Financial Statements Provided
Question 1: In this exercise we are analysing some financial statements in preparation for completing a submission to a financier. The scenario is provided below and an income statement and balance sheet is then provided for Wholesale Butchers.
You will then have3 tasks to do:
- Using the 2 financial statements provided for Wholesale Butchers Pty Ltd, calculate the ratios in the table provided and comment as to the risk using Low/Medium/High rating:
- Complete the manual Serviceability Analysis for Wholesale Butchers Pty Ltd by inserting the figures into the table provided
- List your comments on the outcome from your completed Serviceability Analysis as you would if presenting this in a submission to a lender.
Mr Brett Olsen has owned his wholesale butcher company “Wholesale Butchers” for the past four years. He is the sole director and shareholder of the company. The past six months has seen an influx in orders and, to keep up with demand, he requires another refrigerated van in order to maintain delivery standards and turnaround times to his respective buyers.
Mr Olsen is purchasing a second hand van, 1 year old, from RV Dealers for $55,000 and is considering a 5 year Chattel Mortgage (CM), with an interest rate of 9% and monthly repayments of $1,133.21. He has opted not to provide a deposit and is not seeking any balloon at the end of the loan term. As no deposit is to be applied, repayments will be monthly in advance. Brett’s only business debts are an overdraft with CBA with a limit of $25,000 and current balance of $2,800 and his CM with Esanda or his existing refrigerated van, monthly repayments $1,058 pm with 2 years remaining.
His financials for the financial years ending 2014 and 2015 are provided here for your perusal and assessment.
Wholesale Butchers Pty Ltd
For the financial year ending 30 June 2015
|Cost of Goods||291,000||305,550|
Financial Statements Provided
|Total Operating Expenses||161,222||167,875|
|Wholesale Butchers Pty Ltd|
|For the financial year ending 30 June|
|Stock on Hand||5,596||5,876|
|(May be recorded as Inventory)|
|Total Current Assets||32,582||35,197|
|Non-Current Assets||Plant and equipment||24,000||21,600|
|Other Non-Current Assets||2,348||2,574|
|Intangibles (Formation Costs)||6,250||5,750|
|Total Non-Current Assets||67,598||59,674|
|Overdraft CBA (Limit $25,000)||3,600||2,800|
|CM Esanda Current Portion ($1058×12)||12,696||12,696|
|Total Current Liabilities||32,128||32,129|
|Non-Current Liabilities CM Esanda Long Term||22,256||11,295|
|Total Non-Current Liabilities||22,256||11,295|
|Total Liabilities and Provisions||54,384||43,424|
Part A? Using the financial statements provided ? Wholesale Butchers Pty Ltd ? you should fill in the table below by calculating the ratios in the 2014
and 2015 columns and in the Risk Grade column comment as to the risk using the grading of LOW, MODERATE or HIGH.
You should also make comments/notes on your analysis.
|2.||Quick Ratio (Acid Test)|
|3.||Return on Equity (ROE)|
|4.||Return on Assets (ROA)|
|5.||Debt to Equity Ratio|
|6.||Debt to Assets Ratio|
|8.||Interest Cover Ratio|
|(ICR) – Existing Debt|
|9.||Debt Servicing Cover|
|Ratio (DSCR) – Existing|
Part B. Using the financial statements provided ? Wholesale Butchers Pty Ltd ? complete the serviceability analysis below.
|30 June 20||30 June 20|
|Values in $000||Values in $000|
|Net Profit Before Tax(Note||1)|
|Potential Add Backs|
|Depreciation / Amortisation (Note||2)|
|Directors Salaries / Superannuation (Note|
|Other non?cash items|
|Extraordinary / Non recurring expenses|
|(may be Plus or Minus) (Note 4)|
|Earnings Before Interest, Taxation,|
|Depreciation, and Amortisation (EBITDA)|
|Taxation allowance (Note 5)**|
|Available for Debt Service|
|Interest Cover Ratio|
|Proposed Deductible Interest Costs:|
|Existing $||k @||% *|
|Plus Proposed||$||k @||%*|
|Total Proposed Interest Costs|
Proposed Interest Cover(Note 6)
(EBITDA divided by Proposed Interest Cost)
Debt Service Cover Ratio
Existing O/D or Credit Card assumed fully drawn at prevailing interest rate interest only*
Existing Loan Repayments
Proposed Loan Repayments
Total Commitment Proposed
DSCR(Note 7)(Available for Debt Service divided by Total Commitment Proposed)
Part C. Complete comments on the outcome from the Serviceability Analysis, as you would if presenting this in a submission to the financier.
Wholesale Butchers Pty Ltd ? Serviceability Analysis Comments Comments may include but are not limited to:
Question 2: Please research the Internet (eg. Google) on the subjects below
and review the course material, then provide comprehensive answers to the
- A Trusts
- What is a Unit Trust?
