The main objective of the report is to identify the relevant financial performance of Sam’s Appliance Store from 2015 to 2017. The relevant financial performance is mainly compared with the industrial average for detecting financial performance of the company. The use of financial performance could mainly help in depicting financial position of the company over the period of three years. The calculation of financial ratio could help in depicting performance of the organisation. Analysis and evaluation of profitability, financial stability and asset utilisation are mainly conducted to detect financial stability of the organisation.
|
Particulars |
2015 |
2016 |
2017 |
Industrial Average |
|
Gross profit |
60.50% |
64.13% |
68.00% |
65.00% |
|
Net profit |
-3.00% |
16.25% |
25.54% |
20.68% |
|
Return on equity |
-2.01% |
18.99% |
49.76% |
38.98% |
|
Current ratio |
1.94 |
1.33 |
1.20 |
1.80 |
|
Liquidity ratio |
1.56 |
0.95 |
0.75 |
1.05 |
|
Equity ratio |
27.18% |
49.45% |
98.70% |
58.30% |
|
Inventory turnover times per year |
14.36 |
9.11 |
4.00 |
6.08 |
|
Inventory turnover days |
25.41 |
40.06 |
91.25 |
60 |
|
Accounts receivable turnover times per year |
5.56 |
9.41 |
6.67 |
8.11 |
|
Accounts receivable turnover days |
65.70 |
38.78 |
54.75 |
45 |
Figure 1: Depicting profitability ratio of Sam’s Appliance Store from 2015 to 2017
(Source: As created by the author)
The above figure mainly represents the profitability ratio of Sam’s Appliance Store in comparison with industrial average. The overall gross profit of the company has mainly increased from the level of 60.5% in 2015 to 68% in 2017. This relevant increment in the gross profit of the company mainly complies with the industrial average, which might help in stating financial stability of the organisation. The net profit margin of the company also increased from the level of -3% to 25.54%, which relevantly higher than the industry average of 20.38%. This direct increment in the overall net profit margin mainly indicates the relevant profit that is generated by the company while reducing administrative expenses. The relevant increment in the overall net profit margin in comparison with the gross profit mainly indicates the reduced expenses incurred by the company over the period of three years. Banos-Caballero, García-Teruel & Martínez-Solano (2014) mentioned that investors by detecting profitability ratio of the company are able to detect relevant increment in financial stability of the organisation. Moreover, the detection of gross profit and net profit margin directly allow the investor to detect the relevant increment in administrative expenses, which is been conducted by the company.
The overall financial profitability is also detected with the help of return on equity, which has gradually increased over the period of three years. The relevant return on equity has increased from -2.01% in 2015 to 49.76% in 2017. This mainly states the overall financial stability of the company to generate higher revenue from investment. The industrial average is mainly at 38.98%, which is relevant lower than the actual return on equity of 49.76%, which is generated by the company. Hence, the relevant increment in financial stability of the company could be identified from the rising profitability ratio incurred by Sam’s Appliance Store. Bodie, Kane & Marcus (2014) argued that financial ratios mainly lose its friction if the annual report of the is manipulated and unethical designed by the organisation.
Figure 2: Depicting financial stability ratio of Sam’s Appliance Store from 2015 to 2017
(Source: As created by the author)
From the relevant evaluation of the above figure overall financial stability of Sam’s Appliance Store could be identified. The relevant financial stability of the organisation mainly declined from 2015 to 2017, which depicts its financial instability. The current ratio of the company has mainly declined from 1.94 in 2015 to 1.20 in 2017, which relevantly declines the financial viability of the company to support its short term obligations. The current ratio of the company is relevantly lower than the industrial average, indicating lower financial stability of the organisation. The company’s overall financial obligations have declined over the period of 3 years, where the current assets have relevantly declined, while the current liabilities have inclined. This mainly indicates the company’s instability to support rising financial obligations. The overall liquidity ratio of the company has also declined from 156 in 2015 to 0.75 in 2017. This relevant decline in financial stability of the company during 2017 is also lower than the industrial average. This relevantly indicates the lower financial stability of the company for the period of 2016 and 2017, as the values are lower than the industrial average. In this context, Fayers & Machin (2013) stated that with the help of financial ratios investor are able to detect the relevant capability of the organisation to support its activities.
However, from the overall evaluation equity ratio of the company has mainly inclined from the 27.18% in 2015 to 98.70% in 2017. The overall financial stability of the company could directly indicate the relevant increment in equity ratio generated by the company. This mainly indicates the relevant growth in equity ratio that is been detected for Sam’s Appliance Store. Kou, Peng & Wang (2014) mentioned that relevant detection of financial ratio could help in identifying the relevant financial growth of the company. The overall current ratio and liquidity ratio of the company is relatively lower than the industrial average, which depicts the overall financial inconsistences of the organisation.
