ACFI5020 Accounting for Managers Sample
Task 1
“Liquidity ratio”
The liquidity ratio has been calculated for measuring the liquidity position of the company. In this regard, Hotel Chocolate Group plc has wanted to measure the current financial condition of the company. On the other hand, the company wants a comparison report of the financial accounting statements (Zolfaniet al. 2018).
The ratio analysis has been helpful to find out the various conditions of the financial activities. In terms of calculations of the liquidity ratio, it has been subdivided by three ratio accounting calculations, such as “quick ratio, current ratio, total assets to total liabilities”.
- “Current ratio”
Current ratio has been calculated by considering the amount of “current assets and current liabilities”.
“Current ratio = current assets/current liabilities”
2019
28029319/21153294 = 1.33
2021
51531.00/38271.00 = 1.35
2020
55554/52209 = 1.06
- “Quick ratio”
The calculation of the quick ratio has been calculated by considering the amount of the current assets after deduction of the inventories amount, current liabilities.
“Quick ratio = Current assets -inventories / current liabilities”
2019
28029319-12810049 = 15219270
15219270/21153294 = 0.72
2021
51531-13916 = 37615
37615/ 38271 = 0.98
2020
55554-32038 = 23516
23516/52209 = 0.45
“Solvency and risk ratios”
Solvency and risk ratios have been calculated in order to measure the risk proportion of the company (Haralayya, 2021). This ratio has been measured to find out the proportion of the debt, equity, and amount of the total assets and liability of the firm. The solvency and risk ratio has been evaluated by considering the “debt to equity ratio, debt to assets ratio”. In this organization, it has been suggested to calculate the solvency and risk portion to find the actual portion of the debt and equity.
- “Debt to equity ratio”
The “debt to equity ratio” has been explained as the total proportion of the debt and equity of the company. The evaluation of the debt to equity ratio has been taken into consideration with the number of total debts, noncurrent liabilities, current liabilities, and shareholders’ funds.
“Debt to equity ratio = debt / equity”
2019
4971000/49330236 = 0.10
2021
19450/66990 = 0.29
2020
24508/71688 = 0.34
- “Debt to assets ratio”
The calculation of the “debt to assets ratio” has helped to find out the value of the total assets as compared to the debt of the company.
“Debt to assets ratio = Debt / total assets”
2019
4971000/74193421 =0.07
2021
19450/142538 = 0.14
2020
24508/156015 = 0.16
“Efficiency ratio”
The efficiency ratio has been calculated with the help of the company’s revenue, cost of goods sold, accounts payable, and receivables. The efficiency ratio has been calculated to measure the capacity of the company (Subalakshmiet al. 2018). The measurements have been calculated in days; hence, the financial manager can easily find the capability of the company. The efficiency ratio can be evaluated by considering accounts receivable in days and accounts payable in days.
- “Accounts Receivables”
The accounts receivable consists of the amount of the company’s trade receivables compared to the value of the revenue.
“Accounts receivables ratio = accounts receivables *365 / revenue”
2019
9359766*365 / 132479543 = 26 days
2021
7492*365 /164551 = 17 days
2020
12421*365 /136290 = 33 days
- “Accounts Payables”
The accounts payable consists of the amount of the company’s trade payable compared to the value of the revenue.
“Accounts payable ratio = accounts payable *365 / revenue”
2019
19527743*365 /60142162 = 119 days
2021
27251 *365 / 164551 = 60 days
2020
42223*365 / 136290 = 113 days
“Profitability ratio”
The profitability ratio has been calculated to measure the value of the company’s capacity to earning the profitability of the company. The measurement of the profitability ratio has been important to find the value of the net margin and gross margin of the company at the year end of the financial year (Otekunrinet al. 2018). The calculation of the profitability ratio has been evaluated by taking the value of the revenue, net profit before tax, and value of the total assets.
- “Net profit margin”
The “net profit margin ratio” is the primary ratio to analyze the total earning capacity of the company compared to its revenue.
“Net profit margin ratio = net profit before tax / revenue * 100”
2019
14051259/132479543 *100 = 11%
2021
7541/164551 *100 = 5%
2020
7824 /136290*100 = 6%
- “Return to assets”
The return on assets helps to measure the value of the total assets as compared to the portability of the company.
