Managing And Accounting For Financial Resources

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MANAGING AND ACCOUNTING FOR FINANCIAL RESOURCES

Managing and Accounting for Financial Resources



Introduction3

Discussion3

Conclusion15

References17

Managing and Accounting for Financial Resources

Introduction

The primary purpose of this program report is to understand and analyze the accounting and financial information in the form of reports and documents that are used for the purpose of evaluating the financial health of a business. It is studied so far that there are mainly two types of accounting information or resources and these are financial and management accounts. The business accounts are comprised of documents that are used for recording financial and accounting transactions. The financial accounts are mainly prepared to exhibit the financial performance of a business. There are five elements or forms of financial accounts that have been examined and analyzed in this report as well as a learning outcome of this program and these are profit and loss statement that is also referred to the income statement and is showing the business performance for a particular accounting period Balance sheet statement that is comprised of allocation and value of assets and liabilities for a particular time period and cash flow statement that shows the cash inflow and outflow for a specific period of time Notes to financial statement shows the compliance and details of financial records as per the accounting standards and lastly director's report that is comprised of director's comments and analysis of the company's performance along with disclosures of many financial plans and records, compensation, shares etc. (Broadbent and Cullen, 2012, pp. 22-324). There are many tools and techniques used by financial and accounting managers in an organization to evaluate and assess the future and current performance of the corporation. These tools may include ratio analysis, pro forma income statement and balance sheet. This report is aimed at evaluating the financial and accounting performance of a hypothesized company named as Blue star private limited.

Discussion

Forecasted financial statement for Blue Star

The financial statements of the Blue sky company are as follow for the year 201X:

Blue Star Private Limited

Income Statement for the year ended 201X

Item

 

$ in millions

Sales

 

16

 

Cost of Goods sold

 

10.88

 

Gross Profit

 

5.12

 

 

 

 

Expenses from operating activities

1.44

 

Profit before tax and interest

3.68

 

Interest expenses

 

0.8

 

Profit before taxes

 

2.88

 

Taxes

 

0.6336

 

Net profit

 

 

2.2464

 

Blue Star Private Limited

Balance Sheet for the year ended 201X

Item

 

$ in millions

Non current assets

 

 

22

Current assets

 

 

 

Inventory

 

2.4

 

Trade receivables

 

2.2

 

 

 

 

4.6

 

 

 

 

Total Assets

 

 

26.6

 

 

 

 

Equity Finance

 

 

 

ordinary shares

 

5

 

Reserves

 

7.5

 

 

 

 

12.5

Long term Bank Loan

 

 

10

 

 

 

22.5

 

 

 

 

Current Liabilities

 

 

 

Trade Payables

 

1.9

 

Overdraft

 

2.2

 

 

 

 

4.1

Total equity & Liabilities

 

 

 

26.6

The financial ratios that have been estimated for the next year are as follow

Gross profit margin30%

Operating profit margin20%

Dividend payout ratio50%

Inventory turnover period110 days

Trade receivables period65 days

Trade payable period75 days

We know that these ratios are calculated as follow

Gross profit margin =Gross profit / sales

Since, sales of the company are expected to grow by 8.4% then the sales for the next year becomes as follow:

16 m * 8.4% + 16 m = 17.344 m

Now, we know that sales = 17.344 m and gross profit margin = 30% then the Gross profit for the next year becomes:

30 / 100 = Gross profit / 17.344 m = 5.20 m

Operating Profit margin = Operating profit / sales

20% = Operating Profit / ...
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