INTRODUCTION TO ACCOUNTING AND FINANCE

INTRODUCTION TO ACCOUNTING AND FINANCE



INTRODUCTION TO ACCOUNTING AND FINANCE

Cash Flow Forecast

For period of January 2012 to December 2012

Month

Jan

Feb

Mar

Apr

May

June

Jul

Aug

Sep

Oct

Nov

Dec

Total

Cash balance at the start of each month #

$0

$86

$40

-$52

-$37

$76

-$44

$43

-$29

$164

$154

$160

 

Cash in

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

$451

$360

$399

$410

$490

$464

$452

$340

$450

$390

$480

$680

$5,366

Investment

$0

$0

$0

$0

$0

$0

$0

$0

$300

$0

$0

$0

$300

 

 

 

 

 

 

 

 

 

 

 

 

 

$0

Total cash in at end of month

$451

$360

$399

$410

$490

$464

$452

$340

$750

$390

$480

$680

$5,666

Cash out (record expenses when actually paid)

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of Vehicles

$150

$180

$150

$180

$150

$180

$150

$180

$150

$180

$220

$250

$2,120

Showroom Rent

$20

$20

$20

$20

$20

$20

$20

$20

$20

$20

$20

$20

$240

Salaries

$40

$40

$40

$40

$40

$40

$40

$40

$40

$40

$40

$40

$480

Wages

$100

$100

$100

$100

$100

$100

$100

$105

$105

$105

$125

$125

$1,265

VAT

$0

$0

$126

$0

$0

$189

$0

$0

$187

$0

$0

$198

$700

Loan Repayments

$35

$35

$35

$35

$35

$35

$35

$35

$35

$35

$35

$35

$420

Utility Bills

$0

$11

$0

$0

$12

$0

$0

$12

$0

$0

$14

$0

$49

Other payments

$20

$20

$20

$20

$20

$20

$20

$20

$20

$20

$20

$20

$240

Total cash out at end of month

$365

$406

$491

$395

$377

$584

$365

$412

$557

$400

$474

$688

$5,514

Net difference †

$86

-$46

-$92

$15

$113

-$120

$87

-$72

$193

-$10

$6

-$8

(subtracts the Cash out from Cash in)

Cash balance at the end of each month ‡

$86

$40

-$52

-$37

$76

-$44

$43

-$29

$164

$154

$160

$152

Section A

Task 1:

A cash flow forecast for MOTORMART Company for period January to December 2012 is as below

Task 2:

Trends in the forecasted cash flow highlighting any areas of concern for the business

The above cash flow forecast statement clearly shows the forecasted revenues and expenses for r the twelve months of the year 2012. There is a mixed trend of cash, which varies from positive to negative than again positive at the end of every months of the year. The months where the end balance is negative are because of the additional expense payments such as Vat, utility bills etc.

The line graph represents the level of cash flow at the end of each month. Last four months of the year 2012 will have positive cash flows, which is a good sign for company growth.

Percentage Ratio of expenses

The table below shows the percentages of expenses to the revenues.

Expense Item

%

Purchase of Vehicles

37.4%

Showroom Rent

4.2%

Salaries

8.5%

Wages

22.3%

VAT

12.4%

Loan Repayments

7.4%

Utility Bills

0.9%

Other payments

4.2%

Free Cash Flow

2.7%

It can be seen that the largest share is of vehicles purchase. The second largest share is of wages. To control the cash flows, company should focus on these large amount expenses.

Section B

Task 1: Financial Performance and Efficiency of South Downs Drinks

South Downs Drinks Ltd

Income Statement for the year ending 30th April

Years

2011

2010

Revenue

15298

15301

Cost of Sales

13668

13405

Gross Profit

1630

1896

Expenses

1019

872

Operating Profit

611

1024

Profit for the year

305

795

South Downs Drinks Ltd

Balance sheet as at 30th April

Years

2011

2010

Non Current Assets

23,864

20125

Inventories

2430

1995

Receivables

1311

1985

Cash at Bank

2559

2515

Total Current Assets



6,300

6495

Current Liabilities

10,263

9875

Net Current Liabilities

-3,963

-3380

Non Current Liabilities

-7,999

-5725

Net Assets

11,902

11020

Total Equity

11,902

11020

RATIOS

FORMULAS

2011

2010

Liquidity ratios

Current Ratio

Current assets / Current liabilities

0.61

0.66

Acid Test Ratio (Quick Ratio)

Current assets-inventory / Current liabilities

0.38

0.46

Inventory Turnover

Cost of sales / Inventory

5.62

6.72

average collection period

Accounts receivables/ sales*365

31.28

47.35

Solvency ratios

solvency ratio

Current assets / Current liabilities

0.61

0.66

Debt Ratio

Debt/ total assets

-0.63

-0.52

debt equity ratio

Total debt / Shareholders fund

-0.33

-0.31

Activity ratios

accounts receivable turnover

Annual credit sales/ Average accounts receivables

Times Interest Earned (Interest Cover)

Operating income / Interest paid

0.60

1.17

Profitability ratios

Operating Return on Assets

Operating income/ total assets

0.05

0.09

Operating Profit Margin

Operating income/ sales

0.11

0.07

Return on Equity

Net income/ Equity

0.03

0.07

The financial analysis of the financial statements occurs on the basis of ratio analysis. Ratios using which one can form a quantitative image on a number of aspects of the financial status of an enterprise. Another name for ratios is prefixes. The most important are: liquidity ratio, solvency ratio, profitability ratio and rate ratio.

These ratio analysis are use to estimate the financial performance of the company. There importance increases when the investment decisions are needed to be made. These ratios are also studied by the bank, when company asks for loan. Liquidity ratios directly affect the working capital of the company. Liquidity concern is a major issue for many organizations. The quick ratio portrayed a drastic picture in ...