E-revolution ompany - Assignment Example

? Accounting report Table of content Cover page Table of content…………………………………………………………………………………………….2 Executive summary…………………………………………………………………………………………3 Introduction…………………………………………………………………………………………………4 Ratio analysis……………………………………………………………………………………………….4 Other forms of analysis……………………………………………………………………………………..6 Conclusion………………………………………………………………………………………………….7 Appendix……………………………………………………………………………………………………8 References…………………………………………………………………………………………………11 Executive report The accounting report will show the analysis of the accounts to E-revolution Company. The report shows the analysis of the company by the use of financial ratios that are useful in determining the financial position of the company. The report makes use of the following ratios, profitability ratios, liquidity ratios, and financial stability ratios. The profitability ratios are useful in showing the level at which the sales of the company are converted into profits and the efficiency at which that is done. The liquidity ratios indicate the ability of the company to deal with its financial obligations and the financial stability ratios indicate the level at which the operations of the company are dependent on debt as opposed to the equity of shareholders. The analysis deals with the month of April 2012 with comparison to march 2012. The report also contains recommendations that are useful for the prosperity of the business. Introduction E-revolution is found in the mobile industry which is among the fastest growing industries. The company is doing well in terms of its profit levels but that can be improved further by the use of a number of recommendations. The financial report will detail the transactions that took place in the financial year ending in April 2012 for e-revolution. The purpose of the report is to describe the financial and profitability position of the business in comparison with previous times. The report has been requested by the partners of the business who are interested in knowing the direction that the business is headed. The main concern for the owner of the business is the provision of good products and services, improvement of the market share, making money, ensuring debtors pay in a manner that is timely, paying bills on time and the management of inventory and tax obligations in a good manner. Ratio analysis 1. Gross profit margin The ratio indicates the ability of a company to convert its sales into profits. That should be done by the company reducing its costs incurred in the selling process so that the profits can increase. The ratio is calculated as; Gross profit / sales= $ 52,079.11/ 122,944.31 = 42.35% That indicates that the level of efficiency of e-revolution of converting sales into profits is equal to 42.35%. Profitability is among the concerns of Hopkins, the ratio above shows that the company is not doing badly in regards to profitability levels. 2. Current ratio The ratio is used to show the ability of a company to settle its short term financial obligation. The ratio is useful to indicate the ease at which a company can pay its financial obligation by the use of assets that are highly liquidable. That means that the current assets should be more than the current liabilities. Current ratio= current assets/ current liabilities =$90,761.29/ $26,868.93 =3.38 The results of the ratio indicate that the company is highly liquid and it will be able to meet its bills. That is among the main concerns of the owner, Hopkins and that indicates that he does not have to worry about the issue because the company will be able to maintain its bills and other liabilities. Quick ratio The current ratio is usually faced by the challenge of the inventory of the company forming most of the part of the current assets. That is not a positive thing because inventory is not regarded as a thing that is highly liquid. Therefore, the acid test ratio was established so as to avoid the weaknesses that exist in the current ratio. Quick ratio= (current assets- stock)/ current liabilities = (90761.29- $45,152)/26,868.93 =1.69 The recommended quick ratio is 1:1. The company has a quick ratio that is more than 1:1 and that means that the business is doing well and it will manage to pay its bills with a lot of ease. Other forms of analysis Analysis of the aged payables The payables that the company has include those to envisage corporation. The total amount is equal to $ 27,390 and it is due in 30 days. The credit policy for the company is good because the company has to pay its creditors within duration of 30 days. That means that within the 30 days, money that is enough should have been accumulated so as to cater for the bill. The policy is good; however, more can be done so as to improve the policy. The policy should be improved so that it cam favor the company. The company should negotiate with its creditors to extend their payment period so that they can be able to pay the bill in a longer period that will have different installments. GST summary From the analysis of the goods and services tax, it is clear that the company has the ability to meet its tax obligations as required by the government. This is because the company accumulates amounts that will enable it to handle its tax obligations. Creditor’s analysis E-revolution has a number of suppliers. The company should ensure that the suppliers offer the best price in the market so that the profit levels of the company can increase as a result of the reduced costs. The best selling price can be obtained by the company asking is suppliers to engage in a bidding process that will ensure that the best terms are obtained from the best supplier. The best terms will include even instances of the repayment period. E-revolution should negotiate with suppliers to allow them to have a longer payment period. The long repayment period will ensure that the company always has steady flow of income. Debtor’s analysis The analysis of debtors can be done by the use of the collection period from debtors. The company should ensure that the period should be minimal so that the company can have a steady flow of income. In comparison with the month of March, the collection time of the company has increased from 11 days to 3052 days. That shows that the company has to change its sales policy. That can be done by the company dealing more with cash sales as opposed to credit sales. That will avoid any financial problems that may be caused by the lack of funds. Inventory analysis The analysis of inventory is done by determining the number of times that stock is sold on average. The turnover ratio for inventory has decreased as compared to the month of March. The company should change its selling practices so that the sales volume can increase and that will add on the profit levels. Debt analysis The analysis of debt may be done by the use of the debt ratio which shows the level of gearing to a company. The debt ratio has fallen in the month of April and that is a positive indicator for the company. Financial flexibility of the company may be enhanced by bank loans as was the case in the month of April. Conclusion The business is at a good financial position. However, that position may be improved further if the company makes an attempt to change its policy on sales. The sales will be increased by the increase in efficiency of the company and the involvement of staff who are motivated in their work. Therefore, the company should come up with initiatives that should be aimed at motivating employees so as o work harder. Appendix Debt ratio Inventory turn over Receivable turnover Current ratio Gross profit ratio Refernces Crosling, G.M., Murphy, H. M., Cotesta, P. V., Sands, J. (2005). Writing and presenting in accounting. (2nd ed.). Sydney, NSW. LexisNexis Butterworths. May C. & G., (2009) Effective Writing , A handbook for accountants.(8th ed.). New Jersey, Pearson Prentice Hall. Read More