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Finance - Coursework Example

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FINANCE: Cape E-Distributors LTD (Authors Name) (Institution Affiliation) a) Introduction to the business. Cape E-Distributors LTD Cape E-distributors LTD is a private limited online distribution company involved in the alcohol distribution business. This involves retail and wholesale selling of alcoholic beverages to consumers…
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Download file to see previous pages... The only difference however is that we do our business online. This is an advantage to the business as an online presence gives it an increased global presence at the same time helping it minimize operation costs to zero since there are no fixed costs to be paid out such as rent and other utilities. The main reason why I chose this line of business was due to the fact that after intense market research, I found out that there is always a demand for alcoholic beverage all year round. Alcoholics will always drink alcohol whether they have enough income or not. Although lack of income may mean reduced alcohol intake, it does not mean they will completely not drink. It with this conclusion that I decided to start this business as there was going to be steady cash inflows for the business throughout the year. Also, alcoholic drinks being fast moving consumer goods, there will always be a high demand for the products and extensive distribution networks and it is due to this reason that I chose to be a cybermediary as there will always be a demand for the goods and to gain access to a large company. b) Analysis of break even. Break-even point is the level of sales at which profit is zero According to Atrill and McLaney (2011) at break-even point; sales are equal to fixed cost plus variable cost. In analyzing the break even, one normally needs the three pieces of information: Fixed costs, variable costs and average price per unit. Fixed costs are those minimum operating costs in a business that do not change no matter how many units one sells. They include rent, utilities, bank charges among others. Since Cape e- distributors is an online platform, it does not have any fixed costs as per now. Variable costs per unit-These are those costs that vary and depend on sales volumes. Average price per unit; Since you're able to choose exactly where to set your prices. Start by looking at your competition, and how they price their products. Break Even Analysis Formula therefore is: BEQ = Fixed costs / (Average price per unit – average cost per unit) Fixed cost =0 Average price per unit in year 1 is 55 Average cost per unit in year 1 is 11 Substituting into the formula = 0/(55-11) Therefore the break even quantity is zero. All the other break-even quantities for the subsequent years will be zero because there are no fixed costs for our firm. This is due to the fact that it is an online firm hence no operating costs are incurred. c) Analysis of business performance using financial ratios Profitability Ratios They use margin analysis to give an indication of whether a firm is generating enough returns on capital employed. For Cape distributors the gross profit margin is 91%, the net profit margin is 91% while the return on capital employed is 103%.With such high profitability ratios, it means that the firm has really minimized on its costs and the sales are increasing steadily.A high profitability ratio means that the firm is really good at cost controlling Pandey (2008). Liquidity Ratios These are the ratios that show whether a firm is able to meet its short term obligations as and when they occur. I n other words they measure solvency of the firm. For our business, the liquidity ratios calculated are current ratio which is regarded as a test of liquidity for a company. It expresses the 'working capital' relationship of current assets available to meet the company's current obligations. The other liquidity ratio is the creditor ...Download file to see next pagesRead More
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