Post on 03-Apr-2018
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Table of Content
Introduction.2
Task 2c.3
Task 2d.4
Task 3a.6
Task 3b.8
Task 3c..9
Task 4a.10
Task 4b.12
Task 4c..14
Conclusion20
References.20
Appendix
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Introduction
Managing financial resources and decisions are designed to give students a broad
understanding of how the financial management of a business organization. Students will
learn how to evaluate different sources of finance, compare the ways in which they are
used and will learn how to use financial information to make decisions. There will be
consideration of decisions relating to pricing and investment, as well as budget. Finally,
they will learn techniques for the evaluation of financial operations.
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The decisions making of finance statement
Internal user:
Board of Directors: A board of director is a body of members elected or
appointed persons monitoring the activities of a company or organization.
Typical tasks of the Board include:
-Organization by establishing broad policies and objectives;
-Selection, appointment, support and review implementation of the CEO;
-Ensure the availability of sufficient financial resources;
-Approve the annual budget;
-Account for the stakeholders of the organizational activities.
-Set salaries and compensation
Board of Directors set corporate strategy and determine the policies of the
company, supervising the management of enterprises, evaluation of internal company,
control procedures, and monitor the quality of information provided to the neck
shareholders and financial markets and financial reporting in connection with financial
transactions.
Therefore, the Board of Directors of the company needs to keep up
with current financial situation of the company to assess whether the costs exceed the
current budget or have any problem with working for adjustment and implementation of
the current business strategy to achieve corporate objectives, mission and vision.
Management: Management plays important role in all business and
organizational activities in Company. They know all information about the companys
financial and directly using available resources efficiently and effectively. Management
sets planning, organizing, staffing, leading or directing, and controlling financial situation
with more details to effort for the purpose of accomplishing a goal. Here, the
management has responsibility to analyze, make manager controls the business
efficiently and solve all problems to develop company. Therefore, the management needs
the financial report to make business plan. To know exactly about the financial of
company, the financial statement is necessary for management because it provides more
comprehensive information of company. Managers require financial statements to make
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important business decisions that affect its continued operations. Financial analysis is
then performed on these statements to provide management with a more detailed
understanding of the figures. These statements are also used as part of management's
annual report to the stockholders.1
Shareholders: Share holder means any person, company, or other institution that
owns at least one share in a company. They are positive corporate image of company.
They bring high profit and invest money for company. Therefore, they need to know all
information about their benefits to make decision investing in Company. If KindDo
attracts many shareholders and make believe about company from shareholders, the
company has many profits to finance daily activities and its business.
Employee: Employees and their representative groups are interested in
information about the stability and profitability of their employers. They are also
interested in information which enables them to assess the ability of the enterprise to
provide remuneration, retirement benefits and employment opportunities. They join in
activities and missions in company when they receive the task from the manager.
Therefore, employees should be provided some information about the financial
situation of the company. Employees need to know to make the collective bargaining
agreement of their wages to their owners. When employees work in good condition with
reasonable salary, they can use all good ability to have good results in work.
External users:
Investors: The providers of risk capital and their advisers are concerned with the
risk inherent in, and return provided by, their investments. They need financial
information to help them determine whether they should buy, hold or sell. Shareholders
are also interested in information which enables them to assess the ability of the
enterprise to pay dividends. (Investors are owners of the co. It can be argued that they are
external stakeholders, but it's also hard to call your owners outsiders)
Customers: They are people who purchase companys products. They are
important part in business because they are the main profit of the company. The
successful of company depends on the number of customers and loyal customers.
Customers are the survival of company, so Company need to improve the quality of
1http://en.wikipedia.org/wiki/Financial_statement
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products and service to keep the loyal customers. Besides, customers need to know about
the financial information because it provides the business activities of Company and
affect to the decision purchase of Company products.
Suppliers: Suppliers are interested in the success and stability of the company so
they can ensure they will have a customer in the future. Suppliers have a long term
relationship with the firm. They play important role in provide raw material for the
company. Many suppliers ask for financial statements to determine their risk in working
with you. If you order supplies from them and you pay them for those supplies before
they ship to you that is usually not a problem. But if you expect them to ship products to
you before you pay (which means that they are extending credit to you) they want to be
sure that you are credit worthy and that you will be able to pay them for the products you
ordered. Therefore, Company needs to provide financial information help suppliers know
about the number of materials. From that, supplier is easy to provide the good materials
for Company to produce good products because the quality of products depends on the
quality of material.
Government: The government responsibility is that to make sure the company
has to follow the law, regulations, policy and principles in business. Company has
responsible to pay tax for government. The tax based on the profit of Company and the
salaries of company. From that the government can know the employees receive suitable
salaries or not and government will decide suitable tax for company
The financial situation (banks and other lending companies) use them to decide
whether to grant a company with new working capital or extend debt securities (such as a
bank term loan limit or bonds) to run business or make other things. When company want
to lend money, company must show that they run business well and can repay the loan in
right time. Besides, the lender wants to know the reasonability of company when
company lends it.
The impact of finance on the financial statements
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The management of the company's financial controls of the company through
financial statements because it gives details of all financial records for management.
