblood of business. No
business enterprise can be started and operated without adequate funds. If the business want
to expand, extra money will be required over and above that from sales. Expansion may mean
larger premises, more equipment and additional workers. Throughout the life of a business
there will almost certainly be times when money has to be raised from outside. For our
company also we have to raise money from outside as we are tight on funds to finance our
project. There are many alternatives of finance a company can choose from. Choosing right
source and right mix of finance is a key challenge for every finance manager. The process of
selecting right source of finance involves in-depth analysis of each and every source of
finance. For analyzing and comparing the sources of finance it is required to understand all
characteristics of the financing sources
Therefore when fulfilling the financial requirements of our business we have to
consider about the required amount of funds and the time period of those funds, whether its
long term or short term. Accordingly it can be stated that for our business we need a large
amount of funds as our project is slightly larger so that we can go for long term mainly. And
also we should consider about the cost in obtaining funds and maintaining such as interest.
The nature of our business and security should also be considered. As we are a partnership
business we should consider about our present operations as well as our future plans. Thus we
have to make sure that the selected source of fund will be more beneficial to us and our
status. Further we have to consider the influence on the capital structure of the business and
the nature of the project in investing the funds and its expected benefits. Furthermore also
have to consider the influence on the management of the business because we have to make
sure that the management will not be affected badly due to any circumstances.
(Efinancemanagement, 2015)
So by analyzing the above matters with our business we can state that the best sources
for funding our projects are;
Retained profits
We can use retained profits as source of finance as we are trading in the field for many years.
As this is an internal source of finance our company wont be owing to external parties. And
we wont have to repay because its the business profit. Therefore no interest should be paid.
So it is beneficial for our business. We can use these retained earnings in our business to
finance our project rather than paying higher dividence.
Bank Loan
It is convenient for us to go for a bank loan which is usually long term in order to get a large
amount of fund. Then we can invest that fund on our project. We can obtain loan from 1 7
years, but it can be as long as 10 20 years. Bank loan is very efficient for our project
because we are going to carry out a large project. Thus we can arrange repayments on a
monthly or quarterly schedule. For this loan amount we have to pay a rate of interest over the
period of time for which we are obtaining the loan. This is an external source of finance.nThe
repayments are spread over the stated period of time as instalments which is good for
budgeting. We need to provide some security to the bank to obtain the loan.
(Managing Financial Resources and Decisions text book)
Task 02
2.1
___
Financing costs are the total expenses associated with securing financing for a project.
Companies finance their operations either through equity financing or borrowing and loans.
These funds are not given freely, they have a cost. The fund providers need a reward for
providing them. The equity providers want dividends and capital gains through the increase
in the share price, whereas the loan providers seek interest payments.
1. Interest
Interest is the charge for the privilege of borrowing money, typically expressed as an annual
percentage rate. The rate is depend on the time value of money, the credit risk of the
borrower, and the inflation rate. Lenders make money from interest, borrowers pay it. There
are two main types of interest rates;
a. Simple interest
b. Compound interest
(Businessdictionary, 2015)
a. Simple interest
Simple interest is calculated only on the principal amount of a loan.
Simple Interest = Principal x Interest Rate x Term of the loan
b. Compound interest
Compound interest is calculated on the principal amount and also on the accumulated interest
of previous periods, and can thus be regarded as interest on interest. This compounding
effect can make a big difference in the amount of interest payable on a loan if interest is
calculated on a compound rather than simple basis.
Compound Interest = Total amount of Principal & Interest in future - Principal amount at present
2. Dividend
Dividends can be issued as cash payments, as shares of stock, or other property. The dividend
rate may be quoted in terms of the dollar amount each share receives (dividends per share) or
it can also be quoted in terms of a percent of the current market price, which is referred to as
the dividend yield. A company's net profits can be allocated to shareholders via a dividend, or
kept within the company as retained earnings. Dividend payments must be approved by the
shareholders and may be structured as a one-time special dividend, or as an ongoing cash
flow to owners and investors. Issueing dividends will decrease the retained earnings.
(Investopedia, 2015)
3. Opportunity cost
Opportunity cost is the next best alternative that has been forgone when making a decision. It
is the difference in return between a chosen investment and one that is necessarily passed up.
In both cases, a choice between two options must be made. It would be an easy decision if
we know the end outcome. However, the risk that you could achieve greater "benefits" with
another option is the opportunity cost. So the opportunity cost when selecting bank loan for
our funding from bank loan and mortgage will be the mortgage, because we have forgone
that to select bank loan.
4. Tax
A fee charged by a government on a product, income, or activity. If tax is levied directly on
personal or corporate income then it is a direct tax. If tax is levied on the price of a good or
service then it is called an indirect tax. The purpose of taxation is to finance government
expenditure. Therefore businesses have to pay a certain portion of its profit as tax for the
government.
(investorwords, 2015)
2.2
___
Financial Planning is the process of estimating the capital required and determining its
competition. It is the process of framing financial policies in relation to procurement,
investment and administration of funds of an enterprise. Without financial planning there is
no way in being certain that an organization conduct its own activities. The financial manager
will need to plan to ensure that enough funding is available at the right time to meet the needs
of the organization for short and long term capital. Usually a company creates a financial plan
immediately after the vision and objectives have been set. Financial planning is very
important for a business because it covers all the departments in a firm for their finance
needs.
Financial planning is important to ensure a reasonable balance between outflow and inflow of
funds so as to maintain the stability. It estimates the accurate requirement of funds which
result to avoid wastage and over-capitalization situation. As various sources of finance are
available which can used for long term and short term it is important to identify appropriate
sources at appropriate time. Financial planning is very helpful in this type of situations.
Financial planning helps in investing funds in right projects as it suggests how the funds
should be allocated for various purposes by comparing various investment proposals in order
to be benefited.
The success or failure of production and distribution function of business depends upon the
financial decisions as right financial decision ensures smooth flow of finance and smooth
operation of production and distribution. Financial planning is the basis for financial control.
It checks the financial activities by comparing the actual revenue with estimated revenue and
actual cost with estimated cost. With effective financial planning we can properly utilize the
finance resources available in businesses. All business plans depend upon the soundness of
financial planning. As the business have a well-defined finance plan, it avoids the business
from shocks and surprises which otherwise firms have to face in uncertain situations.
