SCENARIO 1

TASK 1

JB Business Income Statement for the Year Ending June 30,

2024
Revenue
Service Revenue 300,000
Total Revenue 300,000

Expenses
Supplies Expenses 36,000
Salaries and Wages Expenses 54,000
Depreciation Expenses 12,000
Rent Expenses 50,000
Utilities Expenses 25,000
Total Expenses 177,000

Net Income 123,000

JB Business statement of Financial Position as of June 30,

2024
Assets
Current Assets
Cash 40,000
Receivables 7,000
Supplies 12,000
Prepaid Rent 30,000
89,000

Non-Current Assets
Equipment 150,000
Accumulated Depreciation (18,000)
132,000

Total Assets 221,000

Liabilities
Current Liabilities
Accounts Payable 10,000
Overdrafts 13,000
23,000
Equity
Braun’s Capital 75,000
Retained Earnings (Net Income) 123,000
198,000
Total Liabilities and Equity 221,000

Task 2
Trial Balance Adjusted Trial Balance
Adjustment
Debit Credit Debit Credit
Cash 15,000 15,000
Receivables 6,000 6,000
Supplies 12,000 (2500) 9,500
Prepaid rent 30,000 30,000
Equipment 150,000 150,000
Accumulated Depreciation
18,000 1200 19,200
— equipment
Accounts payable 16,000 2000 18,000
Braun’s Capital 157,500 157,500
Unearned service revenue 3,000 (1000) 2,000
Service revenue 27,000 1000 28,000
Salaries and wages expenses 4,500 500 5,000
Rent expense 4,000 4,000
Supplies expense 2500 2,500
Utilities expense 2000 2,000
Salaries and wages payables 500 500
Depreciation expense 1,200 1,200
Total $221,500 $221,500 $225,200 $225,200

Income statement for the month ending July 31, 2024

Revenue
Service revenue 28,000
Total revenue 28,000
Expense
Salaries and wages expenses 5,000
Rent expense 4,000
Supplies expense 2,500
Utilities expense 2,000
Depreciation expense 1,200
Total expense 14,700
Net income 13,300

Statement of financial position as of July 31, 2024 of JB

Business

Assets
Current assets
Cash 15,000
Receivables 6,000
Supplies 9,500
Prepaid rent 30,000
Total current assets 60,500
Non-current assets
Equipment 150,000
Accumulated Depreciation — Equipment (19,200)
Total non-current assets 130,800
Total assets 191,300

Liabilities and Equity

Liabilities
Accounts Payable 18,000
Salaries and wages payable 500
Unearned service revenue 2,000
Total liabilities 20,500
Equity
Braun’s Capital 157,500
Net income 13,300
Total Equity 170,800
Total liabilities and equity 191,300
 SCENARIO 2
1. Calculate and present the following ratios for the year
2023:

Formula Number Value

84,000 / [(101,000
Total assets turnover Sale Revenue / Average Total Assets 0.82 times
+ 103,000) / 2]

365 * [(20,000 +
Average inventory 365 * (Average Inventory / Cost of
18,000) / 2] / 115.6 days
turnover period Goods Sold)
60,000

Average settlement 365 * [(19,000 +

365 * Average Trade Receivables /
period for trade 21,000) / 2] / 86.9 days
Credit Sales Revenue
receivables 84,000

Average settlement
365 * Average Trade Payables / Cost of 365 * [(8,000 +
period for trade 39.5 days
Goods Sold 5,000) / 2] / 60,000
payables

Cash conversion
Receivable Days + Inventory Days -
cycle (Working 86.9 + 115.6 - 39.6 163 days
Payable Days
capital cycle)

Net profit margin Net Income / Revenue (12,800 / 84,000) 15.2%

Gross profit margin (Net Sales - Cost of Sales) / Revenue (24,000 / 84,000) 28.6%

ROA (Return on 12,800 / [(101,000

Net Income / Average Total Assets 12.5%
Assets) + 103,000) / 2]

ROE (Return on Net Income / Average Total Equity 12,800 / [(64,000 + 19.7%
 Equity) 66,000) / 2]

Current ratio Current Assets / Current Liabilities 47,000 / 17,000 2.76 times

(47,000 - 20,000) /
Quick ratio Quick Assets / Current Liabilities 1.59 times
17,000

Debt-to-equity ratio Long-term Liabilities / Total Equity 20,000 / 64,000 0.31 times