Financial statement contains Income statement, balance sheet, cash flow statements, etc.
Financial statement is the best way to show about the financial situation of company.
Firstly, the impact of finance on the financial statements can show when
customers buy their products and the profits brings for company. When the company
buys products for customer, the income statement will reflect about the. For example,
when the company buys products for customers with price $10000, it means that the
company earns $10000 and it will calculate in the revenues of company. When company
buys many products for customer, it means that company can earn many profits for
company; it brings good effect for company because they increase the revenue of
company. Therefore when the revenues of company is good or bad, it also have affect
into the income statement and the financial statement of company.
Secondly, the company must show their expense in expense in the income
statement. Every activities of Kinh Do need to use money so the company will so it in
their financial statement. If the company spends much money, it will generate expense
and as a result of them, expense will affect gross profit. The more expense the company
spends, the less profit they receive.
Next, the company will pay tax for government. This action will show in tax in
Income statement and then, Profit after tax will be illustrated. It is because Profit after
tax is equal Profit before tax minus tax.
Then, when the company wants to expand their business, they need to sell issue or
borrow capitals from the banks to run their business. When they sell issue for
shareholders, it will increase interest because they need to spend money to issue new
shares to public. The company must pay more dividends to shareholders so it will affect
the income statement. Thus, the retained earning will reduce. On the other hand, the
action will increase their capital.
Furthermore, the company will purchase treasury shares. cash and cash equivalent on
balance sheet will decreased.
Besides when company borrows money from the banks or others, they will
pay the interests of money at the right time. When the company borrows money from the
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banks, the company will increase capital. Creditor in balance sheet will increase but
raise capital. Interest in income statement will increase. Therefore, profit ordinary
activities before taxation decreases.
Finally, all activities such as buy or sell will be record in financial statements and
its will be changed. For example: when company buys the raw material from the supplier
with $1000000, it means the assets of company decrease $1000000. It makes the change
in the income statements that means the purchase increase $ 1000000 and it also makes
the sell revenue increase in the balance sheets and the assets of company decrease $
1000000. Therefore, the objective of financial statements is to provide information about
the financial position, performance and changes in financial position of an enterprise that
is useful to a wide range of users in making economic decisions. Financial statements
should be understandable, relevant, reliable and comparable. Reported assets, liabilities,
equity, income and expenses are directly related to an organization's financial position.2
2 http://en.wikipedia.org/wiki/Financial_statement
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Analyzing the budgets and making appropriate decisions
1. Original Budget
A B C Total
Sales $200.000 250.000 300.000 750.000
Direct material $10.000 13.500 20.500 44.000
Direct labor $22.500 25.000 34.000 81.500
Variable overhead $10.000 13.500 20.500 44.000
Fixed overhead $6.000 9.000 7.500 22.500
Sales(units) 2.000 1.750 1.300
Total cost $47.500 61.000 82.500 191.000
Profit $151.500 189.000 217.500 558.000
2. Per unit information
Selling price per unit = the sales ($)/ the sales (unit)
Direct material per unit = total direct material/ the sales (unit)
Direct labor per unit = total direct material/ the sales (unit)
Variable overhead per unit= total variable direct material/ the sale (unit)
A B C
Selling price per unit $100 142.86 230.77
Direct material per unit $5 7.71 15.77
Direct labor per unit $11.25 14.29 26.15
Variable over head per unit $5 7.71 15.77
Direct labor hour = direct labor/ direct labor rate
Direct labor hour per unit = direct labor hour / the sales (unit)
A B C
Direct labor rate $5/unit $5/unit $5/unit
Direct labor hours 4500 hours 5000 hours 6800 hours
Direct labor hour per unit 2.25 hours 2.86 hours 5.23 hours
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3. Estimated Demand for Sales Increases (30%)
A B C Total
Sales (units)(increased by 30% 2600 2275 1690 6565
Direct labor hours needed 5850 6500 8840 21190
Direct labor hours available 21190 hours
Surplus (deficit) = 18000h - 21173h = -3190 hours
Contribution per direct labor hour
Contribution margin= sales price variable cost (direct labor+ direct material+
variable overhead)
Contribution per DLH= contribution margin/ direct labor hours
A B C
Contribution margin ($) $157.500 198.000 225.000
Direct labor hours 4500 hours 5000 hours 6800 hours
Contribution per DLH $35 39.6 33.1
Rank 2 1 3
4. Allocation of Direct Labor Hours Available
Hour available: 18000
Hours to produce product = Sales units * Direct LH per unit
Hours to produce product B: 2275*2.86 = 6500 hours
Hours to produce product A: 2600*2.25 = 5850 hoursHours to produce product C: 18,000 12350= 5650 hours
A B C Total
Direct labor hours available 5850 hours 6500 hours 5650 hours 18000 hours
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5. Revised Budget for Sales Increase (30%)
A B C Total
Sales(units) 2600 2275 1080 5955
Sales $260000 325000 249265 834265
Direct material $13000 17550 17033 47583
Direct labor $29250 32500 28250 90000
Variable overhead $13000 17550 17033 47583
Fixed overhead 22500
Advertising cost 8000
Total fixed cost 30500
Profit 618599
The profit will increase if it compare with original budget 618599- 588000= 60599
6. Extra profit based on Extra 3.500 Direct Labour Hours
Extra 3500 hours (18000+3500=21500 hours)
Additional Sales units product C = (Sales units demanded - Sales units specified in
Revised Budget) = 1690 -1080 = 610 units
Increase in profit is $105511
C
Additional sales (units) 610
Additional sales ($) $140735
Additional direct material $9617
Additional direct labor $15950
Additional variable overhead $9617
Additional fixed overhead
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Increase in profit $105551
Calculate unit costs and make pricing decisions using relevant information given in the
scenario.
