In order to critically analyze the financial position of this company, it is important to calculate the various ratios that would offer a clear and distinct path on all the financial issues related to the company (Bragg, 2015). These ratios would include liquidity ratios, debt ratios, leverage or gearing ratios and inventory ratios. For consistency, these ratios will be calculated based on the year 20×6
Current ratio. This is computed by dividing total current assets by total current
Liabilities:
Current ratio = Current assets÷ Current liabilities
= 87000÷34000=2.55882353
If we interpret the current ratio, it means that the company has ability to meet the current liability obligations since the current ratio calculated is more than one (Cachon, 2012). Thus, the company under consideration is financially stable or rather solvent as per the present analysis. If the current ratio of more than one, then it means that a company has more current assets than current liabilities.
Acid test or quick ratio. This ratio is computed by dividing total current liabilities excluding stock by current liabilities. A firm with a satisfactory current ratio may actually be in a poor liquidity position when inventories form most of the total current assets.
Acid test ratio = Current assets – stock÷ Current liabilities
= (87000-49000) ÷34000=1.11764706
If we interpret the acid test ratio, even after deducting the inventory, the ratio is still more than one. This satisfy the earlier assertion that the company is still solvent to meet its short term financial obligations.
Debt ratio or capital gearing ratio. This measure the proportion of debt finance to capital employed by a company. A company is highly geared if the ratio is greater than 50%.
Debt ratio = Total long term debt÷ Capital employed x 100%
=109500÷143500 x 100%= 76.30662
If we interpret the above debt ratio, we find that the ratio is more than 50%. This implies that the company is highly geared.
Debt equity ratio. This ratio measures the proportion of non-owner supplied funds to owner’s contribution to the company. A company is highly geared if the debt equity ratio is greater than 100%.
Debt equity ratio = Long term debt÷ Equity or Net worth
=143500÷109500 x 100 = 131.050228
The company is highly geared since the debt equity ratio is more than 100%.
Gross profit margin. This ratio shows how well cost of production has been controlled in relation to distribution and administration costs.
Gross profit margin = Gross profit÷ Sales X 100%
=25000÷165000 X 100%= 15.15152%
Net assets turnover. This gives a guide to productive efficiency i.e. how well assets have been used in generating sales.
Net assets turnover = Sales÷ Capital employed
=165000÷143500= 1.14982578.
From the above ratios that have been calculated for the company, this a certain critical path taken by these ratios concerning the company under consideration. All these ratios indicate a positive trend taken by the company (Chopra, 2012). Ratio after another ratio indicate that the company financial position is well established. The causes of that positive trend in the present situation may be attributed by several aspects.
The company is operating of assets rather than the liabilities. This implies that, the company is in a position to reinvest the profit generated unlike a case where the profits would have been used to pay both current and non-current liabilities.
The goods and services offered by the company are having high demands and more sales. This make the company to have positive trend.
The company need to maintain upward trends in asset relocation while on the other hand reduce the liabilities in the present situation (Christopher, 2011). This will add value to the company financial position and may as well assist in reinvesting the accrued profits.
It is appropriate to reward the employees from the profits generated. This in return motivate them. They are able to set higher targets in the following financial years which will as well immerse more profits in the future. This can be classified as a future financial strategy.
From the present practice, the following implications will arise.
The company will undergo significant growth and development in terms of capital utilization, wealth creation and value of the company.
The company is likely to add more services and goods offered due to his possibility of reinvestment of extra profits generated from the sales.
There are various limitations that are likely to affect this analysis. First, there is limitation associated to data. This data has been analyzed from the present year of financial obligation (Daft, 2015). Therefore, it has not been compared to other previous years so as to determine the actual trend. Again, these data has been obtained from accounting documents that are subjected to manipulation so as to fit the company’s aims. It is important also to consider the audited data to clarify whether there has been data manipulation for any reason whatsoever.
Lastly, the ratio analysis process is subjected to various limitations that is likely to affect the decision made concerning the present financial position of the company.
The extra information that may be could be added to the financial position of the company under consideration is based on ratio analysis. These ratios may not clearly or distinctly indicate the actual financial position of the company due to the following limitations associated to ratio analysis.
Ratios may be subjective in nature. Ratios are subjective to accounting data which relies highly on the accounting policies, practices and procedures adopted by a specific company (Segal-Horn, 2009). Therefore, it is impossible for cross sectional analysis if an organization applies different accounting policies, principles and procedures. It is hard to classify firms due to diversifications. For example, some organizations have more than one line of business and thus will fall into several industries thus difficult in ratio comparison.
They may be Irrelevant at some points. Ratios are just historical data which may not assist much in the process of making future decisions.
Ratios may be ambiguous in nature. Different cohorts of people will apply different stances to describe financial information. For instance, including preference share capital in equity and return on capital being referred to as gross capital employed.
