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Seminar assignments Cloud Based Accounting System

Accounting Information Systems (Charles Sturt University)

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Shivnath Ashalagari - 11611544

Cloud Based Accounting System

Sweeties

Analysis and Recommendations

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Shivnath Ashalagari - 11611544

1.0 Analysis

The below figure of income statements has shown the revenues and expenses of Sweeties. The

total operating expenses are 36.22% of sales.

Figure1: Profit & Loss Statement

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Shivnath Ashalagari - 11611544

Figure 2: Profit & Loss Statement

The performance of Sweeties can be effectively analyzed with the help of profitability, liquidity,

efficiency and financial ratiosas given below.

Figure 3: Liquidity & Profitability Ratios

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Shivnath Ashalagari - 11611544

Figure 4: Solvency&Efficiency Ratios

One of the most important aspects is to evaluate the returns of a company. Therefore, the gross

profit margin is 1.20 that suggests that for $1 of sales, Sweeties earns gross profit of $1.20.

Furthermore, the ratio of net profit explains that the company is able to generate the bottom line

of 0.84 for $1 revenue. According to Penman and Stephen (555), the return on investment

defines the return to shareholders equity. Hence, the ratio describes that the organization’s net

return is 0.46 for each dollar invested by owners. It is analyzed through the profitability ratios

that the company's return is less than 1. Hence, the company is not efficient enough to earn the

huge returns.

The liquidity ratios are helpful to know whether an organization is capable enough to fulfill its

short term obligations. The current ratio is 3.12 and hence it is assessed that for $1 of current

liability, the current asset is 3.12. It is concluded that company has good liquidity position and

possess short term assets to pay its current liabilities. Furthermore, the quick acid test ratio does

not take into account the inventory for the liquidity analysis. The quick ratio depicts the cash,

accounts receivable, and other short term assets. The quick ratio is 3.02 that lead towards the

result that Sweeties has higher current assets as compared to liabilities. The high liquidity

position is not always good. Hence, it illustrates that the firm is not utilizing its current assets in

an efficient and effective manner.

The debt to equity ratio is 0.47 and it explains that liability for $1 of equity is 0.47. It is

examined that the Sweeties possess the ability to deal with the long term obligations. The risk as

well as bankruptcy chances are very low for this organization. The efficiency ratio related to

account receivables turnover explains that Sweeties collects its accounts receivable from the

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customer for 0.7 times. Moreover, the ratio of accounts payable enables to analyze that the

Sweeties make payments of its obligations for 0.2 times.

2.0 Recommendations

First, it is recommended that Sweeties should reduce its operating as well non-operating costs to

enhance the profitability level. The profit and loss statement of Sweeties shows that the costs of

sales and advertising expenses have major contribution in operating cost. Therefore, it is advised

to implement new machinery and latest technological tools in order to elevate productivity and

diminish cost.

According to the liquidity analysis, it is advised that the company has excces and ideal cash that

is not useful for a company. Sweeties should make investment in marketable securities to make

the most of the available cash. Furthermore, the organization has high accounts receivable

therefore, Sweeties is required to tighten its credit terms. It is suggested to offer discounts to

customers for early payment of sales. Contrary to this, it needs to be implemented in practices

that customer has to make full payment after the date of discount offer. Hence, it becomes

motivation for them to make payment early and improve the collection of receivables. Therefore,

the company would have enough cash to invest in other profitable project.

On the basis of efficiency ratios, the company is advised provide incentive to customers in terms

of discounts. Therefore, the company would be able to pay its liabilities as well on early date.

Hence, these steps towards the improvement of liquidity, efficiency, and profitability elevate the

cash inflows and net income of Sweeties.

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References

Penman, and Stephen H. Financial statement analysis and security valuation. New York:

McGraw-Hill, (2007):550-650. Print. 23 August. 2016.

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