Question 1
A.
| Given Data | ||
| Demand | 27000 | Kg |
| Holding Cost | $1.75 | |
| estimated cost | $14 | |
| Average cost of hard plastic | 0.9 | per kilogram |
| Fluctuation cost | $1.90 | per kilogram |
| $0.75 | ||
| Discount range | 7.50% | over 10000 kg |
| EOQ Model | 464.76 |
According to calculation of EOQ Model, it has been seen that it is 464.76. The EOQ of the situation is 464.74 which show that the company holding cost and the demand of an order should all remain constant to evaluate the inventory costs.
B.
| Total annual cost | C=Q/2(h)+D/Q (S) |
| $1,219.99 |
According to the calculation of total annual cost of the scenario, it is evaluated that the total annual cost is $1219.99 that has been evaluated by the formula of C=Q/2(h)+D/Q (S). The situation total annual cost is not high.
C.
EOQ Model stands for Economic Order Quantity. This model describes the ideal order quantity that the firm purchase to minimize the costs of the inventory such as order costs, shortage costs and holding costs. In EOQ model, holding cost and the demand of an order should all remain constant to assess the costs of the inventory (Thomas, 2019). The formula that has been uses to evaluate the Economic Order Quantity (EOQ) are shown below:
Here,
Q= EOQ Units
D= Demands In Units (typical on annual basis)
S= Order Costs (Per Purchase Order)
H= Holding Costs (per unit, per year)
According to the calculation of EOQ Order of Touchdown Sports Inc’s as it uses this method to manage the inventory of the company. According to above calculation of EOQ model, 464.76 is the amount of EOQ Model. It reflects that it purchase the inventory by maintaining the quantity.
D.
According to the calculation of EOQ Order of Touchdown Sports Inc’s, it is essential to use EOQ model for evaluating the costs of holding inventories, the costs of failing to manage inventories properly and the practical implications of managing inventories. These all evaluations are done by this model which is useful for the company to maintain the efficiency in inventory in terms of collecting and maintaining the inventory.
Question 2
NPV (Net Present Value) describes the amount of difference between in present value of cash inflows and the present value of cash outflows at the end of the financial year (Clear tax, 2020a).
Payback Period defines time period that the company takes to recover the cost of an investment (Clear tax, 2020b).
In this process, the calculation of NPV and Payback Period has been evaluated.
A.
| Project A | ||||||
| Years | 0 | 1 | 2 | 3 | 4 | 5 |
| Net Cash Flow (in GBP) | -51,000 | 3,200 | 3,300 | 3,100 | 3,000 | 2,900 |
| Cumulative Cash Flow | -51000 | -47800 | -44500 | -41400 | -38400 | -35500 |
| Payback Period | 17.24 | |||||
| Project B | ||||||
| Years | 0 | 1 | 2 | 3 | 4 | 5 |
| Net Cash Flow (in GBP) | -76,500 | 3,900 | 3,600 | 3,300 | 3,100 | 2,600 |
| Cumulative Cash Flow | -76500 | -72600 | -69000 | -65700 | -62600 | -60000 |
| Payback Period | 28.08 |
According to NPV Calculation, it has been seen that the company gets all the positive amount which states that it gets the inflow instead of outflow. In both the projects, the company recovers the initial amount in 17.24 years and in project B, the initial amount is recover in 28.08. According to the calculation of payback period, it is recommended that the company has to invest in project A as it has less amount of initial investment and also in this project the company can recover the initial amount in less period of time in the comparison of Project B.