Usefulness (Fletcher, 2012). These types of ratios are calculated at a particular point in time. By the time they are analyzed for judgment as well as in making decision, situations under consideration may have changed which implies that ratios are only useful in the short term
Ratios may indicate monopoly. For a firm or a company lacking competition, it may not be accurate or rather possible to analyze its fiscal year performance with other companies in the similar industry.
This case is based on the government interference into business operation and breach of contract. By the fact that the government interfered with the tariffs, Tom and his company has no obligation to counter the decision of the government since it was a term of contract. Therefore, the government policies are made to be supported by whatever means possible (Hitt, 2014). However, there is a breach of contract by the other parties that will make the company to sell the boat at a loss due to depreciation. This is also risking Tom’s job as well as repayment of $20 million loan before the maturity date.
Tom need to realize that there is a breach of contract that is likely to affect the company negatively. This as well risk his job. Therefore, my advice to him is based on the law of contract. Those stakeholders entered into a contract the moment the accepted the offer from Tom’s Company. He should sue them so as to recover that money due to breach of contract. Through court order, Tom is likely to recover the money and save the company.
The facts in this this ethical case study are based in terms of agreement which is law terms is regarded as contractual agreement. The following facts pave way to a contractual agreement between Allandale Ltd and other stakeholders.
Allandale Ltd builds small luxury boats for generating income.
The company employs 500 workers to oversee the project.
The company has been in operation for 10 years.
The company expanded the operations in the last two years due to high demand of the services offered.
The company borrowed $20 million and enter into a contact with a major bank.
The stakeholders in this ethical case involves all parties involved in the process of initiation and completion of this contract. They include.
The 500 workers for the project.
Allandale Ltd.
Financing bank.
Tom Lyons.
Overseas customer.
Tom’s best friend.
Suppliers from other countries.
Removal of 10% tariff on small luxury boats by the government which made the company to face difficulties in competing in overseas markets.
The company is forced to reduce its profit margin so as to compete against suppliers from other countries.
Fall of current ratio from 2:1 to 1.6:1
Reduction of return on assets from 10% to 2%.
Depreciation of boat from &500,000 to $350,000.
Oversea customer owing the company $1 million end up facing a financial trouble hence unable to repay the company.
The company will be forced to repay $20 million loan immediately.
The values of this ethical case study are based on contractual relationship. The values of any stakeholder from this ethical case study is to ensure that all terms of agreement are fully met without breaching the contract. Any stakeholder who fail to adhere to the terms of contract is liable to all implications that may result in this particular ethical case study.
The principles involved in this ethical case study are based on vicarious liability. The inability of oversea customer to repay $1million loan to Allandale Ltd will affect the company by repaying the bank $20 million loan.
This case is based on the government interference into business operation and breach of contract. By the fact that the government interfered with the tariffs, Tom and his company has no obligation to counter the decision of the government since it was a term of contract.
The government policies are made to be supported by whatever means possible. However, there is a breach of contract by the other parties that will make the company to sell the boat at a loss due to depreciation (Saloner, 2009). This is also risking Tom’s job as well as repayment of $20 million loan before the maturity date.
Selected plan of action.
Tom Lyons is the company accountant, he need to realize that there is a breach of contract that is likely to affect the company negatively (Hughes, 2008). This as well risk his job. Therefore, my advice to him is based on the law of contract. Those stakeholders entered into a contract the moment the accepted the offer from Tom’s Company. He should sue them so as to recover that money due to breach of contract. Through court order, Tom is likely to recover the money and save the company.
Strategic decision is a long term as well as complex decision that is arrived by senior management team so as to as affect the entire direction of the firm (Lesserre, 2012). On the other hand, operating decision typically refers top decision made so as to lay long term strategies during the process of acquisition of assets of the company. It also involves day to day operations concerning a particular company.
Accountants apply accounting strategies, policies, practices and procedures to control the organizational objectives. This involves analysis of accounting information and data models to control these requirements (Prasch, 2008). On the other hand, engineers applies practical and theoretical models to create new structure that that have being designed as models during initial process. The limit of accountant control model can be affected by manipulation of this control model so make different decisions based on individual interest. On the other hand, the mode used by an engineer is quite static hence may not accommodate further changes.
Individual behavior is based on consistency in performing different activities. Different individuals have different strategies in performing a plan and control process. Individual who is object oriented will have to follow the set standards and procedures set in planning and control process. On the other hand a personal interest oriented individual will try to manipulate the planning and control process to as to favor personal interests.
For plans to be effective, management should consider the wider environmental factors that relate to organization. Discuss.
These factors need to be consistent to the set objectives of the organization, the management need to use minimum cost as possible to generate the greatest results in effective planning. Management team need to keep their differences aside so as to achieve effective plan. Their ideologies need to be shared so as to promote the process of planning that will benefit the entire organization.