Calculate relevant cost
A/ Materials
$22,500 of materials would need to be purchased so it is relevant cost.
$14,000 of materials would need to be transferred from another contract so it is relevant
cost.
Stocks current disposable value is $5,000. This cost consider as opportunity cost so it is
relevant cost.
B/ Labor cost
The contract would involve labor cost of $100,000, of which $55,000 would be incurred
regardless of whether the contract was undertaken. Therefore, $45,000 is relevant cost.
C/ Salary, bonus
The production manager received a salary of $45,000 per year so $45,000 is irrelevant
cost. On successful completion of the contract he would receive a bonus of $7,250 so
$7,250 is relevant cost.
D/ Additional administrative expenses.
Additional administrative expenses incurred in undertaking the contract are estimated to
be $4,325. It is a relevant cost.
E/ Fixed overhead
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The company absorbs its fixed overheads at a rate of 12% per machine hour. The contract
require 4,000 machines hours. It is an irrelevant cost
Calculate the minimum contract price that would be acceptable to KIMCUONG LTD:
Material Purchase $22.500
From other project $14.000
Obsolete stock $5,000
Labor cost $45,000
Bonuses $7.250
Addition administrative expenses $4.325
Total $98,075
The total cost of the product was $ 98,075. It is the minimum contract price that would be
acceptable to KIMCUONG LTD. The company sold products over the higher minimum
cost to get profits. The company didnt accept the contract if the price is lower than
minimum cost.
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Calculate investment cost
Accounting rate of return (ARR)
Accounting rate of return, also known as the Average rate of return, orARRis a
financial ratio used in capital budgeting. The ratio does not take into account the concept
oftime value of money. ARR calculates the return, generated from net income of the
proposed capital investment. The ARR is a percentage return. Say, if ARR = 7%, then it
means that the project is expected to earn seven cents out of each dollar invested. If the
ARR is equal to or greater than the required rate of return, the project is acceptable. If it
is less than the desired rate, it should be rejected. When comparing investments, the
higher the ARR, the more attractive the investment. Over one-half of large firms
calculate ARR when appraising projects. 3
Accounting rate of return( ARR)= (Average profit/ Average value of investment) x 100%
Year A B
1 $210.000 125.000
2 $210.000 125.0003 $170.000 150.000
4 $165.000 215.000
5 $60.000 140.000
Total
profit
$815.000 755.000
Average
profit
$163.000 151.000
Machine A:
Depreciation A = (initial cost - residual value)/ 5 = (700000 - 60000)/5 = $128000
Total profit of machine A = (338+338+298+293+188) -700= $755,000
Average profit of machine A 000,163$5
60165170210210=
++++=
3http://en.wikipedia.org/wiki/Accounting_rate_of_return
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Machine B:
Depreciation B= (initial cost - residual value)/ 5= (700000 20000)/5 = $136000
Total profit of machine B = (261+261+286+351+276) 700= $735,000
Average profit of machine B 000,151$5
140215150125125=
++++=
Machine A
Initial cost 700.000
Residual value 60.000
Average value of investment 380.000
Average investment (in $000) 000,380$2
60700 =+
=
Machine B
Initial cost 700.000
Residual value 20.000
Average value of investment 360.000
Average investment (in $000) 000,360$2
20700=
+=
Accounting rate of return( ARR)= (Average profit/ Avarage value of investment) x 100%
Rate of return of machine A
Average profit 163.000
Average value of investment 380.000
Rate of return 42.9%
ARR= Average profit/ Avarage value of investment %9,42%100*380
163==
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Rate of return of machine B
Average profit 151.000
Average value of investment 360.000
Rate of return 41.9%
ARR== Average profit/ Avarage value of investment %94.41100*360
151==
Because the ARR of machine A> the ARR of machine B so Company should be purchase
machine A
Net present value (NPV)
In finance, the net present value (NPV) ornet present worth (NPW)[1] of a time
series ofcash flows, both incoming and outgoing, is defined as the sum of the present
values (PVs) of the individual cash flows of the same entity. In the case when all future
cash flows are incoming (such as coupons and principal of a bond) and the only outflow
of cash is the purchase price, the NPV is simply the PV of future cash flows minus the
purchase price (which is its own PV). NPV is a central tool in discounted cash
flow (DCF) analysis, and is a standard method for using the time value of money toappraise long-term projects. Used forcapital budgeting, and widely
throughout economics, finance, and accounting, it measures the excess or shortfall of
cash flows, in present value terms, once financing charges are met.