B.
| Option A | ||||||
| 12% | ||||||
| Years | 0 | 1 | 2 | 3 | 4 | 5 |
| Initial Investment | -51,000 | |||||
| Annual cash flows | 3200 | 3300 | 3100 | 3000 | 2900 | |
| less: Depreciation | 2178 | 2178 | 2178 | 2178 | 2178 | |
| Net cash flows | -51000 | 1022 | 1122 | 922 | 822 | 722 |
| PV | 1.00 | 0.89 | 0.80 | 0.71 | 0.64 | 0.57 |
| Present Value of Cash Flows | -51000 | 913 | 894 | 656 | 522 | 410 |
| NPV | -47604.71 |
| Option B | ||||||
| 12% | ||||||
| Years | 0 | 1 | 2 | 3 | 4 | 5 |
| Initial Investment | -76,500 | |||||
| Annual cash flows | 3900 | 3600 | 3300 | 3100 | 2600 | |
| Less: Depreciation | 3276 | 3276 | 3276 | 3276 | 3276 | |
| Net cash flows | -76500 | 624 | 324 | 24 | -176 | -676 |
| PV | 1.00 | 0.89 | 0.80 | 0.71 | 0.64 | 0.57 |
| Present Value of Cash Flows | -76500 | 557 | 258 | 17 | -112 | -384 |
| NPV | -76162.92 |
AVVERAGE RATE OF RETURN: The average rate of return defines the average annual amount of cash flow which is generated over the life of an investment. This rate is evaluated by aggregating all expected cash flows and by dividing by the number of years that the investment is expected to last (Accounting Tools, 2019).
| Formula | |
| ARR (Average Rate of Return) of Option A | Average Income |
| Initial Investment | |
| 679 | |
| 51,000 | |
| 1% |
| Formula | |
| ARR (Average Rate of Return) Option B | Average Income |
| Initial Investment | |
| 67 | |
| 76500 | |
| 0.09% |
According to the calculation of the average rate of return, it has been seen that ARR is 1% in option A and ARR is 0.09% in option B. It shows that the option A is more preferable for the company in terms of getting the return from the initial investment. The Option A is 1% of return which is high as compare to Option B.
C.
ARR (Accounting Rate of Return) is the expected rate of return on investment, assets in the comparison of initial investments. As per the above evaluation, the company has two options for investment such as Option A and Option B. In order to select the options, the company has to do the sensitivity analysis (Gupta, 2017).
In this analysis, the initial investment of Option A is 51000 and the depreciation charge for this investment is 2178 over the five years. But in Option B, the initial investment is 76500 and the depreciation charging amount is 3276 over the 5 years. The NPV of Option A is -47604.71 in and -76162.92 in Option B. However, as per the calculation, the amount of NPV is negative in both the options which do not beneficial for the firm. But if the company has to select one project for investment, then it is suggested that the firm has to evaluate the accounting rate of return which states its return amount of the initial investment (Kengatharan, 2016).
According to the calculation of NPV, the Accounting rate of return is 1% and 0.09% in Option A and Option B respectively (Sarwary, 2019). As per the calculation of ARR, it is determined that the company gets the 1% of return on investment of Option A and 0.09% of return on an initial investment of Option B. The company gets the high return in Option A as compared to the Option B that is why; it is suggested that the firm has to select the Option A for investment in order to get the good amount of return (CFI, 2019a).
D.
