Introduction to Accounting free essay sample

Analysing problems in a Cash-flow Cash flow is one of the most important aspects of running any business whether large or small. It is one of the single most important reasons why many businesses fail, this does not matter whether how good a business is. Managing a cash flow therefore is vitally important in the smooth running survival and success of a business. Cash flow problems cannot always be avoided as they are simply a single part of many factors that affect a business or organisations overall financial health.The flow of the monetary holdings is measured by the entirely of a company’s financial assets and not just the amount that is earned on profits. At one time or another, almost every business will experience some sort of financial situations. Cash Flow Data for Josh When doing a cash flow forecast, if you have more outflows then inflows then you have a serious financial problem in your hands. We will write a custom essay sample on Introduction to Accounting or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page If this happens, the company has insufficient funds and would not be able to keep up with its payments that are due. Here is a table with suggestions and implications on managing positive cash flow. Try and cut down the insurance to about ? 700. Van Paintwork Instead of paying excessive amounts, maybe Josh could just pay to have the company’s logo on it rather than a whole paint work. This could save about ? 250. Below is the new version of the Cash Flow Forecast for Josh M2 Analyse the performance of a business using suitable ratios. Profitability * Gross Profit and Percentage of sales The Gross Profit and percentage of sales is a good ratio to measure profitability because if the percentage falls it shows purchase costs are increasing of sales are falling.To summarise, the higher the percentage the higher the gross profit of sales are. The 31% for 2008 shows that a percentage of sales but this time it shows how much net profit is being made compared with sales. This ratio is a good measure of a performance of a company because it gives a percentage which shows how much of gross profit is being taken up by the expenses of the business such as paying wages and salaries, A net profit percentage of 2% means that 20p net profit I made by the business for every ? 10 of sales. * Return on Capital Employed (ROCE)This ratio shows the percentage return of how much the investors have received on the capital they have invested. ROCE is a good ratio because it can be used by investors to compare ROCE with current rates of interest being offered by building Liquidity * Current Ratio The current ratio is used to show if a business can raise enough money to pay the debts that it has. The company currently has a current ratio of 14:1. This is bad because the company is not managing its assets properly. * Acid Test Ratio/Liquidity RatioThis ratio shows how much available assets the business can rely on if a creditor insisted on immediate payment. If the rat io is 1:1 this shows the business will have no problem paying its bills as they become due. On the other hand, if the ratio falls under 1:1 such as 0. 8:1 the company has fewer liquid assets and this could cause problems. Efficiency * Debtors’ payment period The debtor’s payment period ratio is used to show how efficient a company is because it shows how long it takes on average for debtors to pay for goods brought on credit. in 2008, Josh’s company took 12 days to pay his creditors.This will indicate that he s under the industry average which is 24 days and thus will suggest that the company is solvent enough for Josh to pay off his debts that were used to pay for products on credits. Debtor’s payment period is a good indicator of a company takes to pay for brought goods on credit. * Creditors’ payment period This ratio shows how long the business I taking to pay for the goods it has brought. In 2008, Josh’s company took 49 days to pay off the company’s debts and this will mean that either Josh is negotiating better terms, or Josh’s company does not generate enough incomes in order to pay the bills.It is good ways determine the performance of company from an efficient standpoint because it shows how long the company takes to pay for the goods it has brought. This ratio shows the average number of day’s stock is held, in 2008, it took Josh 54 days to sell the company’s stock. The industry average is 56 days so Josh’s company is underneath the industry average, but 2007 figures suggest that Josh may need to improve in selling the stock upkeep costs may begin to rise. This is a good ratio to show efficiency because it gives an average number of how long stock is held and how long it takes to sell that stock. c