The NPV of a sequence of cash flows takes as input the cash flows and a discount rate or
discount curve and outputs a price; the converse process in DCF analysis - taking a
sequence of cash flows and a price as input and inferring as output a discount rate (the
discount rate which would yield the given price as NPV) - is called theyield, and is more
widely used in bond trading.4
Net Present Value= Total Present value initial cost
Net present Value of machine A
4http://en.wikipedia.org/wiki/Net_present_value
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Year Cash flow
$
Present value factor
10%
Present value
$
0 (700.000) 1.000 (700,000)
1 338.000 0.909 307.2732 338.000 0.826 279.339
3 298.000 0.751 223.892
4 293.000 0.683 200.123
5 248.000 0.620 153.988
NPV 464.615
NPV= TPV- Initial cost= (307.273+279.339+223.892+200.123+153.988)-700= $464.615
Net present Value of machine B
Year Cash flow
$
Present value factor
10%
Present value
$
0 (700.000) 1.000 (700.000)
1 261.000 0.909 237.273
2 261.000 0.826 215.702
3 286.000 0.751 214.876
4 351.000 0.683 239.738
5 296.000 0.620 183.793
NPV 391.382
NPV= TPV- Initial cost= (237.273+215.702+214.876+239.738+183.793)-700= $391.382
Because the NPV of machine A> the NPV of machine B so Company should be purchase
machine A
Conclusion:
Based on the accounting rate of return and net present value for Machine A and Machine
B, we can see that Machine A bring more profitability than Machine B, therefore
KINHDO corporation should choose Machine A to have good effect in work and bring
more profitability for Company.
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The purpose of the financial statements
The purpose of a financial statement is to enable a business to establish the result
of its operations over a period of time and to determine its worth at a specific date.
Financial statements are often prepared by business people to assist them in evaluating
their financial condition.5
There are 4 basics financial statement:
Balance Sheet: The balance sheet basically gives an idea of the financing
structure of the company. The balance sheet's purpose is to show the assets of the
5http://www.hbsmc.com/purpose-of-financial-statements/
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company. Balance sheets are based on a fix point called a reporting period---a day, a
month, a quarter, a year. A quick glance at a balance sheet will show you what the
company owns and how much it owes. Balance sheets include assets (property, cash,
anything owned of value), liabilities (debt owed) and shareholder's equity.6
The balance sheet must follow the following formula:
Assets = Liabilities + Shareholders' Equity
With the help of this one can predict the funds that would be utilized in the future.
It would further reflect the capacity of the firm to raise additional capital.
Income statement: This type of financial statement keeps an account of the net
surplus or deficits. The net surplus or deficit is calculated by considering all the activities
in the last financial year. By having a detailed account of the past, one can forecast orassess the future performance of the company.7The income statement includes profit and
loss statement. Purpose of Income statements show the revenue earned during a reporting
period. Included in this report are the expenses and cost of creating the revenue. Once the
expenses and costs are removed from the total revenue, the bottom line of the report
reveals whether or not the company lost money or made money. The income statement
helps company evaluate the profits of company.
Thus, the income statement is required for each company, investors and creditors
to determine the past performance of the business financial forecast future performance,
and evaluate the ability to create the future cash flows through the income statement.
Cash flow statement: Cash flow statements track the inflow and outflow of cash.
They reveal whether or not cash was generated by the business. The data for a cash flow
statement comes from an income statement and the balance sheet. The cash flow
statement reveals net decreases or increases of cash for the reporting period. The purpose
of this financial statement is to keep an account of the different activities of the company.
It also provides information on the mode of generation of funds required for repayment.
The cash flow statement also helps to analyze the amount of cash that would be required
in order to meet the operating costs.
6http://www.ehow.com/about_5047231_purpose-financial-statements.html7http://finance.mapsofworld.com/financial-report/statement/purpose.html
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Retain earning: When companies make profits, they do not spend it, they keep it.
The amount is kept as retained earnings. The profit is reinvested for businesses to
maintain and expand operations. For businesses, retained earnings are a very important
source of finance. Retained earnings may affect the number of dividend-paying
stakeholders. If enterprises use retained earnings to grow and expand its activities, there
will be some money to pay for the stakeholders.
Like any company, KINHDO Corporation retains their earnings to invest in areas
where the company can create growth opportunities. Use retained earnings to expand the
market is much safer than other options. The company does not pay interest to others and
receive the total benefits from their projects. They are also independent of the strategy to
establish and control their capital without pressure from others (interest rate, time
expression).
The differences between the formats of financial statements (profit and loss
statement and balance sheet) for different types of business such as sole proprietor,
partnership and limited company.
Balance sheet: A financial statement that summarizes a company's assets,
liabilities and shareholders' equity at a specific point in time. These three balance sheet
segments give investors an idea as to what the company owns and owes, as well as the
amount invested by the shareholders.