“Return on assets = Net profit before tax / total assets”
2019
14051259/74193421 *100 = 19%
2021
7541/ 142538 *100 = 5%
2020
7824/ 156015 *100 = 5%
Task 2
Liquidity condition of the business
The analyses of the liquidity ratios are the main ratio for measuring the liquidity of the company. In this regard, the company wanted to measure three years accounting ratios, and create a comparison of those ratios (Daryanto and Samidi, 2018). The company has faced various financial crises and to improve that condition, it has wanted the measurement of the liquidity ratios.
Liquidity ratios have helped to find the position of the liquidity of the company. In the year 2019, the company’s current ratio amount has been 1.33 whereas in the year 2020 it has been decreased to 1.06. It has been seen that after the analysis of the current ratios in the year 2021, it has increased.
The value of the current ratios in 2021 is 1.35. The situation has been explained that the company’s liquidity condition is better; it has enough current assets rather than current liabilities in the year 2021. On the other hand, the quick ratio has been calculated by considering the value of the current asset after the deduction of the stock.
The Company’s quick ratio in the year 2019 is 0.72. In 2020 it has been 0.45 and in 2021 it is 0.98. Hence, the result of the analysis of quick ratios shows that the value of the current year’s quick ratio is higher than other years. The entire explanation of the liquidity ratio has been expressed that the company’s liquidity condition is in a better position.
Profitability condition of the business
Earning profitability is the basic part and goal of every company, the profitability ratio measurement has been calculated to find the value of profitability. As a financial analyst, it has been important to consider the value of net profit before tax and revenue for three years.
As per the view of Rulandari and Sudrajat (2017), the measurement of the three years profitability has been calculated in order to compare the earning profitability value of the company. The net profit margin ratio has been 11% in the year 2019 and 6% for 2020 and for 2021 it has been 5%. The value of the return on assets has been 19% in 2019 and 5% for respective years 2020 and 2021.
This analysis report has explained that the current earning capacity of the net profit has decreased. The company has better earning profitability conditions in 2019 but due to the financial crisis, there has been incurred financial loss in the year 2021. Hence, the company’s profitability condition is low due to the declining level of the profitability value.
Solvency and risk assessment condition of the business
In order to measure the financial condition of the company and measurement of the risk assessments capacity of the company. The evaluation of the solvency ratio has been taken into consideration (Sadi’ah, 2018). The solvency and risk assessment ratio has been measured for calculates the financial position of the company.
In the year 2019, the value of the debt to equity ratio is 0.10, in 2020 it has been 0.34 and in 2021, it must be 0.29. The analysis of the value of total debt is lower than the previous year. In this aspect, the value of shareholders’ funds might have been also lower than the previous year. The risk assessment a condition that has been in high condition is in 2020 with the value of 0.34, this value has decreased in the current year.
On the other hand, the debt to assets ratio has been measured with the help of “total debt and total assets”. The value of the “debt to assets ratio” is 0.07 in 2019, 0.16 in 2020, and 0.14 in 2021. As per this analysis, it has been explained that the company’s current capacity for the recovery of solvency is low. On the other hand, the risk assessment capability is also low.
Accounting efficiency condition of the business
The accounting efficiency condition of the company has been calculated with the help of the accounting receivable position and payable position of the company. The accounting receivables have been 26 days, 33 days 17 days in 2019-2021. The value of the accounting payable has been 119 days, 113 days, and 60 days in 2019-2021.
The analysis report of the account has been expressed that the capability of the recovered amount of the receivables is decreased with the effect of the increased value of revenue (Farfanet al. 2017). On the other hand, the value of the account payable has decreased with the effect of the increased value of revenue and the value of account payables. This has resulted in the capacity of accountability being low as compared to the previous two years.
Task 3
In order to improve the condition of the financial performance of the company, there have been some areas that might help to find out the solution to improve the condition of the company. It has been suggested that the company might increase accounting receivable value by increasing the number of purchases, similarly, it has been suggested to decrease the value of the payable (Alkhyeliet al. 2021).
In this regard, it has been suggested that the net profit margin has been lower in the current year; hence, the company might try to increase the value of the profitability of the company. This increased value of the profitability also has been helped to increase the capacity to recover the risk and solvency amount of the company.
Task 4
- The company has wanted to invest in technology and customer relationships. In this regard, the company might have been focused on the liquidity ratio. This decision has been given due to the nature of the liquidity ratios (Daryanto and Nurfadilah, 2018). In this aspect, liquidity ratios have helped to figure out the required amount of liquidity value of the company. Apart from this, companies can make the decision on the basis of that.