Interest cover ratio Operating Profit / Interest Expense 19,000 / 3,000 6.33 times

2. Compare the performance of Mayland Ltd. between 2023 and

2022.
Industry average
2022 2023 2023-2022 (2023)
Total assets turnover (times) 0.73 0.82 0.09 1.00
Average inventory turnover period (days) 119 115.58 -3.42 60
Average settlement period for trade
102 86.90 -15.10
receivables (days) 65
Average settlement period for trade
33 39.54 6.54
payables (days) 30
Cash conversion cycle (Working
188 162.95 -25.05
conversion cycle-days) 95
Net profit margin (%) 14.9 15.24 0.34 18.0
Gross profit margin (%) 26.7 28.57 1.87 25.0
ROA (%) 10.9 12.55 1.65 12.0
ROE (%) 17 19.69 2.69 20.0
Current ratio (times) 3.83 2.76 -1.07 2
Quick ratio (times) 2.33 1.59 -0.74 1
Debt-to-equity ratio (times) 0.38 0.31 -0.07 0.5
Interest cover ratio (times) 15 6.33 -8.67 10
3. Evaluate the performance of Mayland Ltd. over time using
financial ratios
a. Total assets turnover
This ratio measures how effectively a company uses its assets to generate
revenue. Mayland Ltd. improved from 0.73 to 0.82, indicating better asset
utilization in 2023 compared to 2022. However, it is still below the industry
average of 1.00, meaning there is room for improvement in asset efficiency.
b. Average inventory turnover period
This ratio measures how long it takes a company to sell its inventory. Mayland
Ltd. improved slightly by reducing its inventory turnover period from 119 days
to 115.58 days. However, compared to the industry average of 60 days, the
company still has relatively long inventory turnover, indicating a potential
inefficiency in inventory management or lower market demand for its products.
c. Average settlement period for trade receivables
This ratio measures the average time taken to collect receivables from
customers. Mayland Ltd. improved from 102 days to 86.90 days, reflecting
better management of receivables. However, the company still takes longer to
collect compared to the industry average of 65 days, suggesting a need for
further improvement in collections.
d. Average settlement period for trade payables
This ratio measures how long the company takes to pay its suppliers. Mayland
Ltd. increased its payables period from 33 days to 39.54 days, possibly to
manage cash flow better. However, this is longer than the industry average of
30 days, which may strain supplier relationships or indicate inefficient cash
flow management.
e. Cash conversion cycle (or Working capital cycle)
The cash conversion cycle measures the time taken to convert investments in
inventory and other resource inputs into cash flows from sales. Mayland Ltd.
improved its cycle by reducing it from 188 days to 162.95 days. However, it
still remains significantly longer than the industry average of 95 days,
indicating inefficiencies in managing working capital.
f. Net profit margin
This ratio indicates the percentage of revenue that becomes profit after all
expenses. Mayland Ltd. slightly improved from 14.9% to 15.2%, indicating a
small increase in profitability. However, it still falls below the industry average
of 18.0%, suggesting that there is potential to increase profitability through
cost control or higher pricing.
g. Gross profit margin
The gross profit margin measures the percentage of revenue left after deducting
the cost of goods sold. Mayland Ltd. improved from 26.7% to 28.57%,
showing that it was able to improve its core profitability. The company now
exceeds the industry average of 25.0%, which is a positive sign for operational
efficiency.
h. ROA
ROA measures how effectively the company uses its assets to generate profit.
Mayland Ltd. increased its ROA from 10.9% to 12.55%, surpassing the
 industry average of 12.0%. This indicates that the company is efficiently
utilizing its assets to generate returns.
i. ROE
ROE measures the profitability of equity investment. Mayland Ltd. increased
its ROE from 17.0% to 19.69%, which is a positive sign, but still below the
industry average of 20.0%. This shows the company is generating good returns
for its shareholders, but there is room for improvement.
j. Current ratio
The current ratio measures the company’s ability to pay its short-term
liabilities with its short-term assets. Mayland Ltd. experienced a decrease from
3.83 to 2.76, but it still exceeds the industry average of 2. This suggests that the
company remains in a good position to cover its short-term obligations.
k. Quick ratio
The quick ratio, which excludes inventory, measures the ability to pay off
short-term liabilities with liquid assets. Mayland Ltd. decreased from 2.33 to
1.59, but still remains well above the industry average of 1, indicating strong
short-term liquidity.
l. Debt-to-equity ratio
This ratio measures the proportion of debt used to finance the company’s assets
relative to equity. Mayland Ltd. reduced its debt-to-equity ratio from 0.38 to
0.20, well below the industry average of 0.5. This indicates that the company
has lowered its financial leverage and is in a safer financial position.
m. Interest cover ratio
The interest cover ratio measures the company's ability to cover interest
expenses with its earnings before interest and tax (EBIT). Mayland Ltd.
experienced a significant drop from 15 times to 6.33 times, which may suggest
that the company’s ability to meet its interest obligations has decreased.
However, it still exceeds the industry average of 10 times, indicating that the
company remains capable of covering its interest payments.