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Profit and loss statement: A Profit and Loss Statement is a standard financial
document that summarizes a company's revenue and expenses for a specific period of
time, usually one quarter of a fiscal year and the entire fiscal year.8
There are many different between profit and loss statement and balance sheet for
different types of business such as sole proprietor, partnership and limited company
For sole traders, the financial statement for sole traders is simple; because the
report is just serving for the owner of the company. So, it may not have the balance sheet
and income statement. The report just needs to show the profit and loss account
compared to a public limited liability company which will have to prepare based on
international financial reporting standard (IFRS) and generally accepted accounting
principle (GAAP).
Example: Appendix1
For partnership, financial statements related to the interests and profits of those
who contributed to the company's capital. Objectives of financial statements are the
accounting balance sheet, profits, income, result and report the loss. When you create
financial statements, the income statement will usually be prepared first because of
income or net loss became part of the report which of the partners. The claim of capital
partners is to prepare the second because the ending balance of capital became part of the
balance sheet. This statement focuses on the analysis of capital and profits of the
company circulated inside the company.9
Example: Appendix2
For limited company, the financial statement must reflect the current, non-
current assets, liabilities, sales, profits, cost of income tax payable and earning per share.
The income statement shows a statement of changes in equity changes in share capital,
profits, earnings and capital reserve account in the profit and loss year. The company's
liability limit will normally be made within one year from the date the account last year's.
Balance sheet includes different categories such as share capital, retained earnings, other
income and capital reserves. With the limited company. Tax for a separate legal entity
and shall be reflected in the balance
Example: Appendix 3
8http://management.about.com/cs/adminaccounting/g/profitandloss.htm9http://www.oppapers.com/essays/Different-Formats-Of-Financial-Statements-For/470327?topic
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Analyze financial statements using appropriate ratios and comparisons, both
internal and external.
Calculate ratios for the year ended (showing your workings) for Kinh Do
Corporation
Current ratio
The current ratio is afinancial ratio that measures whether or not a firm has enough
resources to pay its debts over the next 12 months. It compares a firm's current assets to
itscurrent liabilities. It is expressed as follows:
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10
Calculation of the ratio is
2007 2008
Current assets 1.754.629 1.474.434Current liabilities 467.800 663.885
Current ratio 3.75 2.22
Based on above table, we can see that the current assets in 2008 are lower and the
current liabilities are higher 2007. In 2007, it means that for 1(VNDm) the
company in the short term it has 3.75 (VNDm) available in assets that can be
converted to cash in the short term. In 2008, it means that for 1(VNDm) the
company in the short term it has 2.2 (VNDm) available in assets that can be
converted to cash in the short term. Therefore, in 2007 the current ration is safer
than 2008. It means that in 2008 the business of KinhDo is not good because the
company may be affected by the economic crisis and the business plan of
company is not suitable. Therefore, I think the company should have suitable plan
to develop in next years. The company should pay some taxes and borrow money
from the bank to increase the assets of company. Besides, the company can sell
issue to increase the current assets of company.
Quick ratios
Quick ratios = Total Quick Assets/ Total Current Liabilities
Quick Assets = Total Current Assets (minus) Inventory
2007 2008
Total current Assets 1.754.629 1.474.434
Inventory 136.272 181.656
Quick Assets 1.618.357 1.292.778
Total current Liabilities 467.800 663.885Quick ratios 3.46 1.9
10http://en.wikipedia.org/wiki/Current_ratio
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5
In finance, the Acid-test orquick ratio orliquid ratio measures the ability of a
company to use its near cash or quick assets to extinguish or retire its current
liabilities immediately. Quick assets include thosecurrent assets that presumably can be
quickly converted to cash at close to theirbook values. A company with a Quick Ratio of
less than 1 can not currently pay back its current liabilities.11
Based on above table, the quick ratios in 2008 is slightly decrease than 2007, it
means that in 2008 the quick ratio is low, it may be the cash or account receivable
decrease and the company is hard to pay the current liabilities on time. In 2007 the quick
ratios is higher, therefore the company can pay the current liabilities on time.
Thus, the good solution of company is to increase the sales of products. It helpscompany increase your cash and the account receivable
Profitability Ratios:
Rate of profit to the company a success is to make a profit or return on investment
that it has achieved in business.
+ Gross margin
+ Roce
+ Net Profit Margin
+ Return on assets
+ Return on Equity
GrossProfitMargin =(grossprofit/sales) *100%
2007 2008
Gross profit 321.978
369.78
8
11http://en.wikipedia.org/wiki/Quick_ratio
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Sales
1.230.80
2 1.455.768
Gross profit Margin
26.1
%
25.4
%
From the result above, we can see that the total sales in 2008 are higher than in
2007. The total sales in 2008 increase that show the business of company is better. The
gross profit in 2008 is increase but the gross profit margin in 2008 is lower than in 2007.
It may be the company decreases the price of products to increase the numbers of sales.
The gross profit margin show about the how much profit every dollar of revenue a
company is earning. In 2007 the gross profit margin is higher it means that the company
can earn more profits on sale than in 2008. Therefore, the company should have plan to
increase the gross profit margin to get more effective in work and attract more investor to
invest in company.
