Analysis of case study
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CASE ANALYSIS OF TOOTHSOME LTD.
The purpose of this case study analysis is to scrutinize and evaluate the financial records of Toothsome LTD Company between fiscal periods 2015 & 2014. The analysis would showcase whether the decision to change the line of operation and expansion of his business was a viable idea to uplift the profits of the enterprise. Toothsome LTD is a private company that has specialized in design and production of dental implants. On the contrary, the initial business was manufacturing of dental implants and supply of other dental equipment to the dentist within the local market of Swansea and South Wales. Dai Jones`s idea of shrinking down the business to a single company came as a result of poor performance of the enterprise. Dai following the advice given by his accountant decided to spread the risk by operating in a single line of production. The essay will answer the following questions; did Dai manage to run the Company since he had the interest in fine arts but did not meet the qualifications? Did Toothsome LTD clinch the financial targets? The questions would be answered in depth as we progress with the evaluation of the business health.
Toothsome LTD Company should maintain proper bookkeeping records and monitor the performance of the enterprise using various financial assessment tools. Toothsome management could decide to evaluate its financial accounts monthly or yearly depending on the urgency and purpose of the financial statements. The financial statements collectively help the management to identify loopholes, determine how much money is spent in a particular department, and whether the business is running at a loss or profit. The three primary financial statements are first to the operation of an enterprise. The reports include income, cash flow, and balance sheet.
Toothsome LTD should always prepare an income statement if they want to survive in the market. The Income Statement is a detailed and a crucial statement that evaluates the performance of the business and shows the breakdown of each activity and how much income is spent for such an activity. The statement is meant to pinpoint revenue and how it is spent within the production levels. Besides if Dai Jones does not consider the income statement he would not have any idea if the business is running at a loss despite the massive sales the company would attract. For example, if the net income of Toothsome LTD is negative then the management should know the expenses are higher than the revenue generated are should respond immediately before the business collapsed and vice versa.
The cash flow statement is another financial tool that is relevant to the survival of the enterprise. The cash flow statement is a ‘watchdog’ of all the cash that moves into and out of the company. It is important for Toothsome LTD to use the cash flow statements to provide all the information regarding cash in the business. The report may show records of cash received and the variations of money cash in hand or bank resulting from the day to day operation of the company within a specified period.
The balance sheet is a basic statement that helps individuals to determine the financial position of their business. It comprises of all the assets, Liabilities and equity. Observing the financial principle, all Assets should be equal to the summation of liabilities and equity. In all cases, the balance sheet must balance and if not, then the concerned parties should be able to identify the problem. The balance sheet is meant to determine the financial health of the business. Especially if the ratio of assets to liabilities is not 1:1 the strategic plans should be made before the enterprise starts collapsing.
Also, the balance sheet can be used by investors to determine whether to invest or not in the business. Of course, most investors prefers a company with high can return ratio because this acts as an indicator the business is thriving on a growing trend. The banks can as well use the statement to determine whether the company would qualify for a loan.
Regarding the income statement records of the years 2015 & 2014 the following was observed:
The total revenue increased from £2604 in 2014 to £2972 in 2015. It is approximately 14.132 % increase of total revenue between the two financial periods.
2972- 2604= £k 368
The total expenses for 2015 and 2014 were £552 and £ 430 respectively.
The net profit for 2015 and 2014 was £k 382 and £k 554 respectively.
The Markup would be:
Markup for 2014 is
984/1620= £k 0.607
Markup for 2015 is
The observation from the balance sheet was as follows:
The initial capital for 2014 & 2015 was £k 10.
The initial stock for 2014 was £k 204 while the initial stock for 2015 was £k 289.
The bank overdraft increased from £k 93 in 2014 to £k 184 in 2015.
For both financial years, the assets and liabilities were at equilibrium. In the years 2014, the balancing figure was £k 113 while in 2015 the balancing figure was £k 213.
The cash flow statement reveals the following:
The payment of both financial years is adverse. The cash outflows exceed the cash inflow of the business. Apparently the situation is even more because the closing cash balance is £k (183) compared to £k93 for the previous year. The overdraft has almost doubled.
Also. Net cash inflow is less than the net cash consumed. For example in 2015, the net cash inflow is £k 94 while the net cash consumed is £k 95.
The issues of concern to the bank manager.
The reason the company`s expenses are increasing.
The upward trend of bank overdraft from £k 93 to £k 184
The decline of the business profit in spite of a rise in the company`s revenue.
The cash inflow is less than the cash outflow.
The financial information stipulated above shows that the business is on the right track. Almost all aspects of the operation are showing a definite trend. The revenues for the company have rose by 14.132% within a span of one year. Regardless of the gross income in the year 2015, the industry realized less profit probably because of the increase in overhead costs. Also, the balance for the two periods portrays a consistent performance of the business that is an indicator that the company is prospering.
Dai Jones should restructure the operation systems by using the re-engineering system model to make necessary changes to the system by either removing unnecessary departments that are not contributing to the output or checking the employee turnover. System re-engineering would cut down the expenses on the line of production. Otherwise, in the long run, the business won`t maximize the profits.
Dai Jones should improve labour efficiency and optimize the machinery used in production. The introducing of new mechanism would reduce the production and batch time that would translate to high output hence an increase in total sales. Otherwise, labour inefficiency compromises the total output, therefore, leading to less productivity.
Dai Jones should avoid borrowing from the bank. Despite the favourable terms of the company Dai Jones should establish other ways of raising the working capital instead of depending on the bank income that render the business to pay high-interest rates. If frequent borrowing is not abolished the business may be termed bankrupt in the long run.
Finally, the necessary adjustments should be made to various production levels to ensure cash inflows always exceed the cash outflow. The consequently the business will start running on losses.
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