Through a well-established financial plan, businesses can identify where to invest its funds
and the type of investment. Financial planning relates present financial requirement with
future requirement by anticipating the sales and growth plans of the company which will lead
for the continuity of the business.
2.3
___
Every action of a Decision is a choice whereby a person comes to a conclusion about given
circumstances. It represents a course of behavior or action about what one is expected to do
or not to do. Decision- making may therefore be defined as a selection of one course of action
from two or more alternative courses of action. Thus, it involves a choice-making activity and
the choice determines our action or inaction. Managers are persons who make these
decisions. All managerial functions; planning, organizing, staffing, directing, coordinating
and controlling are carried through decisions. Decision-making is thus the core of managerial
activities in an organization.
(yourarticlelibrary, 2015)
Information is a vital resource in decision making. Therefore is important to identify
the characteristics and types of information in order to make an effective decision. The
provision of information for decision making is now one of the major functions of
management accountants. Decision making information usually requires dealing with
expected future costs and revenues and it would not normally be incorporated in a traditional
accounting ledger system. Most decisions are of one-off nature. The information required for
decision making purposes tends to be more wide ranging and less constrained than that of
cost accounting. The main characteristics of information used in decision making are;
Forward-looking While historic data may be used as a guide, information for decision
making is much more concerned with what will happen rather than with what did happen.
One-off decision Decision making often involves dealing with a problem that is unique.
Data availability While some of data needed for decision making is obtained from cost
accounting system, much of the requirements have to be specially obtained.
Net cash flow Managers will be concerned with the impact that a decision may have on
the expected net cash flow of a particular project.
Relevant costs Costs and revenues that are not affected by a decision are excluded from
analysis.
Opportunity costs Next best alternative that have been forgone when making a decision.
This forms an important part in decision making analysis.
Types of decision
A common problem that managers may face from time to time whether to close some
segment of the firm such as a product, department or even an entire factory. This is a closure
decision, the assumption being that the closure would be permanent. A similar decision may
have to be taken in respect of a temporary closure which is known as shutdown decision.
A closure decision sometimes needs to be taken because a segment within the overall
firm may have become unprofitable, out of date or unfashionable and therefore no future is
seen for it. When the segments problems are likely to be overcome in the near future, a
decision to close a segment temporarily would be taken. Thus a segment may be unprofitable
at the moment but can be recovered in future years. These types of decision are often required
because a segment is regarded as being unprofitable.
(Managing Financial Resources and Decisions text book)
Pricing decisions
Pricing is a vital milestone when making decisions because pricing is the backbone which
will lead a company to make profits. Making an effective pricing decision will help the
organization to survive in the market, maximize the current profit and market share, market
skimming and to build a good image by providing high quality product with a higher price.
When making these pricing decisions managers must concern about the business objectives,
pricing policies of the business, nature of the product, elasticity of demand, distribution
channels, cost of promotions, economic conditions such as inflation, interest rate, income
distribution etc., and the price controlling rules of the company. There can be two types of
pricing decisions as;
I.
These are the orders taken beyond the normal trading manner and to quote a price depending
on different circumstances. The potential customers would normally expect to pay a higher
price than the entity ordinarily would charge. The accountants main role in dealing with
special orders would be supply historical and projected data of the financial consequences of
particular options. The final decision would be taken by senior management using wide range
of qualitative and quantitative information.
(Managing Financial Resources and Decisions text book)
2.4
___
1)
The owner pays $3000 for the 3 rooms as rent. Hence he may make the mistaken
choice of accounting for the total $3000 in his accounting book. However, this is erroneous
according to the Business Entity concept in accounting.
The Business Entity concept states that the business should be treated as a separate
legal entity from its owners, and cost and revenues incurred by the business should be
accounted for in the businesss books.
The accounting practice requires only 1 room of the three rooms for operation. Hence
according to the Business Entity concept, only 1/3 of the total rent should be considered in
the books of the business as rent.
Dr. Rent $1000
Cr. Income Statement $1000
II)
Almost all IAS uses the money measuring concept. One example would be IAS 2
Inventories, which requires valuation of inventory in monetary values based on the lower of
cost or net realizable value.
The Money Measurement Concept states that all measurements and recordings should
only be carried out in strictly monetary terms. This may seem an appropriate concept as it
forces a comparable platform for communicating accounting information which is also
reliable. But unfortunately the same reliability becomes an issue.
Almost all business have value generating factors that are hard to be quantified in
monetary terms. Human asset and reputation are some of these factors. Impact of these assets
on the business cannot be quantified and hence not included in the financial statement, which
gives an incorrect representation of the position and performance of the entity affecting the
reliability of the financial statements.
III)
As an auditor, I would accept the court decision to liquidate the company. This is
because the merchandising company has continued to account for its business as a Going
Concern but its liquidity position is dangerously below an appropriate level to finance its dayto-day operations.
Going Concern concept requires accounting to be done assuming that the company
will continue into the foreseeable future. This means that the entity will realize its assets and
settle its obligations into the foreseeable future.
In this case, the merchandising company maintaining a 0.5 liquidity level strongly
suggests that it has not intended to settle its obligations into the foreseeable future. As a
result, it has gone against the concept of Going Concern and hence should be liquidated.
(Accounting / 1st Edition, Kusuma Padmini Kalubowila)
IV)
An ERP is a software and hence may be classified as an Intangible Asset. IAS 38
Intangible Assets defines how to account to Intangible Assets.
An intangible asset shall be recognized if, and only if:
(a) It is probable that the expected future economic benefits that are attributable to
the asset will flow to the entity; and
(b) The cost of the asset can be measured reliably.
Both these conditions are satisfied where future economic benefits are evaluated at $1
billion present value, while initial cost is $40 million.
A company should record intangible assets at cost initially, and subsequent years
based on either:
a) Cost Model Measured at initial cost less accumulated amortization.
b) Revaluation Model Measures at fair value at revaluation date less accumulated
amortization.
Fair value does not mean the present value of future attributable benefits but the
current trading value in an active market. Such information is not available.
