Gross Profit Margin
Gross Profit Margin=(Gross Profit)/Revenue
=(£ 65,000)/( £ 110,000)
=(£ 100,000)/(£ 150,000)
Operating Profit Margin
Operating Profit Margin=(Operating Profit)/(Net Revenue)
=(£ 50,000)/(£ 110,000)
=(£ 86,000)/(£ 150,000)
ROCE Ratio
ROCE =EBIT/(Total Equity+ Total Non_Current Liabilities)
= (£ 50,000)/(£ 80,000 +£ 50,000 )
=(£ 86,000)/(£ 92,000+£ 40,000)
Current Ratio
Current Ratio=((Current Assets))/(Current Liabilities)
=(£ 52,000)/(£ 22,000)
=(£ 55,000)/(£ 18,000)
Quick Ratio
Quick Ratio=((Current Assets-Inventory))/(Current Liabilities)
=(£ 52,000-£ 20,000)/(£ 22,000)
=(£ 55,000- £ 12,000)/(£ 18,000)
Inventory Turnover Ratio
Inventory Turnover Ratio=(Cost of Goods Sold)/(Average Inventories)
=(£ 45,000)/(£ 20,000)
=(£ 50,000)/(£ 16,000)
Settlement Period for Trade Receivables
Settlement Period for Trade Receivables =(Trade Debtors)/Revenue ×365
=(£ 20,000)/(£ 110,000) ×365
=(£ 18,000)/(£ 150,000) ×365
Settlement Period for Trade Payables
Settlement Period for Trade Payables =(Trade Payables)/CGS ×365
=(£ 18,000)/(£ 45,000) ×365
=(£ 15,000)/(£ 50,000) ×365
Gearing Ratio
Gearing Ratio=(Total Debt)/(Total Equity)
=(£ 72,000)/(£ 80,000)
=(£ 58,000)/(£ 92,000)
The results of ratio analysis are presented in the following table:
Question: 6
Cash Budget
Company's Capital Budget
April May June
Cash Inflows
Sales to Retailers $300,000 $600,000 $400,000
Factory Shop Sales $30,000 $40,000 $20,000
Cash Outflows
Raw Material Purchase $240,000 $400,000 $300,000
Labours $60,000 $70,000 $90,000
Overheads $95,000 $115,500 $120,500
Now Calculating and Adjusting Cash
Sales April May June
Sales to Retailers 300000 x 0.25 (300000 x 75%) + (600000 x 0.25) (600000 x 75%)+(400000 x 0.25)
£ 75,000.00 £ 375,000.00 £ 550,000.00
Factory Shop Sales £ 30,000.00 £ 40,000.00 £ 20,000.00
Total Sales £ 105,000.00 £ 415,000.00 £ 570,000.00
Calculating material cost paid during each month.
Materials
Raw Material Purchase 240000 x 0.2 (400000 x 20%) + (240000 x 80%) (300000 x 20%)+(400000 x 80%)
Total Cash £ 48,000.00 £ 272,000.00 £ 380,000.00
Making adjustment for depreciation expense for next three months:
Overheads Calculation
Overheads £ 95,000.00 £ 115,500.00 £ 120,500.00
Machine Depreciation 300000 ÷ 12 300000 ÷ 12 300000 ÷ 12
Total Depreciation Overhead £ 25,000.00 £ 25,000.00 £ 25,000.00
Total Overhead £ 120,000.00 £ 140,500.00 £ 145,500.00
Based on above calculations and adjustments cash budget is developed in the following table.
Cash Budget
April May June
Cash Inflows
Sales to Retailers £ 75,000.00 £ 375,000.00 £ 550,000.00
Factory Shop Sales £ 30,000.00 £ 40,000.00 £ 20,000.00
Total Cash Inflow £ 105,000.00 £ 415,000.00 £ 570,000.00
Cash Outflows
Raw Material Purchase £ 48,000.00 £ 272,000.00 £ 380,000.00
Labours £ 60,000.00 £ 70,000.00 £ 90,000.00
Overheads £ 120,000.00 £ 140,500.00 £ 145,500.00
Total Cash Outflow £ 228,000.00 £ 482,500.00 £ 615,500.00
Net Cash Flow -£ 123,000.00 -£ 67,500.00 -£ 45,500.00
Opening Cash Balance £ 198,000.00 £ 75,000.00 £ 7,500.00
Closing Cash Balance £ 75,000.00 £ 7,500.00 -£ 38,000.00
Recommendations for Cash Flow
Based on the cash budget, the following recommendation is drawn for the management of Sticky Wicket Inc. to improve the company’s cash flow position.
Reduce expenditure of raw material purchase by bringing efficiency in material usage. Currently, the raw material purchase has the highest contribution in cash outflows as a result of which overall net cash flow is negative.
The second recommendation is to change the receivable policy of the company for “Sales To Retailers”. The company only cover 20% of the cash for monthly sales. Thus, the overall cash inflow amount for each month has been reduced. The sales cash of April month for “Sales to retailers” account was only covered by 20% which turned net cash flow amount into a negative amount. Thus, each time opening cash balance was very low which also reduced the amount of closing cash balance for the month. Thus, managers need to change their accounts receivable policies to improve the cash flow condition.