4. Critically evaluate financial statements to assess

organisational performance

2023 - Industry
2023 Industry average
Average
 Total assets
0.82 1 -0.18
turnover
Average inventory
115.58 60 55.58
turnover period
Average
settlement period
86.9 65 21.9
for trade
receivables
Average
settlement period 39.54 30 9.54
for trade payables
Cash conversion
cycle (or Working 162.95 95 67.95
capital cycle)
Net profit margin 15.2 18 -2.8
Gross profit
28.57 25 3.57
margin
ROA 12.55 12 0.55
ROE 19.69 20 -0.31
Current ratio 2.76 2 0.76
Quick ratio 1.59 1 0.59
Debt-to-equity
0.2 0.5 -0.3
ratio
Interest cover
6.33 10 -3.67
ratio

4.1 Total assets turnover

The firm is less effective at making sales from its assets, as evidenced by the fact that
its total assets turnover is below the industry average. A lower ratio raises the
possibility that the business has too many assets or is using them inefficiently in
comparison to how much money it makes. The business should evaluate its asset
usage strategy as a recommendation. Increasing operational effectiveness, cutting
back on idle assets, or selling off underperforming assets are some possible courses of
action. This ratio may potentially be enhanced by a more targeted capital spending
plan.
4.2 Average inventory turnover period
Concerns regarding possible inefficiencies in inventory management are raised by the
company's much longer inventory holding duration than the industry norm. Inaccurate
demand forecasts, slow-moving items, and overstocking are some of the possible
causes of this. Excessive inventory holdings can reduce profitability by tying up
precious capital and raising storage expenses. The business should concentrate on
enhancing its inventory management procedures in order to overcome this. By
coordinating procurement with demand, a Just-In-Time (JIT) inventory system might
aid in inventory optimization. Furthermore, improving demand forecasting methods
helps guarantee that the business keeps just enough inventory on hand to satisfy
consumer demands without going overboard. The organization may increase overall
operating efficiency, reduce storage expenses, and free up cash flow by shortening the
average inventory turnover period.
4.3 Average settlement period for trade receivables
The length of time the firm keeps inventory on hand is far longer than the industry
average. This increases the likelihood of ineffective inventory management due to
overstocking, slow-moving items, or erroneous projections. To reduce the average
settlement time for trade receivables, the company can consider improving inventory
management practices, such as putting in place a Just-In-Time (JIT) inventory system
or improving demand forecasting techniques. Reducing the average inventory
turnover interval can increase cash flow and storage costs..
4.4 Average settlement period for trade payables
According to the data, the business is paying its suppliers later than the norm for the
industry. Although this strategy may help cash flow in the near term, persistently
postponing payments may damage relationships with suppliers. It is advised that the
business work toward compensating suppliers in a more equitable manner. Without
endangering supplier relationships, the working capital cycle might be improved by
negotiating more advantageous payment terms, such as longer credit periods or
discounts for early payments.
4.5 Cash conversion cycle (or Working capital cycle)
The company's cash conversion cycle is much longer than the industry average, which
suggests that it takes longer to turn investments in receivables and inventories back
into cash. This prolonged cycle may indicate inefficiencies in working capital
management and perhaps result in liquidity problems. The business should
concentrate on increasing inventory turnover and shortening the typical receivables
collection period in order to address this. Stricter credit procedures, better inventory
levels to shorten holding times, and maybe renegotiating supplier payment terms to
improve cash flow can all help achieve this.
4.6 Net profit margin
Despite turning a profit, the company's net profit margin is less than that of its rivals.
This implies that the business might be less effective at turning sales into profits. This
could be caused by a number of things, such as increased operating expenses, trouble
establishing competitive prices, or operational inefficiencies. The business should
examine its spending to find areas where expenses may be cut or procedures can be
streamlined in order to increase profitability. To increase its bottom line, the business
should also look into ways to increase productivity and optimize pricing techniques.
4.7 Gross profit margin
The company's gross profit margin is higher than the industry average, indicating that
it sources or produces its items more efficiently. This suggests a great capacity to
manage manufacturing or procurement costs, providing it with a competitive edge.