ROCE
Capital employed includes 2007 2008
Non- current liabilities 125.713 172.041Total equity 2.453.494 2.075.923Minority interest 20.468 71.561
2.599.675 2.319.525
PBIT is measured as
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2007 2008
Interest expense 244.030 -27.749
Operating Profit 31.710 52.364
275.740 24.615
ROCE 10.6% 1.06%
ROCE ( return on capital employed) is used to prove the value the business gains from
its assets and liabilities. From the above table, we can see that in 2008 the Roce is lower
than in 2007. ROCE uses to evaluate about the profit of company. In 2008 the profit of
company is lower than in 2007. It may be the company use the capital of company is not
good in 2008, it make the ROCE is lower than 2007 therefore it also affect to the business
of company. Therefore the company should have solution to increase ROCE of KinhDo
such as decrease the cost, ect.
Profit Margin
A ratio of profitability calculated as net income divided by revenues, or net profits
divided by sales. It measures how much out of every dollar of sales a company keeps in
earnings.12Profit margin is very useful when comparing companies in similar industries.
A higher profit margin indicates a more profitable company that has better control
over its costs compared to its competitors.
Profit Margin = (Net Profit / Net Sales) x 100
2007 2008
PAT to the companys shareholders 224.127 85.316Net sales 1.230.82 1.455.758
12http://www.investopedia.com/terms/p/profitmargin.asp
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0
Profit Margin
18.2
%
5.86
%
From the above table, we can see that in 2008 the profit margin in 2007 is better than in2008 because the profit in 2007 is higher than in 2008 although the total sales in 2008 is
better than in 2007. Profit margin is an indicator of a company's pricing strategies and
how well it controls costs. In 2008 the profit margin decreases therefore it is not safer
than in 2007 because a low profit margin indicates a low margin of safety: higher risk
that a decline in sales will erase profits and result in a net loss, or a negative margin. Thus
the business operation of KinhDo is not good in 2008. The best solution of company is to
attract customer to buy their products and have good strategy business to make the work
effectively.
Return on Assets:
Return on assets is an indicator of how profitable a company is before leverage, and is
compared with companies in the same industry. Since the figure for total assets of the
company depends on the carrying value of the assets, some caution is required for
companies whose carrying value may not correspond to the actual market value.13
Return on Assets = (Net Profit / Total Assets) x 100An indicator of a company is how profitable relative to their total assets.
2007 2008Net Profit 224.12 86.416
13http://en.wikipedia.org/wiki/Return_on_assets
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7
Total Assets
3.067.47
5 2.983.410
Return on Assets
7.3
% 2.9%
Return on assets gives an indication of the capital intensity of the company, which will
depend on the industry; companies that require large initial investments will generally
have lower return on assets. From the above table, we can see that in 2008 the return on
asset is lower than in 2007 it means that in 2007 KinhDo uses asset to earn more profit
than in 2008. In 2008 the investment plan is not good to run their business because
Company uses the asset to earn lower profit than in 2007. Therefore the Company should
check their work to have suitable plan to get more profit than in 2008. KinhDo can
increase their asset by selling inventory and marketing their products.
The Return on Equity = (net income/ total equity)* 100%
2007 2008
Net income 224.127 85.316
Total equity
2.453.49
4
2.075.92
3
The Return on Equity 9.1%
4.1
%
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Return on equity (ROE) measures the rate of return on the ownership interest
(shareholders' equity) of the common stock owners. It measures a firm's efficiency at
generating profits from every unit of shareholders' equity (also known as net assets or
assets minus liabilities). ROE shows how well a company uses investment funds to
generate earnings growth. From the above table, we can see that the return on equity in
2007 is better than in 2008 it means that in 2007 Kinhdo uses the capitals from the
shareholder to earn more profits than in 2008. The return on equity shows about the
attract of shareholder in 2008 is lower than in 2007. It means that the business plans of
company is not good and the economic crisis in 2008 therefore KinhDo dont receive
more profits from shareholders. Thus, the Company should have suitable plans to
increase the number of sales to make more profits for equity. By this way Kinhdo can
attract more shareholders investing in their company
Inventory Turnover ratio: the Inventory turnover is a measure of the number of times
inventory is sold or used in a time period such as a year. Theequation for inventory
turnover equals the cost of goods sold divided by the average inventory.
Inventory Turnover Ratio = Net Sales / Inventory
It could also be calculated as:
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Inventory Turnover Ratio = Cost of Goods Sold / Inventory
2007 2008
Cost of goods sold 908.8251.085.98
0
Total Inventory 136.272
181.65
6
Inventory Turnover Ratio 6,7 times 6 times
From the above table, we can see that in 2008 the inventory turnover ratio is less than in
2008, it means that the ineffective inventory management because the inventory usually
zero rate of return and lost many cost to storage. It means that the sales are not good and
many customers arent satisfied with KinhDo products. In 2007, higher inventory
turnover ratios are considered a positive indicator of effective inventory management.
Therefore KinhDo should have plan to reduce the number of inventory by improve the
quality of products, reduce the price of inventory products and have good solution to
marketing their products.
