Luisa Blokvoort Business Studies 10 Humility

Chapter 25 – Analysis of Accounts

1.
a) Capital employed is the shareholders’ equity plus non-current liabilities and is the
total long-term and permanent capital invested in the business.
b) More products may have been sold and they may have been sold at a higher price.
c) Triton Canning Ltd may have used cheaper materials to make the product but kept
the selling price the same. They may have also increased the selling price of each
product but keep the cost of sales the same as before.
d) There are several ways net profit can be increased. Firstly, gross profit may be
increased or the overhead expenses. This could be achieved by lowering the cost of
labour as this will result in the decrease in cost of sales and cause the gross and net
profit to increase. Another way is to reduce the expenses such as the salaries.
e) From the table, we can tell that the profitability in 2013 was 12% whilst in 2012 it was
15.5%. the gross profit has increased and the return on capital is still considerably
high.
However, information suggests that the overhead expenses has highly increased.
Adding to that, the net profit has fallen as well as the return on capital.
In conclusion, I don’t think that the management of Triton Canning Ltd will be happy
with the results of the profitability of the country.

2.
a) Liquidity is how easy or how hard it is to convert assets into cash.
b) Debtors and customer service in the store
c) Firstly, due to the decrease in liquidity of the company, Hi Fashion may be taking
longer than expected to pay back their debts. Also, they may have had no choice but
to increase their bank overdraft as they may be lacking finances.
d) Shareholders may want to see what the future holds for the company and how the
profits of the company may be impacted. The suppliers may also want to know
whether or not Hi Fashion will be able to pay back their debts to the companies they
owe them to.
e) In 2012, the current ratio is 2 whilst the acid test ratio is 1.125. In 2013, the current
ratio is 1.47 while the acid test ratio is 0.16. From this, it is obvious that both ratios
have fallen between the years. Therefore, I think it is right for the bank to be worried
about Hi Fashion Ltd’s liquidity. It is unsure whether or not they’ll be able to pay back
their debts.