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Gross Profit Margin
1) Operating
Profit Margin
1) ROCE Ratio
1) Current Ratio
1) Quick Ratio
1) Inventory Turnover Ratio
1) Settlement Period for Trade Receivables
1) Settlement Period for Trade Payables
1) Gearing Ratio
Question: 6
a) 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 |
b) 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.
v 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.
v 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.
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