Discussion Questions for the Presented Financial Analysis - Case Study Example

From the first analysis and using the x-factor tool given to evaluate different possibilities it is observed that when the sales are at 422,733 million, the cost of goods sold is directly affected at 38% million, the cost of goods sold is directly affected at 38% million, the cost of goods sold is directly affected at 38% million. On the other hand, the cost of goods sold is directly affected at 38% to be 160,639 million. For a business to operate, there are operating expenses that always have to be incurred.

These include rent, internet, transport, flights, advertising, and airtime among other things. These factors are consolidated into operating expenses which in this scenario is directly affected by sales at 50% meaning that half of the operating expenses are geared towards sales. As the sensitivity analysis tool suggests when the cost of goods sold is 35% of sales, the company runs into a profit of 28,787 million but when the cost of goods sold is at 45% of sales the company runs into a debt of 2102 million.

This happens because the company is having a lot of spending to increase sales. The breaking point ratio is at 44% of sales since no debt is made and the company has 987 excess cash for the company. Therefore the company should at least invest 200 million to offset this change. One of the assumptions made in this analysis is that interest expense is directly affected by the debt the company has. The second assumption is that the debt majorly consists of loans i.e. both long-term and short-term loans.

Another assumption is that sales do not vary at this point and that in case it does, the effect is insignificant. In addition, the current assets have also been deemed a factor that affects debt and excess income in the company. There is also an assumption that total assets less total liability will give a balancing figure which will either result in a debt or an income.