Question - Nelson Marlborough Institute of Technology
ASSIGNMENT
Task/Activity Instructions:
You work as a financial analyst for an investment bank. You have been asked to prepare a report assessing the financial results and investment attractiveness of Golden Chip Takeaways. This report is to be based on the attached set of annual financial statements for the Golden Chip Takeaways shop.
Your report should cover your assessment of the following:
The business's profitability. Consider both how good or poor the profit performance is, and identify the reasons for any change in profitability.
The business's financial stability, both immediate and longer term.
How well assets have been managed and utilised.
Your conclusion as to whether the business represents a good investment or not.
Your report should be based on appropriate ratios and information provided. Calculate and include the ratios as an appendix to your report.
Please state any assumption/s, and the reasoning for the assumption/s, that you make in your analysis.
CASE STUDY GOLDEN CHIP TAKEAWAYS:
After looking at the financial statements prepared by his accountant, Graham Charr, the owner of Golden Chip Takeaways is very pleased with the performance of the fish and chip shop. The sales turnover for the year was $450,000 which is the best ever sales result of the business, and there was a great profit shown.
Graham's bank has reviewed the financial statements and has indicated its concern over the cash position and in particular the buildup of stock. Graham cannot understand this and tells his bank manager, "You can expect some stock as I have to be able to supply my customers with fish and chips". Concerned at the bank's comments, Graham asks you to investigate the financial statements further.
Golden Chip Takeaways
Income Statement
for the year ended 31 March 2014
2014
2013
Sales 450,000 300,000
Opening Stock
2,800
2,000
Plus Purchases 150,300 84,300
Less Closing Stock 15,000 2,800
Cost of goods sold 138,100 83,500
GROSS PROFIT 311,900 216,500
Operating Expenses
Accounting fees
2,000
1,500
Advertising & promotion 3,500 600
Bank Charges 450 300
Depreciation 12,000 6,400
Electricity 13,500 12,300
Insurance 4,000 3,800
Kitchen supplies 11,500 10,800
Maintenance 4,600 4,300
Packaging 4,000 2,300
Rent 26,000 26,000
Telephone 850 700
Vehicle expenses 4,500 3,200
86,900 72,200
NET PROFIT $225,000 $144,300
Golden Chip Takeawsy
Balance Sheet
as at 31 March 2014
Current Assets
2014 2013
Cash on hand 350 200
Bank 500 8,700
Accounts receivable 1,500 500
Inventory 15,000 2,800
Non-current Assets
17,350 12,200
Property, plant & equipment 65,000 40,000
Less accumulated depreciation 18,400 6,400
46,600 33,600
TOTAL ASSETS $63,950 $45,800
Current Liabilities
Accounts payable 5,950 5,300
Non-current Liabilities
Bank term loan 20,000 5,000
TOTAL LIABILITIES 25,950 10,300
Owner's Equity
Capital 28,000 28,000
Net profit 225,000 144,300
less drawings 215,000 136,800
TOTAL OWNER"S EQUITY 38,000 35,500
TOTAL LIABILITIES & OWNER'S EQUITY $63,950 $45,800
In addition, Graham has obtained the following financial ratios for comparison purposes.
Industry
Average
Gross profit margin 80%
Operating expenses ratio 17%
Working Capital ratio $2.10:$1
Liquidity ratio $1.00:$1
Equity ratio 65%
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