Overview of the financial position of Wedding Bells Boutique

Published:

WEDDING BELLS BOUTIQUE

FINANCIAL ANALYSIS REPORT

I. EXECUTIVE SUMMARY

This report aims at providing brief overview of the financial position of Wedding Bells Boutique - a small retail business in providing bridal gowns and accessories during the period of July 2010.

It is believed that it would be helpful to use ratio analysis to comprehend how well the business has performed and operating result comparing with those of a previous period. From that, the recommendations can be applied to enhance the boutique’s operation.

It is recommended that, to increase total income from operating service, Wedding Bells Boutique needs to build a strategic adverting plan, invest more in inventory to introduce their products to more customers or spread sale and minimize the operating cost as much as possible which help to improve the sales volume and profit.

WEDDING BELLS BOUTIQUE

Lady using a tablet
Lady using a tablet

Professional

Essay Writers

Lady Using Tablet

Get your grade
or your money back

using our Essay Writing Service!

Essay Writing Service

BALANCE SHEET

July

June

Current Assets

Cash at bank

$ 7,133

$22,568

Petty cash

100

100

Investment Account

14,942

19,875

Account Receivable

10,864

5,295

Less : Allowance for Doubtful Debt

(247)

(116)

Inventory

12,080

11,800

GST Paid

1,479

2,002

Pre-paid Advertising

180

360

Pre-paid Insurance

1,958

TOTAL CURRENT ASSTES

48,489

61,884

Non-current Assets

Furniture & Fixture

9,800

8,000

Less: Accumulated Depreciation -Furn & Fixtures

(3,148)

(3,087)

Leasehold Improvement

10,000

10,000

Less: Amortisation - Leasehold Improvements

(6,167)

(6,000)

TOTAL NON-CURRENT ASSETS

10,485

8,913

TOATAL ASSETS

58,974

70,797

Current Liabilities

Account Payable

5,434

5,830

GST Collected

1,713.00

8,697

PAYG Withholding Payable

200.00

1,300

Superannuation Payable

115.00

380

Wages & Salaries Payable

320.00

160

TOTAL CURRENT LIABILITIES

7,782.00

16,367

Non-current Liabilities

TOTAL NON - CURRENT LIABILITIES

TOTAL LIABILITIES

7,782

16,367

OWNER'S EQUITY

Retain Earnings

4,142

N/A

Capital

54,430

54,430

Drawings

(7,380)

N/A

TOTAL EQUITY

Lady using a tablet
Lady using a tablet

Comprehensive

Writing Services

Lady Using Tablet

Plagiarism-free
Always on Time

Marked to Standard

Order Now

51,192

TOTAL LIABILITIES PLUS OWNER'S EQUITY

$58,974

$70,797

Income Statement

for the month of July 2010

INCOME

Revenue:

Sales

$18,955

Sales return and allowances

$2,000

Cost of Goods Sold

7,510

Freight Paid

200

Total COGS

9,710

GROSS PROFIT

9,245

Other Income

342

Freight Collected

175

Discount received

100

Interest income

67

TOTAL INCOME

9,587

EXPENSES

5,445

Selling Expense

Advertising Expense

180

Administrative Expense

Depreciation & Amortisation Expense

228

Electricity Expense

280

Insurance Expense

178

Printing, Postage & Stationery

50

Rent Expense

2,600

Staff Amenities Expense

38

Superannuation Expense

115

Telephone Expense

170

Wages Expense

1,440

Financial Expense

Bad & Doubtful Debts Expense

131

Bank Charges

$35

NET PROFIT

$4,142

Table of ratios

Wedding Bells Boutique Ratios

July

June

Current ratio

6.23

3.78

Acid-test ratio

2.31

1.70

Inventory turnover

0.62x

N/A

Debt to asset ratio

0.13

0.23

ROE

0.8 cent

N/A

ROA

0.7 cent

N/A

Profit margin

21 cent

N/A

Gross profit percentage

60%

N/A

Operating expenses to sales ratio

0.28

N/A

II. ANALYZING & FINDINGS

1. Liquidity ratio

Lady using a tablet
Lady using a tablet

This Essay is

a Student's Work

Lady Using Tablet

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Examples of our work

Current ratio (current assets/current liabilities) of company is 3.78:1 in June and 6.23:1 in July. The July ratio for Wedding Bells means that, for every dollar of current liabilities, Wedding Bells has $6.23 of current asset. These figures show that the current asset is much higher than current liability. Company has the strong financial position and sufficient cash to meet liabilities as they fall due.