Figure 3: Depicting asset utilisation ratio of Sam’s Appliance Store from 2015 to 2017
(Source: As created by the author)
The overall figure 3 mainly represent the relevant asset utilisation of the company from 2015 to 2017. This could directly help in detecting financial stability of the company, which might allow investors to understand the progress in of the organisation. The inventory turnover ratio times per year mainly declined from 14.66 in 2015 to 4 in 2017, which relevantly represents the declined utilisation of assets. The financial stability has mainly reduced, which declines asset utilisation of the organisation. Furthermore, the industrial average is relevantly at 6.08, where the company in 2017 is not complying with these level. Furthermore, the inventory turnover days have mainly increased from 25.41 days to 91.25 days in 2017, which represents the relevant decline in asset utilisation conducted by the company. The overall industrial average of the company is mainly at 60 days, which is relevantly higher in 2017 and indicate financial instability of the organisation. On the other hand, Lopez Bernal et al., (2013) criticises that detection of efficiency ratio directly allow investors to detect financial stability of the management for effectively utilising organisational assets.
The accounts receivables times per year mainly inclined from the level of 5.56 in 2015 to 6.67 in 2017. This relevant inclination directly states the financial improvement of the organisation in collecting the relevant payments from debtors. The overall accounts receivable in days has mainly declined from the level of 65.70 days to 54.75 days in 2017. Both account receivables time and days in 2017 are higher than industrial average indicating the relevant strength of the management in improving financial performance. On the contrary, Lundh et al., (2015) argued that with the help of efficiency ratio only the managerial decision is evaluated, where the actual financial performance of the company cannot be detected.
From the overall evaluation of financial ratio relevant financial stability of the organisation could be identified. The evaluation also states the increased profitability, which is obtained by Sam’s Appliance Store from 2015 to 2017. This relevant increment in the overall financial ratios depicts ability of the organisation to generate higher revenue in near future. The liquidity ratio also indicates the relevant decline in financial stability of the organisation. However, from the relevant evaluation of the financial ratio the overall viability of the financial stability of Sam’s Appliance Store can be detected.
4. Conclusion:
The relevant valuation of the financial ratios of Sam’s Appliance Store could mainly help in identifying its financial stability. The financial stability of the organisation with the help of ratios are mainly detected, which might help investor in detecting risk and return from investment. The use of profitability, financial stability and asset utilisation ratio can help in detecting financial stability of the organisation. The detection of the ratio mainly represents the overall future financial performance of the organisation, which could generate in near future. Lastly, from the evaluation of Sam’s Appliance Store ratio financial stability of the organisation could be detected, which depict its future returns.
|
Particulars |
2017 Budget |
|
|
Sales |
529,920 |
|
|
cost of goods sold |
158,424 |
|
|
Gross profit |
371,496 |
|
|
Selling expenses |
||
|
Advertisement |
52,992 |
|
|
Sales Bonuses & Delivery |
15,456 |
68,448 |
|
Admin. Expenses |
||
|
Insurance |
11,040 |
|
|
Wages & Other |
203,903 |
214,943 |
|
Financial Expenses |
||
|
Bad Debts |
13,248 |
|
|
Interest |
15,194 |
28,442 |
|
Net Profit |
59,663 |
|
Particulars |
2017 Budget |
2017 |
Variance |
Variance % |
||
|
Sales |
529,920 |
662,400 |
132,480 |
25.00% |
||
|
cost of goods sold |
158,424 |
211,968 |
53,544 |
33.80% |
||
|
Gross profit |
371,496 |
450,432 |
78,936 |
21.25% |
||
|
Selling expenses |
||||||
|
Advertisement |
52,992 |
55,200 |
2,208 |
4.17% |
||
|
Sales Bonuses & Delivery |
15,456 |
68,448 |
23,184 |
78,384 |
7,728 |
50.00% |
|
Admin. Expenses |
||||||
|
Insurance |
11,040 |
11,040 |
– |
0.00% |
||
|
Wages & Other |
203,903 |
214,943 |
129,927 |
140,967 |
(73,976) |
-36.28% |
|
Financial Expenses |
||||||
|
Bad Debts |
13,248 |
39,744 |
26,496 |
200.00% |
||
|
Interest |
15,194 |
28,442 |
22,149 |
61,893 |
6,955 |
45.77% |
|
Net Profit |
59,663 |
169,188 |
109,525 |
183.57% |
|
Particulars |
Variance |
Variance % |
F or U |
|
Sales |
132,480 |
25.00% |
Favourable |
|
cost of goods sold |
53,544 |
33.80% |
Unfavourable |
|
Gross profit |
78,936 |
21.25% |
Favourable |
|
Selling expenses |
|||
|
Advertisement |
2,208 |
4.17% |
Unfavourable |
|
Sales Bonuses & Delivery |
7,728 |
50.00% |
Unfavourable |
|
Admin. Expenses |
|||
|
Insurance |
– |
0.00% |
Favourable |
|
Wages & Other |
(73,976) |
-36.28% |
Favourable |
|
Financial Expenses |
|||
|
Bad Debts |
26,496 |
200.00% |
Unfavourable |
|
Interest |
6,955 |
45.77% |
Unfavourable |
|
Net Profit |
109,525 |
183.57% |
Favourable |
From the relevant evaluation it could be identified that Sale Bonuses & Delivery and Bad debt is mainly identified to be most unfavourable, which needs to be investigated. The Sale Bonuses & Delivery is mainly unfavourable by 50%, which could relevantly increase expenses of the company. Furthermore, the second discrepancy is bad debts, which relevantly increases by 200%. This directly indicates the overall increment in bad debts that is conducted by the company.