Hence the company should value its ERP under non-current assets using the Cost
Model. The balance sheet should reflect ERP value as $40 million less accumulated
amortization.
The concepts used in arriving at the decision are Reliability and Neutrality, where a chance
to overvalue NCA was overlooked to ensure compliance to standards, and maintain reliability
of financial statements.
Task 03
3.1
___
Material Variance
$264,000
$198,000
$189,000
$66,000
A
$9,000
A
A - Adverse
F - Favorable
Workings
1. Standard quantity of actual production
1400 units * $15 = $21,000
Labor Variance
Actual Rate * Actual Hours Paid
$15 * 6,800 hours
Standard Rate * Actual Hours Paid
$12 * 6,800 hours
Standard Rate * Standard Hours Paid
$12 * 7,000 hours
Workings
1. Standard Number of Hours
1400 units * 5 hours = 7,000 hours
$102,000
$81,600
$84,000
$20,400
A
($2,400)
F
$33,000
$40,800
$42,000
Workings
1. Standard Number of Hours
1400 units * 5 hours = 7,000 hours
Fixed Production Overheads Variance
Fixed overhead expenditure variance
$3,000
A
$6,000
($7,800)
F
($1,200)
F
60,000
12,000 F
7,200 F
66,000 A
9,000 A
20,400 A
2,400 F
7,800 F
variance
Variable overhead efficiency
1,200 F
variance
Fixed overhead expenditure
3,000 A
variance
Fixed overhead volume variance
6,000 F
(1,800)
$
Sales
1,200 units x $306
Direct materials
264,000
Direct labor
102,000
Variable production
33,000
$
367,200
overheads
Fixed production
18,000
overheads
Closing stock
200 units x $240
Actual gross profit/loss
(48,000)
(1,800)
The company can go for a profit if it reduces the labor cost and production overheads. And as
there is a huge variance in direct material price variance which is adverse to the company, it should
try to minimize that variance. And also the company should try to reduce its fixed overhead
expenditure variance which is adverse for the company. The company should also make efforts to
decrease the direct labor rate variance by reducing the payment per hour.
3.2
___
Description
Direct Material
Direct Labor
Variable Production Overheads
Fixed Production Overheads
Total Cost
Production cost per unit
417,000/1,400
Selling price per unit (45%
margin)
264,000
102,000
33,000
18,000
417,000
297.86
541.56
Sales
Gross profit margin
Total
existing in store
sales
Total
(-) Cost
Net Cash Flow
Discount Factor
12%
Discounted Net cash
flow
Total
Vehicle Cost
NPV
Net Cash Flow
Discount Factor
10%
Discounted Net cash
flow
Total
Vehicle Cost
NPV
3.3
Year 1
1,000,000,00
0
0.20
200,000,000
Year 2
1,200,000,00
0
0.20
240,000,000
Year 3
1,500,000,00
0
0.20
300,000,000
Year 4
year 5
1,600,000,000
0.20
320,000,000
1,700,000,000
0.20
340,000,000
70%
140,000,000
60,000,000
80,000,000
70%
168,000,000
65,000,000
103,000,000
70%
210,000,000
70,000,000
140,000,000
70%
224,000,000
75,000,000
149,000,000
70%
238,000,000
80,000,000
158,000,000
0.8929
0.7929
0.7118
0.6355
0.5674
71,432,000
81,668,700
94,689,500
89,649,200
80,000,000
103,000,000
99,652,000
437,091,600
-15,000,000
422,091,600
140,000,000
149,000,000
158,000,000
0.9091
0.8264
0.7513
0.6830
0.6209
72,728,000
85,119,200
105,182,000
462,898,400
-15,000,000
447,898,400
101,767,000
98,102,200
___
Sales
3.4
___
In the NPV above the present value of returns is higher than the cost of the project. So we can
get an idea to move ahead because it seems like profitable. And also the IRR exceeds cost of
capital so the project is profitable to undertake. But before deciding whether to go ahead with
the contract FLOORMART should consider about some factors other than NPV and IRR.
Payback period
This is the amount of time it will take to recover in the form of net cash inflows, the total
money invested in a project. Payback analysis determines how much time will lapse before
accrued benefits overtake accrued and continuing costs. The payback period is expressed in
years and fractions of years.
Figure 5: Zenwealth
As the payback measure the rate of recovery of the original investment in terms of net cash
flow, it follows that non-cash items (such as depreciation and profits & losses on sales of
fixed assets) are not taken into accounts.
The calculation of PB is quick and simple and its a easily understood concept. Accounting
rate of return
(Zenwealth, 2015)
Accounting rate of return (simple rate of return) is the ratio of estimated accounting profit of
a project to the average investment made in the project. ARR is used in investment appraisal.
Accounting Rate of Return is calculated using the following formula:
ARR
Average accounting profit is the arithmetic mean of accounting income expected to be earned
during each year of the project's life time. Average investment may be calculated as the sum
of the beginning and ending book value of the project divided by 2. Another variation of ARR
formula uses initial investment instead of average investment.