There was a significant increase in the ratio from June to July. This implies that there was a dramatically change in liquidity between months.

However these ratios are too high at 3.78 in June and 6.23 in July which indicates that company has a slow-moving inventory. This reflects that the company wastes a large amount of liquid capital resources that should be used for converting to inventory or investing to spread sales and services. Wedding Bells should increase in purchase inventory or use more for advertising and broadcast operations in after months.

Acid-test ratio ((cash + marketable securities + net receivables)/current liabilities) is 1.70:1 in June and 2.31:1 in July demonstrates that Wedding Bells has quick assets (cash and receivable) and strong immediate short-term liquidity.

These figures tell that entity could pay all its current liabilities if they came due immediately, and ones again, company does not have any troubles with the finance but using capital have not been effective.

Inventories turnover (cost of sales/average inventory) is 0.62 time. This ratio is usually calculated for an annual period, but in this case it is calculated within 1 month. It partly reflects how rapidly inventory is sold by company & liquidity of the inventories. Wedding Bells has slow moving inventories. In July the company did more purchase than sales. With the retailer, selling the inventory must be as quick as possible, because the inventory generates no profit until it is sold and the goods have the risk of obsolescence. Wedding bells should focus on sales operation. In income statement, it can be seen that sales operating expenses were still small.

2. Solvency Ratios

Debt to total assets ratio (total liabilities/total assets) is 0.23:1 in June and 0.13:1 in July. This figure reveals that the creditors provided 13 cents for every dollar invested in assets. These rates are very low which indicates the strong financial health of company. Company absolutely has ability to pay long-term debt. Comparing to the previous month, this ratio also means that the company runs with the lower operating risk.

3. Profitability ratios

Return on ordinary shareholders’ equity - ROE (profit available to ordinary shareholder/average ordinary shareholders’ equity) is 0.8 cent. This ratio shows how many dollars of profit were earn for each dollar invested by the owners. In this case, the owner earn 0.8 cent for every dollar which the company invested in doing business.

Return on assets – ROA (Profit/average total assets) is 0.7 cent. It shows the overall profitability of assets in terms of the rate earned on each dollar invested in assets. This reflects that the management’s effectiveness is still low. It is advised that the company should find the way to improve sales volume like using marketing and advertising and reduce the managing cost.

Profit margin (Profit/Net sales) is 21 cents. This rate reflects the company generated 21 cents on each dollar of sales. This number is high that means the more net sales dollars are providing profit to company and the fewer net sales dollars are absorbed by expenses. It also expresses this business is profitable and has high profit margin and return on sales.

Gross profit percentage (Gross profits/Net sales) is 60%. These proportions show that 1 dollar of sales generates 60 cents. Wedding Bells is a retailer, the average percent in this industry is normally 55 %, that means gross profit percentage of company is higher than average.

Operating expenses to sales ratio (operating expenses/net sales) is 0.28:1. It shows that the company spent 28 cents to support each dollar of sales.

III. RECOMMENDATION

In a nutshell, the Wedding Bells Boutique ‘s financial position is good. Its operating is going on the right track. It is shown by the fact that the company has stable current asset, a high ratio of return on sale and high rate of gross profit to assure that it is a low operating risk company. However, in the other side, the scope of service is still small and the percentages of ROE and ROA are quite low. This reveals an inefficient managing cost which effects to the profit. From that, it is suggested that the company should minimize the input by searching the cheaper supply and focusing expense on sales. Concurrently, current assets are still high comparing to current liabilities that shows a weak in optimizing the use of financial resource. Therefore, the company should invest in sales by purchasing more diversified products to expand service or using marketing tool to increase the sale volume.