Financial Management and Accounting - Assignment Example

Financial management and accounting Question Brandywine Homecare Brandywine Homecare is a not for profit business and that makes the business exempt from taxation for incomes that arise in the normal activities of the business. However, other activities that may provide some income to the organization other than the core business should be taxed (Bailey, 1999).a) Brandywine’s Homecare income statementAn income statement usually represents the cash flow attributable to a business in the form of revenue obtained in the normal running of a business, and the expenses that result from the operations of a business.

The income statement should be able to show the revenues, and expenses attributable to a business that would eventually lead to either a surplus or deficit in the case of a not for profit business.Brandywine’s HomecareIncome statementFor the period ending 2011 $’millions’ $’millionsRevenue 12Less expense Depreciation charge 1.5Surplus 10.5 b) Brandywine’s net income, total profit margin, and cash flowNet incomeThe net income should be equivalent to the value resulting from the deduction of total expenses from the revenues of the business.

Net income= total revenues – total expenses =$12 million - $1.5 million = $10.5 million Total profit marginThe total profit margin should be used as a metric that is helpful in the assessment of the financial strength of a company. The strength of a company in terms of finances is determined by analyzing the percentage of money that remains after total expenses are deducted form the income of a company. The total profit margin is calculated using the following formula; Total profit margin= total expenses / net revenues * 100%Brandywine’s Homecare total profit margin = $1.

5 million / $10.5 million * 100% = 14.28%That will imply that for every dollar received from the operations of Brandywine Homecare, only $0.125 is retained as profit by the business.Cash flowIn a business, there are 2 forms of cash flows; cash inflow, and cash out flow. Cash inflow to a business is the revenue that may is incurred from the normal running of the business. The other forms of cash inflows include dividends that a company receives from investing in other businesses. Cash out flows are the cash amounts that a business uses in the running of the business.

They may include the payment of business expenses, acquisition of equipment, and the payment of dividends to shareholders of the business. The cash flow to Brandywine Homecare is $12 million that results from the revenue of the business.c)The doubling of the depreciation charge as a result of changes in calculation procedures would make it to be equivalent to $3 million. The increase in depreciation charge would make the net income to be less by an amount equivalent to the increase in the depreciation charge.

Net income= $ 12million - $3 million =$9 millionThe total margin would double as a result as the doubling of the depreciation charge. The total margin would be equal to;Total margin= $3 million/ $10.5 million * 100% =28.57%However, the increase in the value of the depreciation charge would not affect the cash flow of the company. This is because depreciation charge is termed as a non cash item and therefore has no effect on the cash flows of the business.d)If the depreciation expense was reduced by a half, the net profit would increase by an amount equal to the decrease.

That means that the depreciation charge would be equal to $0.75 million. The total profit margin would reduce by a half while the cash flow would remain unchanged.Net income= $12 million - $0.75 million = $11.25 millionProfit margin= $0.75 million / 10.5 million* 100% = 7.14%Question 2 Mainline HomecareMainline HomecareIncome statementFor the period ending 2011 ‘$’ million ‘$’ millionRevenue 12Less expenseDepreciation charge 1.5Net income 10.5Less 40% 4.

2Retained profit 6.3Total profit margin = $ 1.5 million/ $6.3 million* 100% =23.8%The cash flow for Mainline Homecare would also be equivalent to $ 12 million.ReferencesBailey, L. (1999). Financial Accounting. New York: Free Press.