Objectives are important to an organization so as to motivate the organization on thing to be achieved at a particular point in time. This help to keep the organization on track without deviating from the goals that need to be achieved. However, these objectives are limited by threats and weaknesses. They are faced by improper timing and some of these objective are not measurable and cannot be achieved since they are unrealistic.
Identify what information you would need and what level of details is required in order for you to start your investigation.
I will require all the necessary information and data pertaining this scenario. I would require all the financial records pertaining the alleged claims of losses recorded. This will offer a framework to audit these records to ascertain whether there has been any form of accounting errors of embezzlement of funds by my core workers.
Giggling Brothers.
Type of accounting and reporting information system to be designed for Giggling Brothers.
Giggling Brothers Company has using manual accounting system which results to cash flow problems. In order to solve these problems, the company is designed to apply computerized accounting and reporting system.
Benefits associated to computerized accounting and reporting system and how the information can be incorporated into the planning process.
The designed computerized system has variety of benefits that can be used in the entire planning process. These systems can be updated in due time so as to fit the underlying factors under consideration. Giggling Brothers would have used the system to update the sales of wine as well as to predict future trends. There are several advantages of using computerized system. This system is faster as well as efficient in processing of accounting information. Again, this computerized accounting system is based on automatic generation of accounting documents such as invoices, cheques as well as statement of account (Laing, 2013). In addition, with the larger decrease in the costs associated to hardware as well as software, there are user friendly accounting software package that can be used by Giggling Brothers. Again, this system is relatively cheaper unlike maintaining a manual accounting system. Moreover, more timely information can be produced via application of this system. A lot of useful reports can be generated for management to use in decision making and judgments on accounting figures and information. Lastly, the planning process will ensure setting of proper timing of stock purchases. The company will be able to control account payables and account receivables (Peng, 2013). It will be used in facilitating the process of financial information by accounting departments. Then it will be used to predict future sales that the company anticipate to sell.
Giggling Brothers would have used the system to update the sales of wine as well as to predict future trends. There are several advantages of using computerized system (Kirkham, 2012). This system is faster as well as efficient in processing of accounting information. Again, this computerized accounting system is based on automatic generation of accounting documents such as invoices, cheques as well as statement of account. Therefore, the cost of using this system is reduced in this company unlike using the manual accounting system. This in the long term offers more benefits to the company in the future operations.
My view on examination and evaluation of approaches used by the firm’s competitors to Giggling Brothers.
Giggling Brothers can highly benefit from the approaches used by the competitors. The company will be able to improve the systems applied so as to gain competitive advantage. This will help Giggling Brothers to outdo the competitors via application of experience and completion strategies in sales of their products.
Who do you think should be involved in the design and development of operating specification for the new system?
This should involve a software developer or a computer system programmer so as to create the system. It should as well involve accountant so as to learn the applications of the new system.
John is not behaving ethically. This is an insider trading which is an offence according to company law (Puttee, Vitale & Laing, 2011). This is because, John is using company information prior to the release to other stakeholders by making amendments with an aim of fulfilling his personal interest in the expense of the objectives of the company. Insider trading is not allowed thus his decision is incorrect due to personal interests.
References.
Bragg, S.M. (2015). Accounting for Inventory. Accounting Tools.
Cachon, G. (2012). Matching Supply with Demand: An Introduction to Operation Management. McGraw-Hill Education.
Chopra, S. (2012). Supply Chain Management. Pearson Education.
Christopher, M. (2011). Logistics and Supply Chain Management. FT Press.
Daft, R.L. (2015). Management. South Western College Pub.
Fletcher, F. (2012). Business Problem Solving. Routledge.
Hitt, M.A. (2014). Strategic Management: Concept, Competitiveness and Globalization. South-Western College Pub.
Hughes, D. (2008). The Ultimate Supply Teacher’s Handbook. Continuum International Publishing Group Ltd.
Kirkham, R. (2012). Liquidity Analysis Using Cash Flow Ratios and Traditional Ratios: The Telecommunications Sector in Australia. Journal of New Business Ideas & Trends. 10(1), 1-13.
Laing, G. (2013). Different Strategic Types Operating in the Same Industry: A Multiple Case Study. Business Management and Strategy. 4(1), 71-85.
Lesserre, P. (2012). Global Strategic Management. Palgrave.
Peng, M.W. (2013). Global Strategy. South-Western College Pub.
Prasch, R.E. (2008). How Markets Work: Supply, Demand and the Real World. Edward Elgar Pub.
Puttee, C., Vitale, C. & Laing, G. (2011). Eight Dialogues on Business Ethics: Aspects of Ethical Behavior in the Corporate Sector. E-Journal of Social & Behavioral Research in Business. 2(2), 1-17.
Saloner, G. (2009). Strategic Management. Wiley Publisher.
Segal-Horn, S. (2009). Understanding Global Strategy. Cengage Learning.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download