Analysis of Financial Performance

Analysis of Financial PerformanceName Anjeli d/o PanjalingamQuestionsScenarioYou have just been appointed for the contrast of finance executive of a bon ton that is involved in the hyper commercialize industry, Tisku. victimization the Tiskus pecuniary income and quietus sheet provided here, you ar required to tumble the monetary surgical process and financial position using symmetryn analysis. base on the discip run given in the income statement and balance sheet, send the following ratio for both years 2012 and 2013 and comp are them to access the financial performance of Tisku.As the finance executive, propose the TEN axioms if finance to your trouble that would affect their closing, in the relation and examples of hypermarket industry.Task 1ScenarioYou have just been appointed for the job of finance executive of a friendship that is involved in the hypermarket industry, Tisku. Using the Tiskus financial income and balance sheet provided here, you are required to ana lyze the financial performance and financial position using ration out analysis.Based on the information given in the income statement and balance sheet, calculate the following ratio for both years 2012 and 2013 and compare them to access the financial performance of Tisku.IntroductionRatioIn mathematics, ration is a relationship between the numbers of the same kind. A financial ratio (or report ratio) is a relative magnitude of twain selected numerical determines interpreted from an enterprises financial statements. There are many standards of ration utilize to try to evaluate the over entirely financial condition of an flock or other organization.Financial ratio whitethorn be employ by mangers within a firm, potential shareholders (owner) of a firm and by a firms ac hunchledgementors. Financial ratio is in addition apply to compare the strength and weakness in various companies. Values mappingd in calculating financial ratio are taken from the balance sheet and income statement. The statements data is based on the product line relationship method and accounting standards employ by the organization.Types of RatioThere are four staple types of financial ratio used to measure a companys performance. They are-Liquidity ratioThis is the most common ratio of present-day(prenominal) additions to current liabilities. This ratio indicates a companys ability to retrovert its short term bills.Current assets = currents asset/ current liability savage test ratio= currents asset inventory/ current liabilityrestoration of crownwork employed = net gelt/capital employed carbon earningsability ratioProfitability ratio indicates management ability to turn sales dollars into benefit and silver fall. porcine profit = gross profit/sales hundred , net profit/sales snow might ratioTwo common efficiency ratios are inventory disorder and receivable turnover. A high account receivable turnover nub that the company is successful in collecting its outstandi ng credit balance. strain turnover = personify of sales/average inventory food market ratiosMarket ratios are used to understand how other empowerors rate specie. The current market expense of a share of common stock versus an indicator of the companys ability to generate profits or assets held by the companys is evaluated.CalculationsGross profit boundary line boodle profit marginCurrent ratio sp castigately ratioNet working capitalInventory turnover spend of equity quick-frozen assets turnover bonny collection percentage pointAverage payment periodDebt ratio 2012 2013Gross profit margin= Gross profit /Sales 100% = 7,047,000/31,437,000 100% = 7,658,000/ 34,654,000 100%= 22.42% = 22.10%Net profit margin= Net income/ Sales 100%= 220,000/ 31,437,000 100% =571,000/ 34,654,000 100%= 0.70% = 1.65%Current ratio= Current Assents/ Current Liabilities= 8,198,000/ 3,602,000 =9,162,000/3,264,000= 2.28 =2.81Quick ratio = Current Assents- Inventory/ Current Liabilities= 8,198,000- 6,35 4,000/3,602,000 = 9,162,000/6,635,000/3,264,000=0.5111 = 0.7741Net working capital= Current Assents- Current Liabilities= 8,198,000-3,602,000 = 9,162,000-3,264,000=RM 4,596,000 = RM 5,898,000Inventory Turnover= urinate up of goods sold/ Inventory= 24,390,000/ 6.354,000 = 26,996,000/ 6,635,000=3.836 times/year = 4.069 times/year 2012 2013Return on equity= Net income/ Shareholders equity= 220,000/ 6,072,000 = 571,000/ 5,280,000= 0.0362 = 0.1081= 3.62% = 10.81%Fixed assets turnover= Sales/ Net Fixed Assents= 31,437,000/ 6,553,000 = 34,654,000/ 6575,000= 4.797 = 5.271Average collection period= Accounts receivable/ Daily credit sales=N/A =N/AAverage payment period= Accounts payment/ Daily credit purchases=2,009,000/ (24,390,000365) =1,993,000/ (26,996,000365)=30 days =27 daysDebt ratio= substance debt( Total Liabilities)/ Total assets 100%= 31,437,000/ 6,553,000 100% =10,457,000/ 15,737,000 100%= 58.83% = 66.45%Task 2As the finance executive, propose the TEN axioms if finance to your management that would affect their finale, in the relation and examples of hypermarket industry.IntroductionFinance is the middle ground between the theory-based economics and the accounting world of numbers. Finance is applied economics. Financial implications are at the heart of e real business transaction and decisions. Finance is also a valuable tool used to communicate, judge and monitor the dissolver of business decisions.axioms are the principle universally accepted within a practice or subject area on the basis of its self-importance evident truth or intrinsic merit. The ten axioms used in financial management is the foundation