Task 04
PROGRESS COMPARISON OF DIALOG FROM 2011-1013
2011
Year Ended
2012
Ratio
Liquidity Ratios
-Current ratio
-Acid test
2013
0.86: 1
0.84
0.56: 1
0.56
0.42: 1
0.40
Profitability Ratios
-Gross Profit ratio
-Net Profit ratio
-Mark up ratio
46.16 %
16.47 %
85.72 %
44.27 %
8.47 %
79.42 %
43.42 %
12.94 %
76.75%
Efficiency Ratios
-Stock Turnover ratio
-Fixed asset turnover ratio
-Debtor collection period
-Creditor payment period
56.87
1.01
79 days
26 days
130.21
1.11
69 days
36 days
56.91
1.09
75 days
132 days
Investment Ratios
-ROCE
-Dividend Yield
-Dividend Cover
-EPS
-Price to earnings ratio
-Capital gearing ratio
11.15 %
3.21 %
3.42
0.75
10.4
0.35
11.45 %
3.01 %
2.03
0.78
10.64
0.25
9.80 %
3.22%
1.84
0.76
11.84
0.30
Workings (Rs.000)
Year 2011 Dialog
LIQUIDITY RATIOS
Current Assets
Current Liabilities
16,312,504
19,007,981
= 0.86: 1
Current AssetsStock
Current Liabilities
16,312,504395,515
19,007,981
= 0.84
PROFITABILITY RATIOS
Gross Profit Ratio=
Gross Profit
100
Sales
19,282,014
100
41,776,308
Net Profit before taxation
100
Sales
6,880,185
100
41,776,308
= 16.47 %
Markup Ratio=
Gross Profit
100
Cost of goods sold
= 85.72 %
EFFICIENCY RATIOS
19,282,014
100
22,494,294
= 46.16 %
22,494,294
395,515
= 56.87
Sales
assets at net book value
41,776,308
41,212,795
= 1.01
9,016,826
365
41,776,308
= 79 days
Closingtrade creditors
365
Total credit purchases
1,609,967
365
22,494,294
= 26 days
INVESTMENT RATIOS
ROCE=
7,185,587
100
42,982,560+21,534,578
7,185,587
100
64,517,138
= 11.15 %
Dividend yield=
0.25
100
7.80
= 3.21 %
Dividend cover=
= 3.42
6,313,947566,238177,399
1,628,756
6,313,947177,399
8,143,778
= 0.75
7.80
0.75
= 10.4
Capital gearingratio=
1,250,000+21,534,578
42,982,560+21,534,578
= 0.35
LIQUIDITY RATIOS
Current Assets
Current Liabilities
17,358,778
30,742,694
= 0.56: 1
Current AssetsStock
Current Liabilities
17,358,778213,178
30,742,694
= 0.56
PROFITABILITY RATIOS
Gross Profit Ratio=
Gross Profit
100
Sales
22,045,207
100
49,802,752
Net Profit before taxation
100
Sales
4,216,755
100
49,802,752
= 8.47 %
Markup Ratio=
Gross Profit
100
Cost of goods sold
= 79.42 %
EFFICIENCY RATIOS
Stock Turnover Ratio =
22,045,207
100
27,757,545
= 44.27 %
27,757,545
213,178
= 130.21
Sales
assets at net book value
49,802,752
44,744,236
= 1.11
9,378,161
365
49,802,752
= 69 days
Closingtrade creditors
365
Total credit purchases
2,759,388
365
27,757,545
= 36 days
INVESTMENT RATIOS
ROCE=
6,929,706
100
46,393,240+14,102,074
6,929,706
100
60,495,314
= 11.45 %
Dividend yield=
0.25
100
8.30
= 3.01 %
Dividend cover=
6,190,2641,973,50982,637
2,035,945
= 2.03
6,190,2640
7,985,206
= 0.78
8.30
0.78
= 10.64
Capital gearingratio=
1,250,000+14,102,074
46,393,240+14,102,074
15,352,074
60,495,314
= 0.25
LIQUIDITY RATIOS
Current Assets
Current Liabilities
13,931,698
33,270,202
= 0.42: 1
Current AssetsStock
Current Liabilities
13,931,698551,256
33,270,202
= 0.40
PROFITABILITY RATIOS
Gross Profit Ratio=
Gross Profit
100
Sales
24,075,775
100
55,445,060
Net Profit before taxation
100
Sales
7,175,422
100
55,445,060
= 12.94 %
Markup Ratio=
Gross Profit
100
Cost of goods sold
24,075,775
100
31,369,285
= 76.75%
EFFICIENCY RATIOS
Stock Turnover Ratio =
31,369,285
551,256
= 56.91
= 43.42 %
Sales
assets at net book value
55,445,060
50,768,641
= 1.09
11,317,192
365
55,445,060
= 75 days
11,317,192
365
31,369,285
= 132 days
INVESTMENT RATIOS
ROCE=
8,346,630
100
49,815,825+20,901,980
6,929,706
100
70,717,805
= 9.80 %
Dividend yield=
0.29
100
9.00
= 3.22%
Dividend cover=
6,061,4901,113,9320
2,687,446
= 1.84
6,061,4900
7,985,206
= 0.76
9.00
0.76
= 11.84
Capital gearingratio=
0+20,901,980
49,815,825+20,901,980
= 0.30
Dialog
Etisalat
0.56: 1
0.56
1.24: 1
1.11
1.04: 1
1.02
Profitability Ratios
-Gross Profit ratio
-Net Profit ratio
-Mark up ratio
44.27 %
8.47 %
79.42 %
26.75 %
13.49 %
36.51%
16.39 %
20.21 %
88.12%
Efficiency Ratios
-Stock Turnover ratio
130.21
10.61
14.49
1.11
69 days
36 days
0.82
128 days
217 days
1.29
128 days
1221 days
Investment Ratios
-ROCE
-Dividend Yield
-Dividend Cover
-EPS
-Price to earnings ratio
-Capital gearing ratio
11.45 %
3.01 %
2.03
0.78
10.64
0.25
4.15 %
2.02%
1.33
1.86
22.58
0.17
10.99 %
8.43%
1.37
0.83
10
0.17
Ratio
Liquidity Ratios
-Current ratio
-Acid test
Profitability Ratios
-Gross Profit ratio
-Net Profit ratio
-Mark up ratio
Efficiency Ratios
Dialog
Etisalat
0.42: 1
0.40
1.08: 1
0.96
1.05: 1
1.03
43.42 %
12.94 %
76.75%
27.08 %
13.63 %
37.14%
21.67 %
21.62 %
34.08%
56.91
1.09
75 days
132 days
13.99
0.77
108 days
161 days
49.58
1.24
100 days
313 days
9.80 %
3.22%
1.84
0.76
11.84
0.30
4.70 %
2.02%
1.47
2.01
20.90
0.15
10.85 %
8.43%
1.12
0.98
8.47
0.19
Investment Ratios
-ROCE
-Dividend Yield
-Dividend Cover
-EPS
-Price to earnings ratio
-Capital gearing ratio
Workings (000,000)
Year 2012 Mobitel
LIQUIDITY RATIOS
Current Assets
Current Liabilities
22,907
18,418
= 1.24: 1
Current AssetsStock
Current Liabilities
22,9072,396
18,418
= 1.11
PROFITABILITY RATIOS
Gross Profit Ratio=
Gross Profit
100
Sales
9,286
100
34,719
= 26.75 %
4,682
