Assessment Task Two Due: 11:00pm, Monday 26th September 2016 (Week 12) Introduction: Assessment Task Two involves analyses of financial information of three small/medium sized organisations to evaluate the financial performance and financial position of each company. Evaluation of performance and position will consider both financial and non-financial considerations. Instructions: The attached document contains financial information for three (3) small/medium sized organisations along with questions which must be addressed. Please read the instructions relating to submission very carefully before attempting the questions contained within the assignment and make sure that you answer all of the questions. It is most important that you read the question requirements very carefully and understand what you are required to do. If you are uncertain or unsure of the question requirements, you must ask your local lecturer or tutor. Assessment Tips: When you are providing figures and calculating ratios, please take note of the following instructions. Failure to do so may result in lost marks. Show the original figures as well as any ratios or percentage changes that you calculate. An efficient way to present these figures and ratios is in Word tables or in sections of Excel spreadsheets that are pasted into Word documents. This will enable you to have headings which clearly label the figures and ratios, as well as headings which clearly show the formulas and calculations that have been done to obtain the results. Use the figures in the statements provided to do all calculations and to support all conclusions. Where multiple ratio calculations are performed, it is good practice to create a summary table of the ratio and result. This allows for easier comparison and analysis of the different ratio results. Your own evaluation, in your own words is important. When you are asked to interpret ratios, it means to provide an explanation of what the ratio means in terms of this company. This simply means tell me what the ratio measures and what it means for this company. Referencing is most important in all academic work. It enables the reader to assess the reliability and relevance of the assumptions or assertions made. Please ensure that all sources of information are appropriately referenced using the Harvard (author–date) method. This includes the textbook. If you use direct quotations from other sources, make sure that these are appropriately presented and referenced. The inclusion of a Bibliography in your submission is required and you will be penalised if you do not include one.   Small Business Analysis 1: The following financial statements were prepared for the management of TEDA Ltd. The statements contain some information that will be disclosed in Additional Information at the end of the general purpose financial statements. (8 marks) TEDA Ltd Income statement for the year ended 30 June 2015 Sales revenue Cost of sales $462 500 307 500 Gross profit Expenses (including tax and finance) 155 000 80 000 Net Profit after Interest and Tax $ 75 000 TEDA Ltd Balance sheet as at 30 June 2015 Current assets Cash assets Receivables (all trade) Less: Allowance for doubtful debts $149 625 9 450 $ 18 900 140 175 Inventories 126 000 Total current assets 285 075 Non-current assets Land Building Less: Accumulated depreciation 113 000 18 900 31 500 94 100 Store equipment Less: Accumulated depreciation 23 625 13 625 10 000 Total non-current assets 135 600 Total assets 420 675 Current liabilities Payables (all trade) Dividends — preference dividends Payable — ordinary dividends Other 135 450 1 890 12 600 6 300 Total current liabilities 156 240 Non-current liabilities 10% mortgage payable 31 500 Total liabilities 187 740 Equity Contributed capital: 6% preference shares Ordinary shares Retained earnings 25 000 126 000 81 935 Total equity 232 935 Liabilities and equity $420 675 Additional information 1. The balances of certain accounts at the beginning of the year are: Accounts receivable (gross) Allowance for doubtful debts Inventories $157 500 (14 175) 110 250 2. Total assets and total equity at the beginning of the year were $387,500 and $190, 500 respectively. 3. Income tax expense for the year was $31,500. Net finance expenses were $3150.   Required: Based on the information provided above, identify and calculate the principal ratios that a financial analyst might use that would give some indication of the following: a. the entity's earning ability; (4 ratios are required) b. the extent to which internal sources have been used to finance asset acquisitions; (1 ratio is required) c. the rapidity with which accounts receivable are collected; (1 ratio is required) d. the ability of the entity to meet unexpected demands for working capital; (1 ratio is required) e. the length of time taken by the entity to sell its inventories. (1 ratio is required) Use the following to show the appropriate ratio and your calculations Ratio Calculation = Ratio Calculation = Ratio Calculation =   Ratio Calculation = Ratio Calculation = Ratio Calculation = Ratio Calculation = Ratio Calculation = Small Business Analysis 2: The following ratios have been calculated for TUST Pty Ltd, an entity specialising in imported exotic perfumes. (7 marks) 2012 2013 Current ratio 2.1:1 2.6:1 Acid test or quick ratio 1.8:1 2.2:1 Days inventory on hand 122 127 Days debtors outstanding 30 46 Net Profit margin 10% 12.2% The ratios indicate an increase/decrease from the previous year. Required: Classify and discuss each of the ratios and explain what these ratios indicate about the entity's liquidity, asset efficiency and profitability? Students are encouraged to do some research and find out what an increase/decrease in the ratio indicates, what the business could be doing that has resulted in the change, and is this change favourable or not? Where possible you should provide a brief recommendation and lastly do not forget to reference and support your reasoning. Liquidity:(approx 100 words)   Asset efficiency: (approx 100 words) Profitability: (approx 100 words)   Small Business Analysis 3: Case Study Analysis: The following table reports various financial ratios for Qantas and Virgin for 2012. (20 marks) Qantas Airways Limited Virgin Australia Holdings Limited EBIT margin 1.85% 3.50% ROE 3.38% 8.40% ROA 2.12% 3.29% Debt to Equity 111.21% 180.07% Current Ratio 0.77 0.65 Net profit margin 1.36% 2.23% Source: Information from Financial Aspects, www.financialaspects.com.au. Required: Given that the companies operate in the same industry, write a report of approximately 1000 words explaining what the ratios suggest about the companies' profitability, efficiency and liquidity. It would be appropriate to classify your report into the three activity groups above and comment on each of these independently. Each activity group should be approximately 500 words Simply writing a comparison of the financial ratios provided in the above table will not incur any marks. You should look carefully at each of the ratios provided and analyse the reason for one entity having a higher or lower ratio than the other. You will need to identify the connection between the ratios as this will reveal a lot of information that will be helpful in answering the question. Do not hesitate to search outside the financial ratios provided. Your analysis should be supported with evidence of research.