- In order to increase the distribution centre of the company, it has suggested taking into consideration the profitability ratio (com 2019). However, the profitability ratio has been provided by the profit amount from the existing distribution centres and through this manager can easily assume the expected profit before taking the expansion decision.
- Expansion of the UK factory has been a big decision and before taking the decision it has been suggested to consider the efficiency ratio.
- Taking the loans in order to open 16 new stores, the company might have been focused on the debt-equity ratio of the company (hotelchocolat.com 2021). The equity ratio has been explained as the value of the total debts, total assets, and current revenue of the company. This ratio has been recommended because the debt-equity ratio has been helping to identify the current position of the company.
- Technological growth has been important for increasing the multi-channel growth of the company. Hence, it has been suggested to focus on the liquidity ratio, as it has been providing the company the current value of the company’s assets and liability.
- Further extension of the business is providing the profitability or not might be explained with the help of profitability ratio (hotelchocolat.com 2021). This ratio has been used to compare the existing profitability and after that, there has been a chance to assume the future profitability of the new business.
Task 5
In order to solve the risk assessment issues of the company, it has been suggested that the company might focus on the “debt to equity ratio and debt to assets ratio”. This decision has been taken because it improves the condition of the company from the risks of the global pandemic, negative publicity, inconsistent quality, international expansion, and disruption to the supply, solvency, and risk ratios that provide the actual result of the recovery.
Reference list:
Alkhyeli, S., Abdulla, F., Alshehhi, A., Aldhaheri, N., Alhosani, M., Alsereidi, A., Al Breiki, M. and Nobanee, H., 2021. Financial Analysis and Performance Evaluation of Pfizer. Available at SSRN 3896385.
Daryanto, W.M. and Nurfadilah, D., 2018. Financial performance analysis before and after the decline in oil production: Case study in Indonesian oil and gas industry. International Journal of Engineering & Technology, 7(3.21), pp.10-15.
Daryanto, W.M. and Samidi, S., 2018. A Financial Ratio Analysis of Oil and Gas Private Company in Indonesia: Before and After Declining the Oil Production. International Journal of Business Studies, 2(2), pp.74-83.
Farfan, K.B., Barriga, G., Lizarzaburu, E.R. and Noriega Febres, L.E., 2017. Financial ratio method peruvian listed companies. Ginting, E.S., 2021. Ratio-Based Financial Performance Analysis of PT. MustikaRatu, Tbk. Enrichment: Journal of Management, 11(2), pp.456-462.
Haralayya, B., 2021. Ratio Analysis at NSSK, Bidar. Iconic Research And Engineering Journals, 4(12), pp.170-182.
Otekunrin, A.O., Nwanji, T.I., Olowookere, J.K., Egbide, B.C., Fakile, S.A., Lawal, A.I., Ajayi, S.A., Falaye, A.J. and Eluyela, F.D., 2018. Financial ratio analysis and market price of share of selected quoted agriculture and agro-allied firms in Nigeria afteradoption of international financial reporting standard. The Journal of Social Sciences Research, 4(12), pp.736-744.
Rulandari, N. and Sudrajat, A., 2017. Financial Ratio (Altman Z score) with Statistic Modelling. International Journal of Scientific Research in Science and Technology, 3(6), pp.341-344.
Sadi’ah, K., 2018. The Effect of Corporate Financial Ratio upon the Company Value. The Accounting Journal of Binaniaga, 3(02), pp.75-88.
Subalakshmi, S., Grahalakshmi, S. and Manikandan, M., 2018. Financial Ratio Analysis of SBI [2009-2016]. ICTACT Journal on Management studies, 4(01), pp.2395-1664.
Zolfani, S.H., Yazdani, M. and Zavadskas, E.K., 2018. An extended stepwise weight assessment ratio analysis (SWARA) method for improving criteria prioritization process. Soft Computing, 22(22), pp.7399-7405.
Website:
Hotelchocolat.com (2019), annual report, available at:https://www.hotelchocolat.com/on/demandware.static/-/Sites-HotelChocolat-Library/default/dw73fc2dda/ANNUAL%20REPORT%20AND%20ACCOUNTS%20FY19%20-%2010TH%20OCTOBER%202019.pdf [Assessed on from: 10th December, 2021]
Hotelchocolat.com (2021), annual report, available at:https://www.hotelchocolat.com/on/demandware.static/-/Sites-HotelChocolat-Library/default/dw7d9a0747/37446%20HOTC%20AR21%20WEB.pdf [Assessed on from: 10th December, 2021]
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