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Index
Task 1
A............................................. 2
B.................................................................... 3
C............................................................................................................................ 4
D....................................... 5
E................................................................ 5
F................................................................................. 6
Task 2
Cash Flow
Statement..................................................................................................................7
Task 3
Financial Calculatio....................................................................... 7
Recommendation..................................................................................................10
References............................................................................................................. 11
Task 1
(A) Using set of published accounts from a real business organization, carry
out ratio analysis for two years.
(C) Compare the figures for two years and comment on the finances of
the business.
According to annual report of the mother care, organization sales in the UK is decreasing
from last few years while international sales are increasing there is increase in the net
income of the organization. Which is however very healthy for the organization. Group
revenue of the mother care is increasing as compare to last two years. There is 2.4%
increase in group revenues which is healthy for the organization.
Total capital expenditure for the year 2011/12 are 24.09 million. 3.4 million Was allocated
for the intangible software. Revenues from the international market is increasing
gradually while in UK revenue is decreasing.
Risk is always involved in the investment, risk depend on the nature of business. Some
business have high risk for example trading with other nations or countries. There is no
unusual for the passbook accounts holders to pay lower interest or dividend rate than the
inflation rate. In spit many deposit accounts pay relatively low returns, but there are
number of attraction for the new investors. The most important and first thing is high
liquidity.
(E) Suppose the business requires additional finance of 500 000. Advise
on a suitable source of finance giving possible alternatives,
implications of each and reasons for your recommendation.
Internal sources
External sources
There are some types of internal sources of funds which are as follows
Internal sources:
For internal sources of funds, investors try to arrange the finances his own. Investors try to
arrange from his friends and family. The advantage of internal sources investors have to pay
no interest rate or having very minor interest rate. If investor use his credit card he have to
pay low interest rate and he can return amount any time he wants, he make small payments to
refunds finance or set fixed amount which is deducted each moth form his account. It easier
for the invertor to get finances through internal sources, interest rate is low and mange easily.
External sources:
Bank loans:
Bank are like supermarkets they provide short term loan as well as long term loan. Interest
rate is variable it is depend on the size of loan, with similar amount costing a bit more. Cash
flow could be generated by the investors to make the interest payment.
Working capital could be negative or positive, it is depend on the financial situation of the
organization. Working capital is a sort of cash available for day to day operation of the
organization. Major sources of working capital are net income, long term loans, sales of
capital assets and the funds provided by the stakeholders. Management can take advantages
of adopting unexpected opportunities through working capital. Working capital could play
vital role for bank loans and favourable credit trade terms. Working assets equal to working
capital of organization in the average trade cycle of organization.
Working capital is used to measure the efficiency of the company and short term financial
policy. If there is difference in the current assets and current liabilities means current assets
are more than current liabilities, then organization might be in trouble to pay back its loans or
credits in such case organization could be declared bankrupt.
The organization earn a huge profit in the year 2010 fiscal year, they have managed business
very strictly and as a result they generate a working capital inflow 3.4 million. With the
passage of time organization working capital is increasing every year.
Task 2
Green Limited is a wholesaler. The budgeted income statements for 6 months
are as follows:
July
August September
10600
0
10600
0
30000
11400
0
3000
0
64000
30000
2000
0
118000 124000
104000
960
-66000
-70000
-59000
-540
-30000
-20000
-30000
-30000
-300
-340
2000
24000
15000
-220
24000
15000
-220
-25000
3000
0
2000
0
-23000
-1350
3000
0
2000
0
90000
6000
0
60000
8000
0
-23000
24000
15000
-1570
80000
57000
81000
960
57000
81000
96000
-610
TASK 3
A) Assess the given projects using accounting rate of return, payback
period, Net present values and internal rate of return. (3.2)
(1)
According to calculation it is better for the organization to choose project 2. There are some
reason to choose the project 2 because if we look at the NPV project 1 NPV is negative while
project 2 NPV is much better. Project 2 IRR is better so it is strong reason for organization to
select project 2. Payback period for project 2 is slightly lesser as compare with project 1.
References:
http://www.accountingformanagement.com/variable_and_absorption_cost
ing.htm- Accessed on 7 July 2014
McLaney, E & Atrill, P (2002) Accounting-An Introduction, 2nd
edition, London: Prentice Hall, p.433-441.Upchurch, A (1998)
Management Accounting-Principles and Practice, London: Financial
Times management, p.329-339.
http://www.letslearnfinance.com/advantages-and-disadvantages-ofmarginal-costing.html