Leverage ratios
Leverage ratio describes the amount of debt that companies use to finance investment in
assets:
Total debt ratio
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Long-term debt ratio
debt to equity
Long-term debt to equity
Total Debt Ratio
2008
Total liabilities 835.926
Total assets 2.983.410
Total debt ratio 28.02%
2007
Total liabilities 593.513
Total assets 3.067.475
Total debt ratio 19.35%
From the above figure, we can see that in 2008 the total debt ratio is more than in 2007. It
means that KinhDo has more debt in 2008 and it also has more affect into the business of
KinhDo. In 2008 the debt is more than therefore the company has the risk level and they
will hard to borrow money from others to open their business because higher portion of
company's assets are claimed by it creditors. If a company notices that interest rates have
fallen below the rate the company is currently paying on its debt, the company may
choose to pay off the high-rate debt with new, lower-rate debt. The best solution for
KinhDo is to pay some debts to reduce the number of interest to balance their work as
soon as.
Long-term Debt Ratio
2007 2008
Long term debt
112.41
0 156.029
Total assets
3.067.47
5
2.983.41
0Long-term Debt Ratio 3.6 5.2
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% %
From the above tables, we can see that in 2008 the long-term debt ratio is increase
therefore it is not good for the business of KinhDO. This means the potential risk the
company faces in terms of its debt-load is higher. The ratio provides a general measure of
the financial position of a company, including its ability to meet financial requirements
for outstanding loans. If a company notices that interest rates have fallen below the rate
the company is currently paying on its debt, the company may choose to pay off the high-
rate debt with new, lower-rate debt. The best solution for KinhDo is to pay some debts to
reduce the number of interest to balance their work as soon as.
Debt to Equity
The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion
ofshareholders' equityanddebtused to finance a company's assets.[1]Closely related
toleveraging, the ratio is also known as Risk, Gearing or Leverage. The two components
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are often taken from the firm'sbalance sheet or statement of financial position (so-
calledbook value), but the ratio may also be calculated using market values for both, if
the company's debt and equity arepublicly traded, or using a combination of book value
for debt and market value for equity financially.14
Debt to equity = (short-term debt/ total equity)*100%
2007 2008
Short-term debt 263.003 335.922
Total equity2.453.49
4 2.075.923
Debt to equity 10,7% 16,2%
Based on the figure, the debt on equity of 2008 is more than that of 2007; it is not safer
for company. It compares the resources provided by creditors with the resources provided
by the shareholders. A high rate means higher risk. This means that the financial situation
of the Kinh in 2008 of high-risk than in 2007. Overall, the proportion of high debt on
equity in 2008 shows that a company may not be able to generate enough cash to meet its
debt obligations. However, the debt ratio low on equity in 2008 also indicated that
companies are not taking advantage of the profit increase financial leverage can bring.
Investors often prefer low-debt ratio on equity because their interests are better protected
in the event of a decline in business. Thus, companies with debt on high equity may not
be able to attract more capital.
Therefore, KinhDo should issuance of common stock to reduce debt on equity by
maintaining debt levels consistent
Long-term Debt to Equity
2007 2008
Long term debt 112.410 156.029Total equity 2.453.49 2.075.923
14http://en.wikipedia.org/wiki/Debt-to-equity_ratio
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4
Long term debt to equity
4.5
%
7.5
%
The long term debt to equity ratio is simply similar to gearing, except that short term debtis excluded from the calculation. This is most simply interpreted as a measure of capital
structure, but is also used as a measure of financial strength. Base on the figure we can
see that the long term debt to Equity in 2008 is more than that in 2007, therefore the
company work not well than 2007. It makes company is not safer than 2007. Thus, the
company should ensure that long-term-debt-to-equity ratios are adequate by properly
managing operating cash and resorting to short-term financing activities, such as stock
issuance.
Analyze the financial performance and position of Kinh Do for the year ended and
compared to the previous year
INCOME STATEMENT 2007 2008 Percentage changes
Revenue 1.230.802 1.455.768 +18%
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COGS 908.825 1.085.960 +19.5%
Gross profit 321.987 369.788 +14.8%
Operating profit 244.030 27.749 -88.6%
Profit before tax 222.469 61.690 -72.2%
Tax 1.659 1.087 -34.8%
Profit after tax 224.127 60.603 -73%Minority interest 24.713
PAT to the companys
shareholder
224.127 85.316 -62%
Interest expense 31.710 52.364 +65%
BALANCE SHEET(VNDm)
Current Assets 1.754.629 1.474.434 -16%
Cash & equipment 530.438 206.808 -61%
Short term financial
investment
522.518 584.291 +11.8%
Provision for short term
investment
4.932 58.732 +1090%
Short term receivables 560.318 489.407 -12.7%
Inventory 136.272 181.656 +33.3%
Provision for inventory
devaluation
395 1.165 +195%
Other short term assets 5.082 12.271 +141%
Non-current assets 1.312.846 1.508.976 +14.4%
Long term receivables 30.911 31.059 +0.47 %
Fixed assets 480.860 749.092 +55.7%
Long term financial investment 797.351 673.385 -15.5%Provision for long term
investments
196.257 51.357 -3.79%
Other long term assets 3.725 55.440
TOTAL ASSETS 3.067.475 2.983.410 -2.7%
Current liability 467.800 663.885 +42%
Short term debt 263.003 335.922 +27.7 %
Non-current liabilities 125.713 172.041 +36.8%
Long term debt 112.410 156.029 +38.8%
Chartered capital 469.997 571.149 +21.5%
Capital surplus 1.725.694 1.721.014 -0.26%Retained earnings 181.798 147.004 -19.1%
Total equity 2.453.494 2.075.932 -15.4%
Monitory interest 20.468 71.561 +249%
TOTAL CAPITAL 3.067.475 2.983.410 -2.7 %
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From the above table about the financial statement, we can see that in 2008 the
business activities in 2008 are not good when compared in 2007. The profit, total asset
and total capital decrease but the debt increases, therefore it makes the company is not
safer than 2007. Although the revenue, total sales, costs of products sold increase in 2008
but the profit after tax decrease, it means that the prices of products decrease. Therefore,
the business of Kinhdo in 2008 is not better than in 2007.
