Strategic Accounting for Decision Making

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Table of Contents

Topic                                                                                                                 Page No

Values of Financial Ratios        

Sources of Finance for Converting the Central and Taffview Pools into Fitness clubs        


Introduction

        The accounting data gives us the ability to understand the working of the organisation. Fairvalue Leisure Ltd has acquired new pools which are Taffview and Central. With the accounting information there has been the analysis done to improve the profitability of the pools. There are also information on sources of finance and budgeting.

Profit and Loss Account and Balance Sheet for Taffview for year ended 31st March 2008

Values of Financial Ratios

Comparative Analysis of the Ratios

Ratio 1: Operating Profit/Operating Assets

        The ratios talks about how the assets are being used in the company. Amongst the three Fieldpark is the best. Taff View Pool is doing a mark better that Central Pool. The ratio being low for these two pools states that the assets are not being used efficiently. In order to improve profitability of their company they have to work towards using their assets effectively. If the assets are old and worn out they need to be replaced.

Ratio 2: Operating Profit/Sales

This ratio speaks about sales margin the companies are achieving. Fieldpark is doing fairly better than Central and TaffView Pools. Compared to Central Taffview is doing a mark better. This indicates that the pools are not generating enough sales, could be due to inadequate sales promotion. If the sales are good and the ratio is low then the expenses are eating up the profit. The companies should try and reduce unwanted expenses, make the sales promotion effective, improve the service provided to the customers.

Ratio 3: Sales/Operating assets

The ratio informs the rate at which companies are turning over their operating assets. Here again Fieldpark is efficiently working better than the Central and Taffview pools. Taffview is generating more profit than Central. The pools need to work towards reducing unwanted expenses for example in Taffview they could keep only one pool manager. They have to work on utilisation of assets effectively. Both the pools need to concentrate on increasing the sales by setting up a good sales promotion program.

Ratio 4: Expenses/Sales

        This ratio states us about expenses in the organisation. The values clearly mention that Fieldpark is doing better that Central and Taffview. Taffview is doing a mark better than Central. The ratios of all the pools are more than 90%, which indicates that all the three companies are running at high expenses. The management needs to look at every activity and cross check for any unnecessary ones which needs to be eliminated. Power saving bulbs can be used for lighting. The plant can set up solar heaters to get warm water.

Ratio 5: Sales/Fixed Assets

        The ratio indicates the level of fixed assets turnover in the organisation. Fieldpark has a good amount of fixed assets to generate sales. In comparison Central and Taffview pools have a very low ratio and need more amount of fixed assets to generate sales. The pools need to check for unused assets, if any they need to be utilised or disposed to invest in assets which are required for the business. This way the profitability of the company would increase.

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Ratio 6: Sales/Current Assets

        The ratio describes the level of current assets in the organisation. Here we see that Central pool is having the least ratio, hence the highest amounts of current assets. Fieldpark has a better ratio than Taffview pool. The Fieldpark and Taffview pools need to work on disinvesting the unused fixed assets and convert them to cash or stock. If the ratios is going to high they can convert them into sales and then into fixed assets for future expansion. They all need to have healthy cash at bank.

Ratio 7: Sales/Stock

        The ratio indicates that stock ...

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