FINANCIAL ANALYSIS

Pampers Health Spa' (PHS)



Pampers Health Spa' (PHS)

Task 1:

Trial Balance as at 31st December 2009

£ Debits

£ Credits

Sales

2,965,000

Capital

1,360,000

Trade Debtors and Trade Creditors

31,000

45,500

Motor Vehicles

26,000

Fixtures and Fittings & equipment

275,000

Stock at 31st December 2009

57,300

Purchases

494,000

Motor Expenses

8,900

Insurance

28,700

Rates

20,400

Premises

1,680,000

Wages and Salaries

1,445,000

Repairs & renewals

54,700

Professional charges

17,500

Advertising

67,000

Bank

33,000

Drawings

132,000

Net Income

Retained Earnings

Total

4,370,500

4,370,500

Income Statement as at 31st December 2009

£

£

Sales

2,965,000

Purchases

494,000

Expenses

Motor Expenses

8,900

Insurance

28,700

Rates

20,400

Wages and Salaries

1,445,000

Repairs & renewals

54,700

Professional charges

17,500

Advertising

67,000

Total Expenses

 

1,642,200

Net Profit

 

828,800

Balance Sheet as at 31st December 2009

£

£

Assets

Bank

33,000

Motor Vehicles

26,000

Fixtures and Fittings & equipment

275,000

Stock

67,600

Trade Debtors

31,000

Premises

1,680,000

Total Assets

 

2112600

Liabilities & Owner's Equity

Liabilities

Trade Creditors

45,500

Total Liabilities

 

45,500

Owner's Equity

Capital

1,360,000

Drawings

132,000

Retained Earnings

575,100

Total Owner's Equity

 

2,067,100

Total Liabilities & Owner's Equity

 

2112600

Task 2:

Break-even Equation;

Sales = Variable cost + Fixed cost + Profit

Where n = number of guests

Sales

2,965,000

Profit

0

VC

2879240

FC

1233960

For Break-Even Point

2965000n = 2879240n + 1233960 + 0

2965000n - 2879240n = 1233960

85760n = 1233960

n = 1233960/85760

n= 14.38

n= 15 per day

15 x 7 = 105 per week

105 x 48 = 5040 per year

For Margin of Safety

Guests served =

14112

Guests at break even =

5040

Margin of Safety =

9072

Task 3:

Proposal 1

Discount rate

12%

Year

0

1

2

3

4

Net Cash flow

(900,000.00)

270,000.00 295,000.00 345,000.00 325,000.00

Discount Factor

1

1.12

1.2544

1.404928

1.57351936

Discounted CF

-£ 900,000.00

£241,071

£295,000

£345,000

£325,000

Investment Measures

NPV =

£2,251.88

IRR =

13.43%

Year

0

1

2

3

4

Net Cash flow

(900,000.00)

270,000.00 295,000.00 345,000.00 325,000.00

Cumulative Cash flow

(900,000.00)

(630,000.00)

(335,000.00)

10,000.00 335,000.00

Payback period =

2 + (335000/345000)

2.97

=

2 years 11 months

Accounting Rate of Return (ARR)

=

Net Return

x 100

Capital cost

=

308,750.00

x 100

900,000.00

ARR =

34.31

%

Proposal 2

Discount rate

12%

Year

0

1

2

3

4

Net Cash flow

(750,000.00)

160,000.00 189,000.00 225,000.00 254,000.00

Discount Factor

1

1.12

1.2544

1.404928

1.57351936

Discounted CF

-£ 750,000.00

£142,857

£189,000

£225,000

£254,000

Investment Measures

NPV =

(£134,113.56)

IRR =

3.78%

Year

0

1

2

3

4

Net Cash flow

(750,000.00)

160,000.00 189,000.00 225,000.00 254,000.00

Cumulative Cash flow

(750,000.00)

(590,000.00)

(401,000.00)

(176,000.00)

78,000.00

Payback period =

2 + (176000/254000)

3.78

=

3 years 9 months

Accounting Rate of Return (ARR)

=

Net Return

x 100

Capital cost

=

207,000.00

x 100

750,000.00

ARR =

27.60

%

Task 4:

Financial Health

The 'Pampers Health Spa' (PHS) is a luxury spa and small hotel, situated in rural area near Birmingham. After developing the profit and loss statement net profit earned by the company is £ 828800. The company has high amount of sales with very low purchases. The expenses are also manageable and there is a margin to decrease further to become more efficient.

The Balance Sheet shows a clear picture of the financial position of the company, with major fixed assets including premises, fixtures and equipments. The only liability is the creditor with amount of £ 45500. The Pampers Health Spa can accommodate up to 420 guests per week but has an average occupancy rate of 70%. The hotel is open 48 weeks of the year.

Break-even Analysis

The accountant must be conscious and aware of certain things that are necessary, such as water and air, not just a person who made ??the rights and obligations of the company that operates and is also not a person who demonstrates financial results reached by the organization. But the accountant thought and planning and control in addition to the above. And surprisingly, many people do not realize or understand the concept of break-even point, its importance and method of calculation is.

Break-even point

Break-even point defines what should be the volume of sales to break even venture to work, could cover all its ...