of financial decision reservation. There are ten important axioms and almost all the industries do uses this uses it in making decision making in finance. How does the ten axioms of finance would affect decision in hypermarket industry?Main BodyAxiom 1 The Risk-Return trade-offAdditional chances leave not be taken unless an additional come is expected. At some point, state lead have some saved cash. What will they do to it? The answer is simple, to expand future consumption activities. savings are invested to earn more return. Investment alternative have polar amount of find and expected returns. Investors choose to put money in waste investments because investment offer higher expected returns because the more risky an investment, the higher will be its returns. This is a relationship between risk and unexpected returns. In hypermarket industry, for example a modernistic hypermarket is opened, the investors have to invest a lot of money as hypermarket is an expensive retail forwardness selling a wide range of crossroads under one roof. consequently hypermarket industry needs a lot of money. Investors do not know whether the hypermarket will go popular among the people as its freshly open. This is creates a higher risk to them. As hypermarket such as Tesco, heavyweight and EON is a big industry and not a undersize business, a big amount of money should be invested. This creates a very big risk which dont have guarantee in return.Axiom 2 The Time Value of MoneyA dollar worth today worth more than dollar tomorrow. This is a primal concept in finance the money has a time value associated with it. A dollar received today worth more than a dollar received a year from now. Because we merchantman earn engagement on money received today, it is better to receive money sooner rather than later. If the benefits overweigh the cost the project creates wealth and it should be accepted. If the cost overweighs the benefit, it should be rejected. In hypermarket industry, when they investors invest money and get profit, they should wisely use the profit get from the business. For example, when get an amount of money afterwards the sales of mathematical product, the money should be reinvested to get more profit such as livery in more product inside the hypermarket.Axiom 3 Cash-Not ProfitIn meas uring wealth, or value, bullion menstruate will be used. Cash flow is received by firms and drive out be reinvested. A firms cash flow and accounting profit may not occur together. For example, capital expenses, such as purchase of saucy equipment or building are depreciated over several years, with the annual depreciation subtracted from profit. However, the cash flow associated with this expense generally occurs immediately. Therefore cash flow involving paying money out and cash flows that can be reinvested reverberate the timing for the benefit of cost. In hypermarket industry, the cash received by the investors will be reinvested into the industry to film the hypermarket bigger and wider. The money that they get can be used for example to pay the dividends to the shop in the hypermarket. Besides, cash can also be used to double the products and sales in the hypermarket.Axiom 4 Incremental Cash FlowThe incremental cash flow is the difference between the cash flow if the p roject is taken on versus what they will be if it is not taken on. Not all cash flow is incremental. The difference between revenues generated by introducing the new product maintaining the original series are the incremental cash flow. The difference reflects admittedly impacts of decision. Guiding rule in deciding whether a cash flow is incremental is to look at the company with and without new product. In hypermarket industry, people should know the difference when in that respect is a new product and their new product and the cash flow in their hypermarket whether it brings profits or not. and so choosing a new product should be done wisely.Axiom 5 The Curse of Competitive MarketWhy is it hard to take on exceptionally profitable projects? This question tells how competitive market operates and where to look for profitable projects. In competitive markets, extremely large profit cannot exist for so long. How can we find new projects that return more than the required rate of return? Although competitions make them difficult to find, investment should be invested in markets which is not utterly competitive. Two ways to making less making competitive is to make out the products in some key ways to achieve a cost advantage over competitors. Thus, in hypermarket industry, the products being introduced or sold should be differ than the other hypermarkets. Variety kind of product which is hard to find in other hypermarkets can be sold. Besides, different types of services and advertizing methods can be used. Cleanliness of the hypermarket should be considered such as toilets. Free set and can be given to the members of the hypermarket to attract more customers.Axiom 6 Efficiency of Capital MarketGoals of financial manger are to maximize the shareholder wealth. The markets are quick and prices are right. Information is incorporated into earnest prices at the speed of light. Assuming the information is correct, and then stock price will reflect all publicly available information regarding the value of the firm. In hypermarket industry, business should be done without wasting resources as they use capital that is invested by the shareholders to buy resources. When selling items, they have to have a target on the selling of a product such as age group, gender, trend