100
34,719
= 13.49 %
Markup Ratio=
Gross Profit
100
Cost of goods sold
9,286
100
25,433
= 36.51%
EFFICIENCY RATIOS
Stock Turnover Ratio =
25,433
2,396
= 10.61
Sales
assets at net book value
34,719
42,478
= 0.82
12,189
365
34,719
= 128 days
Closingtrade creditors
365
Total credit purchases
15,088
365
25,433
= 217 days
INVESTMENT RATIOS
ROCE=
2,697
100
53,617+ 11,348
2,697
100
64,965
= 4.15 %
Dividend yield=
0.85
100
42
=2.02%
Dividend cover=
3,3611,3210
1,534
= 1.33
3,3610
1,805
= 1.86
42
1.86
= 22.58
Capital gearingratio=
0+ 11,348
53,617+ 11,348
= 0.17
LIQUIDITY RATIOS
Current Assets
Current Liabilities
17,039
15,809
= 1.08: 1
Current AssetsStock
Current Liabilities
17,0391,918
15,809
= 0.96
PROFITABILITY RATIOS
Gross Profit Ratio=
Gross Profit
100
Sales
9,960
100
36,781
Net Profit before taxation
100
Sales
5,014
100
36,781
= 13.63 %
= 27.08 %
Markup Ratio=
Gross Profit
100
Cost of goods sold
9,960
100
26,821
= 37.14%
EFFICIENCY RATIOS
Stock Turnover Ratio =
26,821
1,918
= 13.99
Sales
assets at net book value
36,781
47,549
= 0.77
10,870
365
36,781
= 108 days
Closingtrade creditors
365
Total credit purchases
11,796
365
26,821
= 161 days
INVESTMENT RATIOS
ROCE=
3,156
100
57,103+10,178
3,156
100
67,281
= 4.70 %
Dividend yield=
0.85
100
42
= 2.02%
Dividend cover=
3,6351,3790
1,534
= 1.47
3,6350
1,805
= 2.01
42
2.01
= 20.90
Capital gearingratio=
0+10,178
57,103+10,178
= 0.15
Workings (000)
Year 2012 Etisalat
LIQUIDITY RATIOS
Current Assets
Current Liabilities
26,399,090
25,466,629
= 1.04: 1
Current AssetsStock
Current Liabilities
26,399,090422,756
25,466,629
= 1.02
PROFITABILITY RATIOS
Gross Profit Ratio=
Gross Profit
100
Sales
5,399,345
100
32,946,300
Net Profit before taxation
100
Sales
6,657,656
100
32,946,300
= 20.21 %
Markup Ratio=
Gross Profit
100
Cost of goods sold
= 88.12%
5,399,345
100
6,126,961
= 16.39 %
EFFICIENCY RATIOS
Stock Turnover Ratio =
6,126,961
422,756
= 14.49
Sales
assets at net book value
32,946,300
25,572,642
= 1.29
11,533,817
365
32,946,300
= 128 days
Closingtrade creditors
365
Total credit purchases
20,487,584
365
6,126,961
= 1221 days
INVESTMENT RATIOS
ROCE=
5,399,345
100
40,727,078+8,404,878
5,399,345
100
49,131,956
= 10.99 %
Dividend yield=
0.70
100
8.30
= 8.43%
Dividend cover=
6,571,74685,9100
4,743,684
= 1.37
6,571,7460
7,906,140
= 0.83
8.30
0.83
= 10
Capital gearingratio=
0+8,404,878
40,727,078+8,404,878
= 0.17
LIQUIDITY RATIOS
Current Assets
Current Liabilities
28,197,405
26,893,239
= 1.05: 1
Current AssetsStock
Current Liabilities
28,197,405498,232
26,893,239
= 1.03
PROFITABILITY RATIOS
Gross Profit Ratio=
Gross Profit
100
Sales
8,418,003
100
38,853,238
Net Profit before taxation
100
Sales
8,399,595
100
38,853,238
= 21.62 %
Markup Ratio=
Gross Profit
100
Cost of goods sold
= 34.08%
EFFICIENCY RATIOS
8,418,003
100
24,700,384
= 21.67 %
24,700,384
498,232
= 49.58
Sales
assets at net book value
38,853,238
31,319,161
= 1.24
10,613,248
365
38,853,238
= 100 days
Closingtrade creditors
365
Total credit purchases
21,164,411
365
24,700,384
= 313 days
INVESTMENT RATIOS
ROCE=
8,418,003
100
40,532,144+9,229,599
5,399,345
100
49,761,743
= 10.85 %
Dividend yield=
0.70
100
8.30
= 8.43%
Dividend cover=
= 1.12
7,750,948648,6470
6,322,176
7,750,9480
7,906,140
= 0.98
8.30
0.98
= 8.47
Capital gearingratio=
0+9,229,599
40,532,144+9,229,599
= 0.19
4.1
___
We can identify many elements in financial statements. But there are some major elements as
follows;
Assets
An asset is a resource controlled by the business as a result of past transaction and from
which future economic benefits are expected to flow to the business. If any item does not
generate future economic benefits that item cannot be considered as an asset. Further the item
should be controlled by the business. This means, the business should be able to use that asset
according to the discretion of the business and to take decisions on the asset.
Accordingly the following characteristics can be identified,
Arose as a result of a past transaction.
Controlled by the business.
Inflow of future economic benefit to the business.
Assets can be divided into 2 main parts based on liquidity.
Current assets
The assets that are expected to be used, sold or converted into cash in a short time period as
12 months in the ordinary activities of a business are classified as current assets.
Eg:- Stock, debtors, cash and cash equivalence etc.
Non-current assets
All the assets that cannot be considered as current assets are called as non-current assets.
These assets that are expected to be used, sold or converted into cash in more than 12 months
in the ordinary activities of a business.
Eg: Land & building, motor vehicle, machinery, furniture etc.
Liabilities
Payable of a business that had arose as a result of past transaction could be simply considered
as liabilities.
Accordingly the following characteristics can be identified,
It is a commitment to act accordingly.
The cost of the liability can be measurable and reliable.
Arose as a result of past transaction.
