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.

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