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Accounting Case Study

This document provides a case study and financial analysis of Highland Malt, a Scottish whiskey company. It includes assumptions, financial statements for 2019 including an income statement, balance sheet, and cash flow statement. It also calculates financial ratios for Highland Malt and compares them to industry averages. Journal entries for 2018 and 2019 are presented. In its analysis, it finds that Highland Malt has strong liquidity but low profit margins. It recommends changing Spencer's commission structure and selling whiskey as single bottles to increase profits.

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ankit131189
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3K views7 pages

Accounting Case Study

This document provides a case study and financial analysis of Highland Malt, a Scottish whiskey company. It includes assumptions, financial statements for 2019 including an income statement, balance sheet, and cash flow statement. It also calculates financial ratios for Highland Malt and compares them to industry averages. Journal entries for 2018 and 2019 are presented. In its analysis, it finds that Highland Malt has strong liquidity but low profit margins. It recommends changing Spencer's commission structure and selling whiskey as single bottles to increase profits.

Uploaded by

ankit131189
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
  • Balance Sheet and Cash Flow: Provides the balance sheet and cash flow statement for Highland Malt as of December 31 for the years 2017 and 2018, tracking changes in financial position.
  • Assumptions and Financial Statements: Presents the basic assumptions underlying the financial analysis and provides an initial financial statement overview, setting the stage for detailed analysis.
  • Calculation of Financial Ratios: Analyzes liquidity, leverage, profitability, and efficiency ratios, deriving insights into the company's financial health from 2018 to 2019.
  • Industry Comparison: Compares Highland Malt's financial ratio performance against industry averages over five years to benchmark success.
  • Journal Entries and Recommendations: Summarizes journal entries for 2018-2019 and proposes business recommendations based on financial health assessments and product pricing strategies.

Highland Malt: Accounting Policy Choices in Financial Statements –

Case Study and Financial Analysis

Assumptions:
• The Payments to Spencer are received in cash, all cash owed to Highland Malt for sales are
considered accounts receivable

• We are going by the assumption that inventory that has come in first will go out first, which is
the FIFO method

• Reporting Currency is in US dollars, even though the company is based in Scotland whose
primary currency is Pound Sterling which leads us to believe the company is headquartered in
USA

• Salary cost of Adger is excluded in fixed cost of 230000 USD

• 30000 USD Salary is not considered for Adger as it is due in 2020 and not accrued in 2019

• No financial data for the year 2018 is provided hence the beginning balance for all accounts is
considered 0

Financial Statement
a) Income Statement

b) Balance Sheet
c) Cash Flow Statement
Calculation of Financial Ratios
a) Liquidity Ratios

b) Leverage Financial Ratio


c) Profitability Ratio

d) Efficiency Ratio
Highland Malt Financial Ratio vs Industry Average Ratio 5 years (Mackmyra Svensk
Whisky AB)

The comparison of data is done with Mackmyra Svensk Whisky AB which is a Swedish whisky.
The data for comparison is taken from investing.com
Highland Malt
Preparation of Journal Entries
For the year 2018 and 2019

a) Year ending 2018

Event DR CR

Common Stock

Recommendation and Analysis of Financial Health

For our analysis of the company, we calculated the current and quick ratios to be 16.9 and 9.4,
respectively.

The debt-to-equity ratio is 0.063 because the company is financed primarily through equity.
The inventory turnover ratio is 3.4 and the return on assets and return on equity are both 6.29 and 5.29
when rounded to the nearest hundredth.

While the market continues to grow, the return on assets and equity is under 7, which is a very low
margin for return on investment.

To increase profitability, the commission agreement with Spencer's should be changed to allow the
commission to be clawed back in the event of a return, since that sale no longer contributes to the
bottom line.

Highland Malt should sell whisky as single bottles that can yield an additional $500 per barrel, or
$125,000 in net profit, on a volume of 250 barrels sold over two years at the stated retail price of $60
per bottle.

Highland Malt: Accounting Policy Choices in Financial Statements – Case Study and Financial Analysis Assumptions: • The Paym
c) Cash Flow Statement
Calculation of Financial Ratios a) Liquidity Ratios b) Leverage Financial Ratio
c) Profitability Ratio d) Efficiency Ratio
Highland Malt Financial Ratio vs Industry Average Ratio 5 years (Mackmyra Svensk Whisky AB) The comparison of data is done w
Highland Malt Preparation of Journal Entries For the year 2018 and 2019 a) Year ending 2018 Event DR CR

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