| A | B | |
| Initial Investment | 51000 | 76500 |
| Scrap Value | 40110 | 60120 |
| Years | 5 | 5 |
| Cost -scrap value | Cost -scrap value | |
| years | years | |
| 10890 | 16380 | |
| 5 | 5 | |
| 2178 | 3276 |
| Option A | ||||||
| 12% | ||||||
| Years | 0 | 1 | 2 | 3 | 4 | 5 |
| Initial Investment | -51,000 | |||||
| Annual cash flows | 3200 | 3300 | 3100 | 3000 | 2900 | |
| Net cash flows | -51000 | 3200 | 3300 | 3100 | 3000 | 2900 |
| PV | 1.00 | 0.89 | 0.80 | 0.71 | 0.64 | 0.57 |
| Present Value of Cash Flows | -51000 | 2857 | 2631 | 2207 | 1907 | 1646 |
| NPV | -39753.51 | |||||
| IRR | 38% | |||||
| Option B | ||||||
| 12% | ||||||
| Years | 0 | 1 | 2 | 3 | 4 | 5 |
| Initial Investment | -76,500 | |||||
| Annual cash flows | 3900 | 3600 | 3300 | 3100 | 2600 | |
| Net cash flows | -76500 | 3900 | 3600 | 3300 | 3100 | 2600 |
| PV | 1.00 | 0.89 | 0.80 | 0.71 | 0.64 | 0.57 |
| Present Value of Cash Flows | -76500 | 3482 | 2870 | 2349 | 1970 | 1475 |
| NPV | -64353.67 | |||||
| IRR | 44% |
Question 3
- Ratio Analysis
| Ratio Analysis | ||
| Touchdown Trips | 2019 | |
| Profitability Ratio | ||
| Gross profit margin | Gross profit | 1313 |
| Net Sales | 3495 | |
| 38% | ||
| Efficiency Ratio | ||
| Asset turnover ratio | Net sales | 3495 |
| Average total assets | 2424.5 | |
| 1.44 | ||
| Inventory Days | Inventory | 150.00 |
| COGS | 2182.00 | |
| 25.09 | ||
| Liquidity Ratio | ||
| Current ratio (a/b) | Current assets | 3812 |
| Current liabilities | 744 | |
| 5.12 | ||
| Acid Test ratio | Acid Test | 1462 |
| Current liabilities | 744 | |
| 1.97 | ||
| Solvency Ratio | ||
| Debt to Equity | Total Debt | 170 |
| Total equity | 1951 | |
| 9% | ||
B.
Financial statement analysis is the procedure of analyzing and examining the financial statements to determine its financial position. It is essential for the companies to assess their financial situation by examine the financial statements. There are three financial statements that the company uses to examine the financial performance such as income statement/ profit and loss statement, balance sheet statement/ financial position statement and cash flow statement (Gupta, 2017). There are various financial techniques that the firm can use to examine the financial statements such as ratio analysis, trend analysis, horizontal analysis, vertical analysis and the others. Ratio Analysis is one of the financial techniques that the company uses to evaluate the financial statement in order to assess the financial situation of the firm in different aspects such as efficiency, liquidity, profitability, solvency and the others (Schroeder, Clark, and Cathey, 2019). In this paper, the financial situation of the company has been analyzed by using the technique of ratio analysis. The different ratios have been evaluated for determining the company financial position such as profitability, solvency, and efficiency and liquidity ratios.
Profitability Ratio:
According to the ratio analysis of the company, it has been determined that the financial position of Touchdown Trips is good. Profitability ratio defines the company ability or capacity to generate the net profit by selling the goods and services to consumers (Williams, and Dobelman, 2017). As per the above calculation of profitability ratio, it is assessed that the company profitability situation is good which means its ability to generate the profit is good by selling the goods and providing the services to consumers. In order to determine the profitability ratio, the gross profit margin ratio has been evaluated. The gross profit margin of the company is 38% such as the amount of net sales is increasing which shows that the company ability is good to generate the gross profit by selling the goods with the high amount. The high amount of net sale shows that the company has to generate the profit. The other reason of generating the gross profit is the reducing value of expenditures. The reducing expenditure helps the company to generate the gross profit.
Efficiency Ratio:
Efficiency ratio states the company ability to pay or collects the amount from debtors and creditors. Assets turnover ratio and inventory ratios are calculated in order to examine the efficiency situation of the company. According to the calculation of efficiency ratios of the company, it is determined that the company is highly effective in terms of operating the business. It is observed that the company amount of net sales is high as compare to the amount of average total assets. The amount of net sales of the company is 3495 and an average total asset of the company is 2424.5. The company assets turnover ratio is 1.44 which shows that the company sells the assets and uses it to generate the net sales. The assets turnover ratio of the company is good which shows that the assets turnover is highly effectiveness.
