Accounting Summary To Management Essay Research Paper

Accounting Summary To Management Essay, Research Paper

1.1 Percentage Analysis 1.1.1 Trend percentages – see appendix 1.1 Profit and loss statement Net salesNet sales have increased by 5% in 1998 Cost of goods soldCost of good sold has also increased by 55 in 1998. this is an expected increase as their amount of sales has increased. Selling – General and AdministrativeThe cost of selling has increased by 4%. Once again this could be expected because the umber of sales has increased. Total ExpensesTotal expenses has increased by 5%. Operating profitthe operating profit of Andrews Ltd.. has increased by 12% Interest expenseThe interest expense has decreased dramatically by approximately 75%. This well help significantly in the generation of profit for the company. Profit before Income TaxProfit before income tax has increased by 14% this is mainly due to the decrease in the amount of interest to be paid. Income Tax ExpenseIncome tax expense has decreased by 20% This also will aid in the generation of larger profits. These trend percentages show quite clearly that Andrews LTD is doing much better in 1998 than they were in 1997 1.1.2 Common size statements -see appendix 1.2 and 1.3 Profit and Loss statementOperating ExpensesTotal operating expenses has reduced proportionally to net sales due to a decrease in each of the expenses. It has decreased by 5% of net sales. This shows that they are operating more economically than they were in 1997. Operating profitDue to a decrease in expenses the operating expense has increased by 1% of net sales. Interest ExpenseInterest expense has decreased dramatically compared to net sales. It has changed from 3% of net sales in 1997 to 0.08% of net sales in 1998 Profit before Income TaxAs a result in interest expense the profit before tax has increased by 1.4% of net sales in 1998 Income Tax ExpenseIncome tax expense has decreased by 2.1% of sales Net ProfitNet Profit has increased by 3.5%. This is due to the decrease in all of the above expenditures. Balance SheetTotal Current AssetsTotal current assets have increased by 3.4% of total assets. Total Non current AssetsTotal non current assets have decreased by 3.4%. This was mainly due to a rather large decrease in Other Assets. Total Current liabilities.Total current liabilities has increased by 2% in proportion to Assets. Non current liabilitiesNon current liabilities has decreased by 0.6% due to a decrease in long term debt. Total liabilitiesTotal liabilities has increased by 1.5% on the 1997 value. Share Holders EquityShare holders equity has decreased by 1.5% of total current assets from it s 1997 value. The common size analysis of Andrews Ltd. has shown that expenses have been reduced dramatically from their 1997 value. As a result of this their profit in 1998 is also much larger proportional to net sales. They have also liquefied their assets by eliminating some non-current assets and reduced non current liabilities. As a result of this they have more available funds if needed urgently. OVERALL SUMMARYBy analyzing the percentage trends of Andrews LTD, It seems as though the company is performing strongly, and has strengthened from the previous year. 1.2 RATIO ANALYSIS 1.2.1 Profitability Analysis Return On Assets: The return on assets for Andrews LTD is 18.1%, meaning that for every dollar invested in assets, 18 cents are earned. This figure is well above the industry average of 7.7%, indicating that Andrews LTD is performing strongly in this area. This cannot be compared to the 1997 financial year, as no data was available to determine an average assets figure for 1997. – see appendix 1.4 for calculations Net Profit Margin: 1997: 16.5% 1998: 17.5% Each dollar of sales in 1998 generated 17.5 cents of profit, which is up from 16.5 cents in 1997. These figures are also well above the industry average of 3.2%, indicating that the company is taking a healthy profit. -see appendix 1.5 Gross Profit Margin: 1997: 42.7% 1998: 43.1% The 1998 gross profit margin has increased slightly over the previous year, but not enough to be significant. This means that the relativity between selling and buying prices Andrews LTD s goods hasn t changed markedly. -see appendix 1.6 Operating Expense Ratio: 1997: 83.5% 1998: 82.5% In 1998, for every dollar of sales generated, 82.5 cents were used to cover expenses. This figure has decreased by 1 from 83.5% in 1997, which is a good sign as this means that the expenses are becoming proportionally less for each dollar of sales. -see appendix 1.7 Asset Turnover: For 1998, the asset turnover was 1.03, meaning that each dollar of assets generated 1.03 cents of sales. This figure is well below the industry average of 2.66, meaning that Andrews LTD is not making efficient use of its assets. -see appendix 1.7 Fixed Asset Turnover: To determine which area of asset management is suffering, more depth is required than just an asset turnover figure. The fixed asset turnover for Andrews LTD is 3.0 , meaning that 3 dollars of sales are generated for each dollar of fixed assets. There are no industry figures to compare this to, however this figure for fixed asset performance seems satisfactory. -see appendix 1.8 Receivables Turnover: Andrews LTD has a receivables turnover of 63 days, which is significantly above the industry average of 41.6 days. The figure for Andrews LTD assumes that it sells entirely on credit and that only the beginning and ending balances for receivables are available.