Equity
If the business has liabilities apart of its assets has to be used to settle those liabilities. After
the settlement of such liabilities the assets that remains belongs to the owners of the business.
The value of assets that belongs to owners of the business is termed as equity.
Income
Income can be defined as an increase in equity except due to the increases from the capital
introductions by owners.
Eg; Sales, interest received, rent received etc.
Expenses
These can be defined as a reduction in equity except due to drawings.
Eg; salaries and wages, insurance expenses, cost of sale, interest expenses etc.
From the above major 5 elements Assets, Liabilities, and Equity are related to the financial
position of the business. We use those in making the balance sheet. Income and Expenses are
related to the financial performance. So we use them in making the income statement. Apart
from this the cash inflows and outflows (cash movement) are mentioned in the cash flow
statement. And the things related to equity and shares are deled with the statement of changes
in equity. The movement in cash flows is classified into the following segments:
Operating Activities: Represents the cash flow from primary activities of a business.
Investing Activities: Represents cash flow from the purchase and sale of assets other
than inventories (e.g. purchase of a factory plant)
Financing Activities: Represents cash flow generated or spent on raising and repaying
share capital and debt together with the payments of interest and dividends.
Statement of Changes in Equity presents the movement in owners' equity over a period. The
movement in owners' equity is derived from the following components:
Net Profit or loss during the period as reported in the income statement
Share capital issued or repaid during the period
Dividend payments
Gains or losses recognized directly in equity (e.g. revaluation surpluses)
Effects of a change in accounting policy or correction of accounting error
4.2
___
In the preparation of financial statements there are different formats used. Whatever formats
used the results will be the same. There is no prescribed format for the preparation of the
income statement. The company should select a method of presenting its expenses by either
function or nature; this can either be as encouraged, on the face of the income statement, or in
the notes. There are accounting standards such as IFRS (International Financial Reporting
Standards) and GAAP (Generally Accepted Accounting Principles) which are practices that
are accepted globally.
Different types of businesses use different formats. For example; a sole trader would prepare
a simple profit and loss account compared to a public limited liability company which will
have to prepare based on IFRS or GAAP. When financial statements are not prepared based
on standards it is difficult to compare with other organizations. Some businesses prepare a
single step income statement format where all expenses classified by function and are
deducted from total income to give income before tax. The other is a multi-step format where
cost of sales is deducted from sales to show gross profit, and other income and expense are
presented to give income before tax. The difference between these two formats is that the
single format does not show the margins while the multi-step format gives the margin by
classifying what is direct cost and indirect cost. These classifications are important in making
good financial decisions. The single step format leads to low quality accounting information.
Sole proprietorships do not have ordinary shares. Thus equity is the capital provided
by the owner. Unlike accounting for sole proprietorships and limited companies accounts
preparing for partnerships are little different.
(Bayt, 2015)
Special aspects of partnership accounts
Following are the specific issues that required special attention in case of partnership
accounts.
Figure 3: businessstudies
Distribution of profit in case of partnership firm, the net profit (after changing the interest on
capital, partners salary and commission and after taking into account the interest on
drawings) is to be shared by all the partners in the agreed profit sharing ratio. As started
earlier, in the absent of any specific agreement to this effect, the profit is to be distributed
equally among the various partners.
(Managing Financial Resources and Decisions text book)
Figure 4: suggestkeyword
Financial Statement
Sole proprietor
Partnership company
Corporation
Income Statement
Balance sheet
Income statement is
Statement of owners
not complicated
equity: End Capital =
because there is one
Beginning Capital +
owner.
Net Income
Pay personal income
Withdrawals
Equity is known as
tax but it is not shown
in income statement.
owner's equity.
Report gain account
Drawing is not
or loss account
counted as expenses
without dividend.
and they dont show
up on a profit or loss
statement.
Income statement is
Statement of owners
complicated because
equity: End Capital =
there are many
Beginning Capital +
owners.
Net Income
Pay personal income
Withdrawals
Equity is known as
tax in income is
divided for partners
owner's equity.
4.3
___PROGRESS COMPARISON OF DIALOG FROM 2011-1013
2011
Year Ended
2012
Ratio
Liquidity Ratios
-Current ratio
-Acid test
2013
0.86: 1
0.84
0.56: 1
0.56
0.42: 1
0.40
Profitability Ratios
-Gross Profit ratio
-Net Profit ratio
-Mark up ratio
46.16 %
16.47 %
85.72 %
44.27 %
8.47 %
79.42 %
43.42 %
12.94 %
76.75%
Efficiency Ratios
-Stock Turnover ratio
-Fixed asset turnover ratio
-Debtor collection period
-Creditor payment period
56.87
1.01
79 days
26 days
130.21
1.11
69 days
36 days
56.91
1.09
75 days
132 days
Investment Ratios
-ROCE
-Dividend Yield
-Dividend Cover
-EPS
-Price to earnings ratio
-Capital gearing ratio
11.15 %
3.21 %
3.42
0.75
10.4
0.35
11.45 %
3.01 %
2.03
0.78
10.64
0.25
9.80 %
3.22%
1.84
0.76
11.84
0.30
-Current ratio - when comparing 2011 and 2012, 2011 is better because in current ratio,
higher the better. Not too large hence it means too much money is saved than invested. And
2013 is even lesser than 2012.
-Acid test - when comparing 2011 and 2012, 2011 is better because in acid test ratio, higher
the better. Not too large hence it means too much money is saved than invested. And 2013 is
even lesser than 2012
-Gross Profit ratio - when comparing 2011 and 2012, 2011 is better because in gross profit
ratio, higher the better. And 2013 is even lesser than 2012
-Mark up ratio - Higher the better. If too much, may lose customers. Accordingly 2011 has the
best one.
-Net Profit ratio - Higher the better. So that the best one mentioned is in 2011.
-Stock Turnover ratio - Higher the better. The best one is in 2012.
-Asset Turnover ratio - Higher the better. The best one is in 2012.
-Debtor Collection period - Lower the better hence it indicated time taken to collect from
receivables. Accordingly the best one is in 2012.
-Creditor Payment period - Higher the better as it indicated time taken to payback creditors. If
too large, then may lose creditors in future as we take too long to settle our debts.
