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Profit & Loss Accounts and Balance sheet.

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Introduction

Mr. Han's business year ending 2005 Mr. Han's business year ending 2006 Industry Averages Mr. Han's business year ending 2007 Return on Capital Employed 41% 45% 37% 11,325 15,575 + 8360 - 1610 = 50% Gross Profit % 44% 45% 39% 27,600 63,600 = 43% Net Profit % 28% 27% 30% 11,325 63,600 = 17.8% Stock Turnover 44 days 56 days 62 days 7700+7,400 36,000 = 76 days Debtor payment period 0.89 days 0.88 days 0.9 days 150 63,600 = 0.86 days Creditor payment period 5.7 days 13 days 12 days 1610 63,600 = 9.2 days Current Ratio 4.8:1 4.9:1 4.5:1 8360 1610 = 5.1:1 Acid Test 1.1:1 0.89:1 1:1 8360 - 7400 1610 = 0.6:1 The results that are shown above are accurately calculated. The figures are taken from Mr. Han's profit & Loss Accounts and Balance sheet 2007. The table signifies that Mr. Han's business for the year ending 2007. Return on Capital Employed: - Return on capital employed in the year 2005 was only 41%, it then went up in the following year by 4% and again in the year 2007 it went up to 50%. This signifies that the ratio has been improved. This ratio is improved because the business has increased investment. ...read more.

Middle

Mr. Kong Han business can be improved if business could do to reduce their overall expenses. The business can look for another supplier who is cheaper and can provide a better deal for raw material goods. The business can try to decrease their overheads figures and try to maximise their profit each and every year. Stock Turnover: - Stock Turnover in the year 2005 was only 44 days but it has been increased in the following year (2006) to 56 days but again in the following year it has increased by 20 days and went up to 76 days. It has been worsened because the lower days shows that the business has quickly convert stock into revenues. This is worse because the business has high prices on the products as well as the business has no proper strategy to sell the products. The possible action would be that the quicker the business sells its products the better it is. There are several methods that business could be improved. The first thing they could is to lower the products prices; this will hugely promote sales as customers will feel they are getting a bargain. And an additional thing they can do is to try and sell the products to another company for a low price. ...read more.

Conclusion

it has increased to 5.1:1. This indicates that the business is in liquidation. It has been worsened because it has gone up because it shows that they have a lot of stock to sell. These changes happened because they have a lot of stock. Mr. Kong Han should take immediate action on the business because the ideal ratio was between 2:1 and 3:1. The business could achieve this by reducing the ratio. This can be done by selling more of its stock or try to reduce the amount of cash they have available on the business because of the high amount of stock the business should produce few amounts of products. Acid Test: - Acid Test in the year 2005 was only 1:1:1 but it has been decreased to 0:89:1 in 2006 and again in the following year (2007) it has decreased to 0:6:1. This signifies that the business is in very poor condition as the Acid Test was worse. The steps the business can try and increase their current assets but not stock as stock can be very hard to sell immediate. They could offer more customers a credit system or the business can try to and hold more cash within the business. Another option is to produce less stock and when there is an opportunity to pay off creditors they should take it. ?? ?? ?? ?? M2 Jawad Ali (12SDE) ??? ???? 29/10/2009 ...read more.

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