Maintaining or even increasing operational efficiency should be the company's top
priority in order to further use this strength. This could entail optimizing its supply
chain, negotiating advantageous terms with suppliers, or simplifying production
procedures. To maintain market share and profitability, it is imperative to strike a
balance between efficiency and a sustainable and competitive pricing strategy.
4.8 ROA
The company's ROA, which is somewhat higher than the industry average, shows that
it uses its assets effectively. This implies that the business is skilled at making money
off of the resources it has invested. But there's always space for development. The
business should actively look for ways to improve profitability and further optimize
asset usage. To optimize returns and spur more growth, this may entail making
calculated investments in higher-yielding assets, selling off underperforming assets, or
reallocating resources.
4.9 ROE
Despite its profitability, the company's return on equity (ROE) is somewhat below the
industry average. This implies that, in comparison to its rivals, the business could not
be optimizing returns for its shareholders. The business should assess its ownership
structure seriously and look at ways to increase profitability or maximize capital
efficiency in order to increase shareholder value. Initiatives like share buybacks to
lower the number of outstanding shares, cautiously raising leverage to increase returns
(where appropriate), or giving priority to investments that provide larger profits might
all be part of this. The corporation can strive to increase its ROE and provide
shareholders with higher returns by concentrating on these areas.
4.10 Current ratio
A good current ratio shows that the firm has enough short-term assets to meet its
short-term liabilities, indicating a sound liquidity position. This indicates a good
capacity to satisfy urgent obligations and a minimal chance of short-term financial
difficulties. Even while it's important to keep enough liquidity, having too much cash
or short-term assets on hand might be wasteful. The business should think about
making strategic use of any extra cash by looking at ways to reinvest it to spur
development or give money back to shareholders in the form of dividends or share
buybacks. This strategy can maximize investor profits and improve the company's
financial standing.
4.11 Quick ratio
The company's high fast ratio demonstrates its capacity to pay short-term debts
without turning to inventory sales. This supports the company's sound short-term
financial health and indicates a good level of liquid assets. Maintaining this strong
liquidity position is crucial, but the business should also concentrate on making the
most use of its cash reserves. This might entail making calculated investments in
expansion prospects to boost operations or profitability, or putting policies in place to
increase shareholder returns through share repurchases or dividends. The business
may improve its financial position and increase value for its stakeholders by finding a
balance between liquidity and effective capital use.
4.12 Debt-to-equity ratio
In comparison to the industry average, the company's low debt-to-equity ratio
indicates a cautious financial approach with less reliance on borrowed capital. This
suggests increased financial stability and less risk, which may appeal to lenders and
investors. However, by gradually raising its debt levels, the business could be able to
take advantage of its solid financial standing. This may make it possible for the
business to engage in new initiatives, seize expansion possibilities, or even increase
returns on stock. To prevent jeopardizing the company's long-term viability and
financial stability, it is imperative to strike a balance and make sure that any rise in
debt is properly handled.
4.13 Interest cover ratio
The company's interest coverage ratio raises concerns about its capacity to easily
satisfy its interest commitments because it is lower than the industry average. Even if
the business is now able to pay its interest, this lower ratio raises the possibility that it
might be vulnerable to changes in earnings. Meeting these responsibilities may
become difficult if the company's profitability declines. Enhancing profitability
should be the company's top priority in order to reduce this danger. This can be
accomplished by a number of tactics, including cutting expenses, concentrating on
raising sales margins, or improving operational effectiveness to raise total profits.
Furthermore, if the business has a large debt load, looking into ways to lower debt
levels might boost its interest coverage ratio and fortify its financial stability.

SCENARIO 3
1. Budget Caculation
i. Sales Budget (in £s and Units)

Month Sale Volume (Units) Price per Unit (£/Unit) Sales (£)
January 500 100 50,000
February 300 100 30,000
March 450 100 45,000

Total 1,250 1000 125,000