The inventory days ratio of the company states that the company cost of goods sold is high as compare to the total amount of inventory of the company. The amount of inventory of the company is 150 and the amount of costs of goods sold is 2182 respectively. According to the calculation of inventory days, it is observed that the company sells the inventory in less period of time. The inventory days of the company is 25.09 which shows that it re-order the inventory in 25.09 days which is very effective. It shows that the company re-orders of inventory by selling the quick inventory to consumers (CFI, 2019a).
Liquidity Ratio:
Liquidity ratio describes the company capacity to pay the short term obligations by using the current assets. It defines the company ability to pay the obligations by measuring the total amount of assets (CFI. 2019b). Current ratio and acid test ratio are calculated to examine the liquidity position of the company. According to the current ratio of the company, it has been seen that Touchdown Trips has enough current assets to pay the current liabilities. The amount of current assets of the company is high as compare to the amount of current liabilities (Robinson, 2020). It has been seen that the company amount of current assets is 3812 and the amount of current liabilities is 744. The higher amount of current assets of the company as compare to the amount of short term obligations indicates that the company has enough assets to pay the obligations. The current ratio of the company is 5.12 which show the high good liquidity position (Monahan, 2018).
According to the acid test ratio of the company, it has been assessed that the company acid test amount is 1462 and the amount of current liabilities is 744. It states that the company amount of acid test assets is high as compare to the amount of current liabilities. The amount of acid test assets of the company is high as compare to the current liabilities reflects that the company has good liquidity position in the market as it has the enough ability to pay the liabilities by using the current assets (Musallam, 2018). The good liquidity position of the company states that it can operate the business for long time as its daily operations will improve (Accounting Tools, 2018b).
Solvency Ratio:
Solvency ratio describes the company sources of funds to raise the capital. It is required for the company to raise the capital for smooth operations (Gupta, 2017). However, there are many techniques of raising the capital but debt and equity are the two main sources of finance of the company (Clear tax, 2020). The companies mainly use debt and equity for financing the operational activities. According to the solvency ratio of the company, it is determined that the solvency ratio of the company is 9%. The amount of debt of the company is 170 and the amount of the equity of the company is 1951. It reflects that the company has high amount of equity as compare to the amount of debt. The high amount of equity of the company states that the company uses the equity more as the source of finance to raise the capital (Accounting Tools, 2020c). The company uses the high equity as the sources of finance instead of debt. However, the company also uses the debt more in order to raise the capital. But in the comparison of debt and equity, it has been found that the company mainly uses equity as the sources of finance to finance the operating activities (CFI, 2019c). This ratio also defines the company capital structure such as the company uses the equity and debt for financing operational activities.
Question 4
A.
IFRS Foundation stands for International Financial Reporting Standard Foundation. This foundation operates the non-profit organization. The main role of foundation is to develop and promote the International Financial Reporting Standard. This role helps the company to operate the business effectively by preparing the financial reports according to the accounting standards (Thomas, 2019).
IFRS Advisory Council is the formal advisory body to the Trustees of the IFRS Foundation and the International Accounting Standards Board (Board). Its main role is to provide a forum for the IASB to consult a extensive range of interested parties affected by the IASB’s work, with the motive of: advising the Board on agenda decisions and priorities in the Board’s work. This advisory council states all rules and regulation related to law. In terms of international operating, it is required for the company to implements the rules and regulations those are designed by the IFRS Advisory Council (Kengatharan, 2016).
B.
Audit committee is one of the main operating committees of the company board of directors that is in-charge of analyzing the financial reporting and disclosure (Accounting Tools, 2019a). The audit committee operates as a representative of the board of directors from whom it receives its powers to perform its corporate governance responsibilities which include overseeing and monitoring the organization’s financial reporting, disclosure, internal and external audit, and internal control, regulatory (Sarwary, 2019). (Harbour, 2019).
References
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