a. Categorising fixed expenses, total variable expenses and variable costs per unit:
|
Units |
100,000 |
|
|
Variable expenses |
Amount |
Total expense per unit |
|
cost of goods sold |
158,424.00 |
|
|
Bad Debts |
13,248.00 |
|
|
Interest |
15,194.00 |
|
|
Sales Bonuses & Delivery |
15,456.00 |
|
|
Advertisement |
52,992.00 |
2.55 |
|
Fixed expenses |
||
|
Insurance |
11,040.00 |
0.11 |
|
Semi-variable expenses |
||
|
Wages & Other |
203,903.20 |
2.04 |
|
Particulars |
Units |
Amount |
|
Sales |
5.30 |
529,920.00 |
|
cost of goods sold |
1.58 |
158,424.00 |
|
Bad Debts |
0.13 |
13,248.00 |
|
Interest |
0.15 |
15,194.00 |
|
Sales Bonuses & Delivery |
0.15 |
15,456.00 |
|
Advertisement |
0.53 |
52,992.00 |
|
Wages & Other |
2.04 |
203,903.20 |
|
Contribution |
0.71 |
70,702.80 |
|
Fixed cost |
11,040.00 |
|
|
Profit |
59,662.80 |
|
|
Breakeven in units |
15,615 units |
|
Particulars |
Amount |
|
Sales units |
5.3 |
|
Target profit |
100,000 |
|
Contribution ratio |
13.34% |
|
Fixed cost |
11,040.00 |
|
Number of units sold |
(11,040+100,000)/(5.30*13.34%) |
|
Number of units sold |
157,052 units sold |
Reference and Bibliography:
Baños-Caballero, S., García-Teruel, P. J., & Martínez-Solano, P. (2014). Working capital management, corporate performance, and financial constraints. Journal of Business Research, 67(3), 332-338.
Bes-Rastrollo, M., Schulze, M. B., Ruiz-Canela, M., & Martinez-Gonzalez, M. A. (2013). Financial conflicts of interest and reporting bias regarding the association between sugar-sweetened beverages and weight gain: a systematic review of systematic reviews. PLoS medicine, 10(12), e1001578.
Bodie, Z., Kane, A., & Marcus, A. J. (2014). Investments, 10e. McGraw-Hill Education.
Fayers, P. M., & Machin, D. (2013). Quality of life: the assessment, analysis and interpretation of patient-reported outcomes. John Wiley & Sons.
Hutton, B., Salanti, G., Caldwell, D. M., Chaimani, A., Schmid, C. H., Cameron, C., … & Mulrow, C. (2015). The PRISMA Extension Statement for Reporting of Systematic Reviews Incorporating Network Meta-analyses of Health Care Interventions: Checklist and ExplanationsPRISMA Extension for Network Meta-analysis. Annals of internal medicine, 162(11), 777-784.
Kou, G., Peng, Y., & Wang, G. (2014). Evaluation of clustering algorithms for financial risk analysis using MCDM methods. Information Sciences, 275, 1-12.
Lopez Bernal, J. A., Gasparrini, A., Artundo, C. M., & McKee, M. (2013). The effect of the late 2000s financial crisis on suicides in Spain: an interrupted time-series analysis. The European Journal of Public Health, 23(5), 732-736.
Lundh, A., Sismondo, S., Lexchin, J., Busuioc, O. A., & Bero, L. (2015). Industry sponsorship and research outcome. Cochrane Database Syst Rev, 12.
Shamseer, L., Moher, D., Clarke, M., Ghersi, D., Liberati, A., Petticrew, M., … & Stewart, L. A. (2015). Preferred reporting items for systematic review and meta-analysis protocols (PRISMA-P) 2015: elaboration and explanation. Bmj, 349, g7647.
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis. Cambridge University Press.
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