and so on. Besides, selling of a product should be according demand, popularity, seasons and festivals to avoid wastage. The four resources which are land, labor, capital and entrepreneurship should be used wisely as it is very limited nowadays. all told the resources should be strong organized.Axiom 7 The Agency ProblemThe agency problem results from judicial separation of management and ownership of the firm. Managers are not typically owners of the firms. Managers may make decisions that are in their best interest and not in the line with the long term best interest of the owners. For example, cutting research and breeding cost on new products to maximize current inco me and pay for performance. They also may approach less energetically and attempt benefits themselves in cost of salary and perquisites at the expense of the share holders. This produces conflict between two parties. Thus, in the hypermarket industry, managers might bring in a new product in the hypermarket to adjoin their income without asking any permission from the owner. This might increase the risk to the owner and might bring conflict between them. Besides, there will also be communication barrier because of the foreign workers.Axiom 8 Taxes Bias Business DecisionsAny decision taken by financial manager will go impact on assesses. When a new project is evaluated, income measurees play a significant role. Because cash is king, after cash flow of an investment should be considered. The tax consequences of a business decision will impact ( sign on) cash flow. Companies are given tax incentives by government to influence their decision. Besides, governments use this fact to sh ape the decision of a business for. In hypermarket industry, for example, investment tax credit strike downs taxes. matchless of the best example is plastics will not be given and customers will be charged RM 0.20 for the plastics. This will reduce the pollution and it might tax them on the basis on pollution output.Axiom 9 All Risks are not equalSome risks can be alter away and some cannot. Dont put all testicle in one basket. Diversification allows good and bad events or observations to countervail each other out preferably reducing total variant without affecting expected return. Process of diversification can reduce risk and as result measuring a profit or an assets risk is very difficult. In hypermarket industry, investors can split money and invest in many hypermarkets. This will increase diversification and reduce risks. Resources such as land, labor, capital and entrepreneurship should be divided and cash should be equally spent as it can reduce overall risk. call for and wants of customers are unlimited, so there should have no more or less stock. Stock should be balanced to reduce wastage. Estimation on the average should be done as early preparation.Axiom 10 Ethical Behavior Means Doing the Right Thing, Ethical Dilemmas are everywhere in FinanceEthical behaviors means is doing the right thing. A bar arises however in attempting in define doing the right thing, because each of us have own set of value which forms personal judgments about what is the right thing to do. This will create issues and disagreements in firms. Unethical dilemma eliminates institutionalise and loss in public confidence. Shareholders values suffer and take a long time to recover. Firms have to responsible more than just on owners. In hypermarket industry, to avoid any dilemma all stakeholders should be considered when pickings decisions. Some ethical dilemma might happen between the workers itself as each other cant tolerate or do have some misunderstandings. Product s sold in hypermarkets should be guaranteed with the expire get word and also quality. Products that are being used should be safe. Ingredients should be suss out before a product is being sold in a hypermarket. For products which is used by Muslims, Halal logo should be ensured. Besides, when customers were promised with promotional such as free gifts, discounts and so on it should be fulfilled without disappointments to make sure the hypermarket do not lose trust. It is very hard to thingamajig back the trust when next promotion is done.ConclusionAxioms are more than statement of common senses as they are the theoretical statements. These axioms of financial management provide logic behind what is to follow. It helps to build on them and attempt to sidle up out their implications on decision making. In the world of hypermarkets industry, the ten axioms helps to reduce risk on the business and increase the profit and also helps in making a wise decision in financial managemen t.ReferencesBibliographyTheFreeDictionary.com, (2014).axiom. online in stock(predicate) at http//www.thefreedictionary.com/axiom Accessed 22 Jul. 2014.BibliographyManagementparadise.com, (2014).Ten Axioms of Financial Management. online Available at http//www.managementparadise.com/forums/financial-management-fm/200960-ten-axioms-financial-management.html Accessed 22 Jul. 2014.BibliographyMathsisfun.com, (2014).Ratios. online Available at http//www.mathsisfun.com/numbers/ratio.html Accessed 22 Jul. 2014.BibliographyInvestopedia, (2009).Uses and Limitations of Financial Ratios CFA Level 1 Investopedia. online Available at http//www.investopedia.com/exam-guide/cfa-level-1/financial-ratios/uses-limitations-ratios.asp Accessed 22 Jul. 2014.BibliographyList4everything.com, (2014).Uses of Ratio Analysis List4Everything. online Available at http//www.list4everything.com/uses-of-ratio-analysis.html Accessed 22 Jul. 2014.Introduction to FinancePage 1