Accordingly the best one is in 2013.
-ROCE - Higher the better. Accordingly the best one is in 2012.
-Dividend Yield - Higher the better. But if too high, company may be trying to cover up for
some mistake. Accordingly the best one is in 2013.
-Dividend Cover - Higher the better. Accordingly the best one is in 2011.
-EPS - Higher the better. Accordingly the best one is in 2012.
-Price to earnings - Lower the better. But not too low as it will reflect that company is not
taking sufficient risk to generate returns. Accordingly the best one is in 2011.
-Capital gearing ratio - Lower is better because it gives grater financial stability. Accordingly
the best one is in 2012.
Dialog
Etisalat
0.56: 1
0.56
1.24: 1
1.11
1.04: 1
1.02
Profitability Ratios
-Gross Profit ratio
-Net Profit ratio
-Mark up ratio
44.27 %
8.47 %
79.42 %
26.75 %
13.49 %
36.51%
16.39 %
20.21 %
88.12%
Efficiency Ratios
-Stock Turnover ratio
-Fixed asset turnover ratio
-Debtor collection period
-Creditor payment period
130.21
1.11
69 days
36 days
10.61
0.82
128 days
217 days
14.49
1.29
128 days
1221 days
Investment Ratios
-ROCE
-Dividend Yield
-Dividend Cover
-EPS
-Price to earnings ratio
-Capital gearing ratio
11.45 %
3.01 %
2.03
0.78
10.64
0.25
4.15 %
2.02%
1.33
1.86
22.58
0.17
10.99 %
8.43%
1.37
0.83
10
0.17
Ratio
Liquidity Ratios
-Current ratio
-Acid test
Dialog
Etisalat
0.42: 1
0.40
1.08: 1
0.96
1.05: 1
1.03
Profitability Ratios
-Gross Profit ratio
-Net Profit ratio
-Mark up ratio
43.42 %
12.94 %
76.75%
27.08 %
13.63 %
37.14%
21.67 %
21.62 %
34.08%
Efficiency Ratios
-Stock Turnover ratio
-Fixed asset Turnover ratio
-Debtor collection period
-Creditor payment period
56.91
1.09
75 days
132 days
13.99
0.77
108 days
161 days
49.58
1.24
100 days
313 days
9.80 %
3.22%
1.84
0.76
11.84
0.30
4.70 %
2.02%
1.47
2.01
20.90
0.15
10.85 %
8.43%
1.12
0.98
8.47%
0.19
Investment Ratios
-ROCE
-Dividend Yield
-Dividend Cover
-EPS
-Price to earnings ratio
-Capital gearing ratio
2012
-Current ratio - when comparing 2012 of dialog, mobitel and etisalat, mobitel is better
because in current ratio, higher the better. Not too large hence it means too much money is
saved than invested.
-Acid test - when comparing 2012 of dialog, mobitel and etisalat, mobitel is better because in
acid test ratio, higher the better. Not too large hence it means too much money is saved than
invested.
-Gross Profit ratio - when comparing 2012 of dialog, mobitel and etisalat, dialog is better
because in gross profit ratio, higher the better.
-Mark up ratio - Higher the better. If too much, may lose customers. Accordingly dialog,
mobitel and etisalat, etisalat has the best one.
-Net Profit ratio - Higher the better. Accordingly dialog, mobitel and etisalat, etisalat has the
best one.
-Stock Turnover ratio - Higher the better. Accordingly dialog, mobitel and etisalat, dialog has
the best one.
-Asset Turnover ratio - Higher the better. Accordingly dialog, mobitel and etisalat, etisalat has
the best one.
-Debtor Collection period - Lower the better hence it indicated time taken to collect from
receivables. Accordingly dialog, mobitel and etisalat, dialog has the best one.
-Creditor Payment period - Higher the better as it indicated time taken to payback creditors. If
too large, then may lose creditors in future as we take too long to settle our debts.
Accordingly dialog, mobitel and etisalat, etisalat has the best one.
-ROCE - Higher the better. Accordingly dialog, mobitel and etisalat, dialog has the best one.
-Dividend Yield - Higher the better. But if too high, company may be trying to cover up for
some mistake. Accordingly dialog, mobitel and etisalat, etisalat has the best one.
-Dividend Cover - Higher the better. Accordingly dialog, mobitel and etisalat, dialog has the
best one.
-EPS - Higher the better. . Accordingly dialog, mobitel and etisalat, mobitel has the best one.
-Price to earnings - Lower the better. But not too low as it will reflect that company is not
taking sufficient risk to generate returns. . Accordingly dialog, mobitel and etisalat, etisalat
has the best one.
-Capital gearing ratio - Lower is better because it gives grater financial stability. Accordingly
dialog, mobitel and etisalat, both mobitel and etisalat have the same lower ratio.
2013
-Current ratio - when comparing 2013 of dialog, mobitel and etisalat, mobitel is better
because in current ratio, higher the better. Not too large hence it means too much money is
saved than invested.
-Acid test - when comparing 2013 of dialog, mobitel and etisalat, etisalat is better because in
acid test ratio, higher the better. Not too large hence it means too much money is saved than
invested.
-Gross Profit ratio - when comparing 2013 of dialog, mobitel and etisalat, dialog is better
because in gross profit ratio, higher the better.
-Mark up ratio - Higher the better. If too much, may lose customers. Accordingly dialog,
mobitel and etisalat, etisalat has the best one.
-Net Profit ratio - Higher the better. Accordingly dialog, mobitel and etisalat, etisalat has the
best one.
-Stock Turnover ratio - Higher the better. Accordingly dialog, mobitel and etisalat, dialog has
the best one.
-Asset Turnover ratio - Higher the better. Accordingly dialog, mobitel and etisalat, etisalat has
the best one.
-Debtor Collection period - Lower the better hence it indicated time taken to collect from
receivables. Accordingly dialog, mobitel and etisalat, dialog has the best one.
-Creditor Payment period - Higher the better as it indicated time taken to payback creditors. If
too large, then may lose creditors in future as we take too long to settle our debts.
Accordingly dialog, mobitel and etisalat, etisalat has the best one.