In balance sheet the current assets of company decrease but the non-current assets
increase. The total sales in 2008 is more increase than in 2007 but the retained earnings is
lower, it means that the business of Kinhdo has problems, it may be Kinhdo reduce the
price of products to increase the total sales and decrease the number of the inventory.
Besides, the current liability, the non-current liability, the short and long term debts
increase but the total assets and the investment decrease. Therefore, the company uses the
assets of company to pay the tax and the banks.
Finally, the total equity decrease in 2008, it shows that Kinhdo cannot use the
capital from the equity and shareholders; therefore it has affect to the profits of equity.
Suggestion: The Company should have good business plans and pay some debts to
decrease the total debts to help KinhDo to stable business operation of Kinhdo.
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Conclusion:
The report aims to discuss three aspects that are the financial implications as a resource in
the business, making financial decisions based on financial information and financial
analysis of business performance business. First, it describes the information needs of
different decision makers and the financial impact of the financial statements. Next, it
analyzes budgets for decision making at reasonable prices as well as evaluating the
feasibility of a project using the techniques of investment evaluation. Finally, it explains
the purpose of financial statements and describes the differences between the formats of
financial statements for the business types.
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Reference:
MFRD book
http://www.investorwords.com/1957/financial_statement.html
http://en.wikipedia.org/wiki/Accounting_rate_of_return
http://en.wikipedia.org/wiki/Net_present_value
http://www.hbsmc.com/purpose-of-financial-statements/
http://www.ehow.com/about_5047231_purpose-financial-
statements.htmlhttp://finance.mapsofworld.com/financial-report/statement/purpose.html
http://management.about.com/cs/adminaccounting/g/profitandloss.htm
HNC & HND (2002).Managing Financial Resources. London
http://www.investopedia.com/terms/p/profitmargin.asp
Appendix 1: Sold trader
37
http://www.investorwords.com/1957/financial_statement.htmlhttp://en.wikipedia.org/wiki/Accounting_rate_of_returnhttp://en.wikipedia.org/wiki/Net_present_valuehttp://www.hbsmc.com/purpose-of-financial-statements/http://www.ehow.com/about_5047231_purpose-financial-statements.htmlhttp://www.ehow.com/about_5047231_purpose-financial-statements.htmlhttp://finance.mapsofworld.com/financial-report/statement/purpose.htmlhttp://management.about.com/cs/adminaccounting/g/profitandloss.htmhttp://www.investopedia.com/terms/p/profitmargin.asphttp://www.investorwords.com/1957/financial_statement.htmlhttp://en.wikipedia.org/wiki/Accounting_rate_of_returnhttp://en.wikipedia.org/wiki/Net_present_valuehttp://www.hbsmc.com/purpose-of-financial-statements/http://www.ehow.com/about_5047231_purpose-financial-statements.htmlhttp://www.ehow.com/about_5047231_purpose-financial-statements.htmlhttp://finance.mapsofworld.com/financial-report/statement/purpose.htmlhttp://management.about.com/cs/adminaccounting/g/profitandloss.htmhttp://www.investopedia.com/terms/p/profitmargin.asp7/28/2019 Mfr2 Rockie
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http://www.svtuition.org/2010/01/proforma-of-profit-and-loss-account-and.html
39
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Appendix2: Partnership
Income statement for partnership
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businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-
company/partnership-example-of-income-statement-and-balance-sheet-part-1-of-3/
Balance sheet for partnership
http://business-plan.planmagic.com/online-business-plan/balance_sheet_forecast.htm
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Appendix 3: Limited Company
Income statement for Limited company
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businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-
company/private-limited-company-example-of-income-statement-and-balance-sheet/
Balance sheet for Limited company
Head Shoppe Company LimitedBalance Sheet
December 31, 1989
http://aics.acadiau.ca/case_studies/headshoppe.html
http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://aics.acadiau.ca/case_studies/headshoppe.htmlhttp://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://learnaccounting.wordpress.com/2007/12/21/three-most-common-types-of-small-businesses-%E2%80%93-sole-proprietorship-partnership-and-private-limited-company/private-limited-company-example-of-income-statement-and-balance-sheet/http://aics.acadiau.ca/case_studies/headshoppe.html