Analyzing Financial Statements Essay examples

Fixed costs are what it costs a company to run before they make any products irrespective of the level of activity e.g. rent & rates, insurance, salaries, utilities.

Determine the unit break-even point, assuming fixed costs are $60,000 per period, variable costs are $16.00 per unit, and the sales price is $25.00 per unit.

In our second assumption, instead of using the cost of goods per cases in 1986, we try to use the percentage it counts in the total expenses which is 50.4% and to find the sales needed to break-even. The detail of the calculation is shown in the answer for questions d. The result is that 95,635, a little bit higher than the estimated sales of 90,000.

$135,000 $90,000 TOTAL REVENUE $3,136,500 $2,352,375 $1,568,250 Expences TOTAL VARIABLE COSTS $454,000 $340,500 $227,000 TOTAL FIXED COSTS $1,403,000 $1,403,001 $1,403,002 TOTAL EXPENSE BEFORE IT $1,857,000 $1,743,501 $1,630,002 EBIT $1,279,500 $608,874 -$61,752 Depreciation $320,000 $320,001 $320,002 EBITDA $1,599,500 $928,875 $258,250 Furnishing Interest $110,000 $110,000 $110,000 20yr Mortgage Interest $182,000 $182,000 $182,000 TOTAL INTEREST $292,000 $292,000 $292,000 TAXES (40%) $395,000.00 $126,749.60 -$141,500.80 Furnishing Principal $180,160 $180,160 $180,160 20yr Mortgage Principal $49,713 $49,713 $49,713 TOTAL PRINCIPAL $229,873 $229,873 $229,873 NET INCOME $362,627 -$39,749 -$442,124 DIVIDEND PAYMENT $29,010 -$3,180 -$35,370 RETAINED EARNINGS $333,617 -$36,569 EBIT/INTEREST 4.38 2.09 (0.21) EBITDA/INTEREST 5.48 3.18 0.88 BURDEN $675,121.67 $675,121.67 $675,121.67 EBIT/BURDEN 1.90 0.90 (0.09) ROE= Net Income/OE (H1) 32.97% -3.61% -40.19% Revenue Estimates Revenue Item 100% Monthly 75%

The income statement on page 50 shows the variable costs and fixed costs more clearly. It has broken down the

It helps in comparing past financial data with current one. Another advantage to line-item budgets is that they are clear and simple to read. Sometimes line-item budget provides little information on the overall use of fund and so, it is hard to justify the amount allocated to a particular line item.

2. Asset management ratios: They can also be called activity ratios and they keep track of how an organization is using their assets to generate net income.

12) Suppose a firm has $1500 in variable costs and $500 in fixed costs when it produces 500

The Central Valley Company is a merchandising firm that sells a single product. The company’s revenues and expenses for the last three months are given below:

In this situation, audit planning should have certain procedures to test the opportunities whether management can commit fraud, such as inquiries of management and employers to establish an overall understanding of the client’s strategies and business, industry and economic environment and competitors’ situations.

This thinking may eliminate the opportunity to take an in-depth look at each Line Item to determine if the proposed expenditure is truly necessary or if the available funds could be allocated more efficiently. Another potential pitfall is that a Line Item budget may result in departments unnecessarily spending unused funds toward the end of the fiscal year. This mentality is the concept of "use it or lose it." This mentality drives Department heads to feel that if they have too much money left over at the end of the year, their budget could be drastically cut in the upcoming year. Oftentimes in Line Item budgeting, there is a tendency to budget each miniscule expense in an attempt to control costs. An example of this would be when department heads track the cost of office stationery separately from expenditures for copy paper and mailing envelopes. This thinking is wrong as the Line Item of office supplies should cover these items. The final disadvantage I noted within the Line Item budget is the tendency for department managers to feel authorized to operate with the same level of funding they had in previous years. Due to this mentality, department divisions might compete with each for a larger share of the budget, instead of looking at what is best for the department as a whole.

Another advantage is control and evaluation. It helps to think about how to correct company’s problems, if they have them. Motivation is another important advantage. Budget can motivate to reach the goals. It also can force managers to think and plan for the future. Budgeting helps to ensure that everyone in the organisation is pulling in the same direction. The budgeting process provides a means of allocating resources to those parts of the organisation where they can be used most effectively.

1. MBA has total fixed costs of $2,160 per day. The firm manufactures MBA advice kits. The kits have a short-run average variable cost of $48 and are sold for $66 each. Assuming constant per unit costs in the relevant range: (i) What is the breakeven level of daily output for the firm (= BE)? (ii) What is the degree of operating leverage when daily output is Q = 170?

Organizations should prepare budgets with budget control systems in place. The financial planning of the organizations targeted operation is considered budgeting. There are processes that are essential to protecting the financial well-being of the organization. There are challenges that may arise within the organization when implementing a budget and budgetary controls.

The calculation of ratios is the calculation technique for analyzing a company’s financial performance that divides or standardize one accounting measure by another economically relevant measure. Financial ratios can be used as a tool to demonstrate financial statement users for making valid comparisons of firm operating performance, over time for the same firm and between comparable companies. External investors are mostly interested in gaining insights about a firm’s profitability, asset management, liquidity, and solvency.