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Comment on Metamax plc’s cash position for the year
Generally Metamax plc’s cash budget reflect an increasing trend overall cash generated from sales. January reflects the low balance figure at a $50,000 while July is the highest with cash balance of $ 313, 488.12. Considering that the firm enjoys stable cash flaw in and out of the business, this is particularly important for the firm to meet her short term obligation such as paying suppliers among other operational activities.
|
Description |
Amount in U.S Dollar $ (Dr) |
Amount in U.S Dollar $ (Cr) |
|
Stock handling Equipment |
$ 240,000 |
– |
|
Asset depreciation |
– |
190,000 |
|
31st Dec 2011 Balance c/d |
– |
50,000 |
|
240,000 |
240,000 |
|
Description |
Amount in U.S Dollar $ (Dr) |
Amount in U.S Dollar $ (Cr) |
|
Monthly charge on administrative ($5000)12mth |
60,000 |
|
|
Depreciation charge on (stock handling equipment) |
190,000 |
|
|
To the income statement (depreciation charge for the year ending 31st December 2011) |
250,000 |
|
|
250,000 |
250,000 |
(iv) Provide a brief discussion as to why the cash and profit figures are different.
More often business reports would reflect large profits or losses in their financial statements yet at the same time record extremely small negative cash balances in their business bank accounts (Miller, 2002). This can be due to different business practices, this also usually lies in the manner in which business accountants compute business profits. Accounting regulatory boards provide rules that serve as guideline in calculating accruals and prepayments within the business trading transactions (Gibson, 2010). For instance, in Metamax plc case there are transactional activities such as paying bills, corporate tax among other expenses that are done on quarterly basis rather than being paid in the same month they were incurred. Take, for example, a case where the stock or inventory items are bought but at the year end they are not sold off. The value of this inventory is deducted from the purchases in order to reflect the true sales that the business made during that particular year.
Question 3
i. The company profitability ratios
Working
W1.Profitability ratio= (profit /net sales) 100%
2010- (25000/404,000) 100%
6.1%
2009- (750/302,500)100%
0.25%
Operating ratio = (Cost of goods + operating expenses) 100 / Net sales
2010 = $(220,000+60,500)100/404,000
=69.4%
2009 = $(175,000+51,250)100/ 302500
= 41.7%
ii. Companies working capital
W2. Working capital = (Current assets – Current liabilities)
2010- Total current assets
Inventory $ 175,000
Receivable $142,000
Cash and cash equivalent $8000
Total assets $ 325,000
Liabilities 2010
Payables $165,000
Corporate tax $50,000
Bank overdraft $nil
Total current liabilities $215,000
Working capital = $(325,000- 215,000) = $ 110,000
2009 working capital computation
Inventory $125,000
Receivables $112,000
Total current assets $237,000
Current liabilities 2009
Payables $145,000
Corporate tax $40,000
Bank overdraft $6000
Total current liabilities $191,000
Working capital 2009 = (237,000- 191,000) = $46,000
W3. Liquidity Ratio Computation
Quick ratio in 2010 = (Current assets – inventories)/ Current liabilities
= $(325,000-175,000)/ 215,000= 0.697
Quick ratio in 2009 = $(237,000 – 125,000)/191,000 = 0.59
Current ratio calculation
Current ratio – 2010 = Current assets / current liabilities
= $(325,000 / 215,000)
= 1.5 times
Current ratio- 2009 = Current assets / current liabilities
= $237,000 / $191,000
=1.2 times
iii. Investors ratios
Dividend Yield = Annual dividend per share / price per share
Dividend yield -2010 = $ 0.29 per share / $2.2 = 0.132 times
Dividend yield – 2009 = $ 0.33 per share / $1.81 = 0.182 times
Dividend issued over 2010 where valued at $29,000 the same value issued to shareholders in 2009. Dividend per share as per 2010 can be computed as follows
Total dividend cost / number of share
$29,000/ 100,000 shares = $ 0.29 per share
Dividend per share in 2009 –
$ 29,000/ 87,500shares = $ 0.33 per share
Price earnings ratio = (market value per share / Earning per share)
2010- $ 2.20 / 0.132 = $16.7 per share
2009- $ 1.81 / 0.182 = $ 9.5 per share
b. Analyze and comment on these results
Basing on the ratio results calculated above, the firm financial status reflects a positive growth over the years. Let us consider, for instance, working capital in 2009 reflected a $ 46, 000 which has had a sharp increase to about $ 110,000 in 2010 a difference of $ 64,000. This is an improved investment in the business aimed at creating increased productivity which is realized through profits (Miller, 2002).
Typically, increased capital investment, has influenced companies profitability. In our result 2009 achieved 0.25% profits which since then have increased to better height of about 6.1%. This is a major increase considering the business profits that improved from $750 in 2009 to $ 25,000. The firm is able to meet its short term obligations considering improved current ratio and quick ratio indicates an improved performance (Miller, 2002). In 2009 the firm achieved a 0.59 to a better height of about 0.7 while the operating ratio increased from 41.7% in 2009 to 69.4% in the year 2010 indicating increased investment to steer the firm’s activity by introduction of increased administrative funds.