- What is a Discretionary Trust?
- What is a Hybrid Trust?
- What is a Discretionary Family Trust?
- What is a Trustee?
Define the differences of each type of Trust, including the obligation/s of the Trustee
Provide an example of when each type of Trust would be used. B Company
What are the legal requirements of a company?
What are the personal obligations of directors by law (please summarise)?
Can anyone be a director of a company?
What is the minimum number of directors required?
Question 3:From your research activities please provide answers to the following (from a Financial Accounting perspective)
- What is a Balance sheet?
- What is a Profit and Loss statement?
- What is Depreciation?
- What is Liquidity Ratio?
- What is Current Ratio?
- What is Debt to Equity Ratio?
- What is a Cashflow Statement?
- What is an Asset?
- What is Liability?
- How is a Net Profit determined?
- How would you define Equity?
Under Australian taxation conditions, what are allowable expenses (provide 3 acceptable examples)?
Question 4: From your research activities please provide a definition of the following products and give examples:
Commercial Bank Bill
Invoice or Factoring Finance
Asset Finance product or Equipment Finance
Question 5: In the Australian Standard AS/NZS ISO 31000:2009 there are 11 Principles of Risk Management. List 6 of them and briefly state what each one is about.
|Principle||Outline of Principle|
Question 6: There are many ways that an Industry Analysis can be completed. We have provided a sample below of a simple process to categorise the overall risk of any business/industry that you may choose to analyse. Please review the entries on the table below. To simplify the process some factors have been grouped together to alleviate any overlap of impact. Task:In approximately 200 words, explain why you believe it is necessary to categorise risks
|Industry Risk Factor||Low Risk||Moderate Risk||High Risk|
|Life Cycle||Mature Industry||Mature or||Decline or|
|Social/Demographic||Stable trends||Unstable trends||Very unstable –|
|Lower Fixed costs||Fixed Costs||Very High Fixed|
|Cost Structure||?||Higher than||Costs, Very Low|
|EconomicEnvironme||Not impacted by||Some impact by||Heavily|
|nt||Business Cycle||Business Cycle||Business Cycle|
|PoliticalEnvironment||None to little||Some to heavy,||Strong Influence|
|influence, some||Influenced by||– heavily|
|Buyer Impact||Many Buyers||Fewer Buyers||large search|
|Limited or Few||Dependent on|
|Supplier Impact||Many Suppliers||one or few, large|
|Threat of New||High barriers to||Lower start up||No new entrant|
|costs, access to||barriers? very|
|Some||High level of|
|Threat of Substitute||No Substitution||substitutes ?|
|Product/Service||low cost to||switching costs|
Task:Please construct a written plan for sustainability for your business (or proposed business). Please incorporate all the points below into your plan.
Length should be approximately 1000 words ie. two typed pages. Note, if you are in, or propose to be in, a sole trader business or working within a structure that has their own business plan, then not all of the points may be applicable to you however they should be covered in your assignment. Simply say after the point “may not be applicable to my business” however most points should be. Also please note that profitability is crucial to sustainability and should be considered in any plan.
We provide a Government Sustainability Toolkit document in Appendix k
You can utilise the internet to assist with your research, for example:
- http://sustainabilityskills . net . au/what ? is ? sustainability/ my?business/
- http://sustainabilityskills . net . au/what ? is ? sustainability/
s u s t a i n a b i l i t y? p r a c t i c e / s t r a t e g y?a n d?m a n a g e m e n t / planning?and?procedures/
Points to cover in your plan:
Define scope of sustainability policy ? what do you want to achieve. Gather information from a range of sources to plan and develop policy. Identify and consult stakeholders as a key component of the policy development process.
Include appropriate strategies in policy at all stages of work for minimising resource use, reducing toxic material and hazardous chemical use and employing life cycle management approaches. Makendations for policy options based on likely effectiveness, timeframes and cost.
Develop policy that reflects the organisation’s commitment to sustainab recommeility as an integral part of business planning and as a business opportunity.
Agree to appropriate methods of implementation, outcomes and performance indicators.
Promote workplace sustainability policy, including its expected outcome, to key stakeholders.
Inform those involved in implementing the policy about expected outcomes, activities to be undertaken and assigned responsibilities. Develop and communicate procedures to help implement workplace sustainability policy.
Implement strategies for continuous improvement in resource efficiency. Establish and assign responsibility for recording systems to track continuous improvements in sustainability approaches.Implement strategies for continuous improvement in resource efficiency. Establish and assign responsibility for recording systems to track continuous improvements in sustainability approaches.
Document outcomes and provide feedback to key personnel and stakeholders.
Investigate successes or otherwise of policy.
Monitor records to identify trends that may require remedial action and use to promote continuous improvement of performance.
Modify policy and or procedures as required to ensure improvements are made.