Loss Accounts and Balance sheet Essays

Loss Accounts and Balance sheet Essays Loss Accounts and Balance sheet Essay Loss Accounts and Balance sheet Essay The results that are shown above are accurately calculated. The figures are taken from Mr. Hans profit ; Loss Accounts and Balance sheet 2007. The table signifies that Mr. Hans business for the year ending 2007. Return on Capital Employed: Return on capital employed in the year 2005 was only 41%, it then went up in the following year by 4% and again in the year 2007 it went up to 50%. This signifies that the ratio has been improved. This ratio is improved because the business has increased investment. Return on Capital Employed can be improved in such way as Mr. Kong has to increase the net profit for next year. This current figure is far greater than the industry average which shows the business is working much efficient than the average business would. Gross Profit: Gross Profit in the year 2005 was only 44% but it have been improved only by 1% in the following year but again the following year (2007) it decreases by 2%. This signifies the ratio is worse. The ratio is worsened because Mr. Kong Hans Gross Profit Percentage of sales was 45% at the end of year 2006 while it has been changed from 45% to 43% in the year 2007. The possible reason for this is because increase in the price of goods they produce. This would give them less profit because of these factors. Mr. Kong Han should take immediate action upon this ratio because Gross profit helps a company to see what percentage of its earning after costs (for products and/or services) is profit. A possible suggestion would be that Mr. Kong Han could decrease the purchase cost possibly by acquiring materials or goods from cheaper suppliers. Another thing that business could do is to increase sales as well perhaps by increasing price of products or more marketing techniques into their products. Net Profit: Net Profit in the year 2005 was only 28% but it has been decreased by 1% in the following year (2006) and again the following year (2007) it decreases by 9.2%. This means that the ratio is getting worse. This is worse because the business is not making any revenue to convert it into profit means that business is not selling the product or services that it produce. The worst cause for this would be that prices of services are increased as well as the business is also paying for mortgages. It is very critical and immediate action should be taken on this because net profit is very important to every business and all business is stable on net profit. Mr. Kong Han business can be improved if business could do to reduce their overall expenses. The business can look for another supplier who is cheaper and can provide a better deal for raw material goods. The business can try to decrease their overheads figures and try to maximise their profit each and every year. Stock Turnover: Stock Turnover in the year 2005 was only 44 days but it has been increased in the following year (2006) to 56 days but again in the following year it has increased by 20 days and went up to 76 days. It has been worsened because the lower days shows that the business has quickly convert stock into revenues. This is worse because the business has high prices on the products as well as the business has no proper strategy to sell the products. The possible action would be that the quicker the business sells its products the better it is. There are several methods that business could be improved. The first thing they could is to lower the products prices; this will hugely promote sales as customers will feel they are getting a bargain. And an additional thing they can do is to try and sell the products to another company for a low price. The price might be low but they will receive some sort of income instead of the product just staying in the shop. It will bring in some extra cash that the business will need. Furthermore the business can try to slow down production if there is too much stock available or they can possibly re-asses the value of the product. Debtor Payment Period: Debtors payment period in the year 2005 was only 0.89 days but it has been decreased only by 0.1 in the following year 2006 to 0.88 days and again in the following year (2007) it has decreased by 0.2 days to 0.86 days. It has been improved over in the following 2 years which means that the business has good control over the capital because the business not letting more capital to the customers and perhaps thats why the business Debtors Payment period is decreased. The improvement that are required for this debtors payment period is that they can do are to try to maintain this number or try to reduce it by next year. This way they can reduce this is to re-asses their credit options with customer and try to decrease the time. Creditor Payment Period: Creditor Payment Period in the year 2005 was only 5.7 days but it has been increased to 13 days in the following year (2006) and again it decreased down from 13 days to 9.2 days in the year 2007. It has been worsened because payment days have been increased. This is because the customers who own capital to business are taking long to return the capital. Mr. Kong Han should take immediate action and encourage customers to pay on time because this will lead a poor relationship with suppliers. The suggestion would be that business should maintain this period or possibly try to increase it in the next year but the main thing they should do is to keep it constant with debtor payment period. Current Ratio: Current Ratio in the year 2005 was only 4:8:1 but it has been increased to 4:9:1 in the year 2006 and again in following year (2007) it has increased to 5.1:1. This indicates that the business is in liquidation. It has been worsened because it has gone up because it shows that they have a lot of stock to sell. These changes happened because they have a lot of stock. Mr. Kong Han should take immediate action on the business because the ideal ratio was between 2:1 and 3:1. The business could achieve this by reducing the ratio. This can be done by selling more of its stock or try to reduce the amount of cash they have available on the business because of the high amount of stock the business should produce few amounts of products. Acid Test: Acid Test in the year 2005 was only 1:1:1 but it has been decreased to 0:89:1 in 2006 and again in the following year (2007) it has decreased to 0:6:1. This signifies that the business is in very poor condition as the Acid Test was worse. The steps the business can try and increase their current assets but not stock as stock can be very hard to sell immediate. They could offer more customers a credit system or the business can try to and hold more cash within the business. Another option is to produce less stock and when there is an opportunity to pay off creditors they should take it.