-ROCE - Higher the better. Accordingly dialog, mobitel and etisalat, etisalat has the best one.
-Dividend Yield - Higher the better. But if too high, company may be trying to cover up for
some mistake. Accordingly dialog, mobitel and etisalat, etisalat has the best one.
-Dividend Cover - Higher the better. Accordingly dialog, mobitel and etisalat, dialog has the
best one.
-EPS - Higher the better. Accordingly dialog, mobitel and etisalat, mobitel has the best one.
-Price to earnings - Lower the better. But not too low as it will reflect that company is not
taking sufficient risk to generate returns. . Accordingly dialog, mobitel and etisalat, etisalat
has the best one.
-Capital gearing ratio - Lower is better because it gives grater financial stability. Accordingly
dialog, mobitel and etisalat, both mobitel has the best one.
Conclusion
A business should clearly identify the sources of finance best suitable for them in order to
financially stable. In here Berkshire Partners have clearly identified the best sources of
finance for their project. So they can improve their funds and complete their project
effectively.
.
SWOT analysis
Strengths
Weaknesses
Opportunities
Threats
Gantt chart
Activity
October
1st week
2nd week
3rd week
4th week
5th week
1. Collecting
information
sources
2. Doing and
completing task
1
3. Doing and
completing task
2.
4. Doing and
completing task
3.
5. Doing and
completing task
4.
6. Mentioning
the references.
7. Sending
assignment to
the lecturer to
and getting
feedback.
8. Finalizing
the assignment
and again
sending.
References
Task 01
1.1
HND in Business Management - Managing Financial Resources and Decisions text book
www.ask.com. 2015. ask. [ONLINE] Available at: http://www.ask.com/businessfinance/debt-factoring-4e414975db29fa21. [Accessed 14 July 15].
www.businessdictionary.com. 2015. businessdictionary. [ONLINE] Available
at:http://www.businessdictionary.com/definition/trade-bill.html. [Accessed 14 July
15].
1.2
www.ehow.com. 2015. ehow. [ONLINE] Available
at: http://www.ehow.com/list_6632960_sources-finance-sole-traderspartnerships.html. [Accessed 14 July 15].
1.3
www.efinancemanagement.com. 2015. efinancemanagement. [ONLINE] Available
at:http://www.efinancemanagement.com/sources-of-finance/sources-of-finance.
[Accessed 14 July 15].
HND in Business Management - Managing Financial Resources and Decisions text book
Task 2
2.1
www.businessdictionary.com. 2015. efinancemanagement. [ONLINE] Available
at:http://www.businessdictionary.com/definition/interest.html. [Accessed 15 July 15].
www.investopedia.com. 2015. investopedia. [ONLINE] Available
at:http://www.investopedia.com/articles/investing/020614/learn-simple-andcompound-interest.asp. [Accessed 15 July 15]
www.ehow.com. 2015. ehow. [ONLINE] Available
at: http://www.ehow.com/info_8023981_do-partnerships-pay-dividends.html.
[Accessed 15 July 15].
www.investopedia.com. 2015. investopedia. [ONLINE] Available
at:http://www.investopedia.com/terms/d/dividend.asp. [Accessed 15 July 15].
www.investorwords.com. 2015. investorwords. [ONLINE] Available
at:http://www.investorwords.com/4879/tax.html. [Accessed 15 July 15].
2.2
www.yourarticlelibrary.com. 2015. yourarticlelibrary. [ONLINE] Available
at:http://www.yourarticlelibrary.com/planning/the-objectives-and-importance-offinancial-planning-for-an-organization/8740/. [Accessed 15 July 15].
2.3
www.yourarticlelibrary.com. 2015. yourarticlelibrary. [ONLINE] Available
at:http://www.yourarticlelibrary.com/decision-making/decision-making-inmanagement-definition-and-features-explained/25657/. [Accessed 16 July 15].
HND in Business Management - Managing Financial Resources and Decisions text book
Business studies-2 / 4th edition, K. Meetalawa
HND in Business Management - Managing Financial Resources and Decisions text book
2.4
Accounting / 1st Edition, Kusuma Padmini Kalubowila
IAS 38 Intangible Assets
Task 3
3.1, 3.2, 3.3
HND in Business Management - Managing Financial Resources and Decisions text book
3.4
www.zenwealth.com. 2015. zenwealth. [ONLINE] Available
at:http://www.zenwealth.com/businessfinanceonline/CB/PaybackPeriod.html.
[Accessed 20 August 15].
Task 4
www.dialog.lk. 2015. dialog. [ONLINE] Available at: https://www.dialog.lk/annualreports. [Accessed 19 July 15].
4.1
HND in Business Management - Managing Financial Resources and Decisions text book
www.readyratios.com. 2015. readyratios. [ONLINE] Available
at:http://www.readyratios.com/reference/accounting/statement_of_changes_in_eq
uity.html. [Accessed 20 August 15].
4.2
www.bayt.com. 2015. bayt. [ONLINE] Available
at: http://www.bayt.com/en/specialties/q/63126/what-is-the-differences-betweenthe-formats-of-financial-statements-for-different-types-of-business/. [Accessed 20
August 15].
HND in Business Management - Managing Financial Resources and Decisions text book
4.3
Accounting / 1st Edition, Kusuma Padmini Kalubowila
Images
Task 1
Figure 1
Business studies-2 / 4th edition, K. Meetalawa
Task 2
Figure 2
www.yourarticlelibrary.com. 2015. yourarticlelibrary. [ONLINE] Available
at:http://www.yourarticlelibrary.com/planning/the-objectives-and-importance-offinancial-planning-for-an-organization/8740/. [Accessed 15 July 15].
Figure 3
mrshearingbusinessstudies.weebly.com. 2015. mrshearingbusinessstudies. [ONLINE]
Available at:http://mrshearingbusinessstudies.weebly.com/partnerships.html.
[Accessed 20 August 15].
Figure 4
Figure 5
www.zenwealth.com. 2015. zenwealth. [ONLINE] Available
at:http://www.zenwealth.com/businessfinanceonline/CB/PaybackPeriod.html.
[Accessed 20 August 15].
Tables
Task 4
Table 1
Business studies-2 / 4th edition, K. Meetalawa