5.2 Theoretical Analysis
The financial performance of the construction enterprises will be discussed under four aspects: efficiency, profitability, liquidity, and solvency.
Efficiency will be measured by fixed asset turnover and total asset turnover, since book values of fixed assets and inventories are affected directly by the VAT reform. If investment remains constant, the book values of newly purchased assets will decrease, so does the amount of total assets. Under constant revenue, efficiency will increase; under constant prices, revenue will decrease, so the change of efficiency is undetermined. Moreover, if enterprises enlarge investment in fixed assets, future revenue will increase, but fixed asset turnover rate is undetermined. If the
…show more content…
The change of net profit is affected by the combined effects of operating revenue, operating costs, tax burden as well as income tax. Since VAT is excluded from prices, in the short run, revenue will decrease due to contract rigidity (invariability of price). To gain the same amount of revenue as before the VAT reform, enterprises will increase the prices and get VAT reimbursement from downstream enterprises (invariability of revenue). Under VAT system, book values of newly purchased inventories and fixed assets decrease; thus, costs will decrease since inventory cost and depreciation is lower after the reform. As analysis before, the change of tax is not exclusive. Therefore, the combined effects of the four factors are undetermined, so does …show more content…
To make the discussion clearer, three enterprises selected from the statistical analysis will be used as cases for illustration. They are Zhejiang Southeast Space Frame Co., Ltd. (“SSF”) with the highest positive TBCR after the reform; Suzhou Gold Mantis Construction Decoration Co., Ltd. (“GMCD”) with an average TBCR; Shanghai Zhongyida Co., Ltd. (“SHZ”) with the highest negative TBCR. The calculation of data is presented in Appendix-I Table for Case Study.
When verifying efficiency, under constant prices, fixed assets turnover for SSF and GMCD is smaller while that for SHZ is higher; total assets turnover for the three enterprises are lower. It means that, after the VAT reform, enterprises without preparation tend to get worse in assets management, especially for those with a higher increased tax burden. Under the estimation of constant revenue, the assets turnover ratios tend to be higher, indicating more efficient management of fixed assets and total assets with preparation
Ratio analysis of Hafren Baum are the evidence for the lack of efficiency in 1994 and 1995. First, the total asset turnover implies that the firm is investing high as compared to its sales growth. However, in 1994 Hafren Baum constructed 3 addition outlets in suburbs which could be the main reason for short TAT from 2.1 which was before expansion to 1.5 of TAT after expansion. Secondly, the fixed asset turnover for Hafren Baum would not be as important as it would be for a capital intensive manufacturing firm like Wiegandt. In 1993, FAT was 9.1 which displays Hafren Baum’s ability in generating sales were higher as compared to FAT of 7.1 in 1995. Again, the important factor that is effecting this efficiency is the construction of new outlets in addition to lower sales
So when there is a decrease in the number of workers employed, there is a decrease in output, hence both the marginal cost curve and the average variable cost curve will decrease. The results are a decrease in total cost. It can be concluded that a short-run change in a factor of production, namely the variable factor labour, decreases the costs of the SABMiller more than the level of their output, and therefore aids in maximising profits.
The collection of these three financial statements identifies the financial position of the corporation to help identify the way forward financially for the company. Once all of the data has been collected for the annual reporting the corporation can analyze the data through the different financial ratios including the liquidity ratio, the asset management ratio, and the profitability ratio.
The first method we will review is the accounting method. Through this accounting approach we will analyze specific ratios and their possible impact on the company's performance. The specific ratios we will review include the return on total assets, return on equity, gross profit margin, earnings per share, price earnings ratio, debt to assets, debt to equity, accounts receivable turnover, total asset turnover, fixed asset turnover, and average collection period. I will explain each ratio in greater detail, and why I have included it in this analysis, when I give the results of each specific ratio calculation.
Lastly, the total asset turnover compares total operating revenue to total assets. The process entails the more revenues an organization can generate per dollars of assets, the more efficient it is, other things being equal, (Finkler, S.A., Ward, D.M. & Calabrese, I.D., 2013). Furthermore, by dividing the amount of the revenue from the year by total assets the ratio will show the amount of revenue for every amount in assets. This ratio method also useful and can help determine the cause and if there are ways to use assets more efficiently and generate more revenue.
Efficiency evaluates how well the company manages its assets. Besides determining the value of the company's assets, you and your client should also analyze how effectively the company employs its assets. Wal-Mart return on sales is 3%, Target return of sales are 1%, the industry ratio is 2%. Wal-Mart sales are above the industry and are good, but Target is below and needs improvement to operate efficiently. Wal-Mart’s return on asset was 1 and Target’s is 2, and the industry ratio 1.92.Wal-Mart’s is below and need improvement and Target’s is excellent. Earning per share for Walmart is 25 and Target’s is 63.1 and the industry is 59.1. Since Wal-Mart’s is lower they need improvement, whereas Target’s is a little higher and is good but closer to the industry
At the end of the useful life of fixed assets the businesses will dispose, and any amount received from disposal will represent its residual value. This may be difficult to estimate in practice. How ever, an estimate has to be made. If it is unlikely to be significant amount, a residual value of zero will be assumed. The cost of fixed assets less its estimated residual value represents the total amount to be depreciated over its estimated useful life.
A flat tax is a system of taxation that taxes at a uniform rate, regardless of income level. In the United States we currently use a progressive tax system, which means that high-income earners pay taxes at a higher rate than low-income earners.
One of the basic parts of cost accounting is to gauge the cost of tangible or intangible product or service. All costing models are attempting to discover the "correct" cost 1.e actual cost without any cost variances for all cost objects, for example, product, profit, segment, and division. costing methodologies all over the world apportion overhead by utilizing volume- driven measure, for example, unit transformed to first gauge a foreordained overhead rate then assign overhead by applying this normal overhead rate to the cost object. Requisition of such models is authentic for offices generating goods with less differing qualities. In any case, as manufactured goods differ, the wide averaging methodology prompts severe cost variations (Johnson and Kaplan, 1987, Cooper and Kaplan, 1988).
...To check how successful it has been, we calculate debtor collection period ratio. (Dyson, 2004) Fixed Asset turnover: In this ratio, we seek the amount of sales that can be generated (or the amount of fixed assets necessary to achieve a level of sales) from a given level of fixed assets. (Klein, 1998) Total asset turnover: This ratio determines that how efficiently a firm is utilizing its assets. If the asset turnover ratio is high, the firm is using its assets effectively in generating sales. If this ratio is low, the firm may not be using its assets efficiently and shall either increase sales or eliminate some of the existing assets. (Argenti, 2002) Solvency Ratio Gearing: Gearing reflects the relationship between a company’s equity capital (ordinary shares and reserves) and its other form of long-term funding (preference share, debenture, etc.) (Black, 2000)
The business income consists of two components, one is current operating profit and another one is realizable cost savings. The former is the excess of the current value of the output sold over the current cost of the related inputs. Realizable cost savings are the increasing in the current cost of the assets in the current period. Furthermore, current cost accounting theory also recommends that the current cost of assets should be measured and reported in the balance
Term “marginal” is extensively used and known with reference to the economics which means “extra”, whereas with economic view point the marginal cost is the cost of producing every extra unit; however the accounting terminology of “marginal” defines the cost incurred on production other than its fixed cost is the marginal cost. Simply, none of the technique is applied unless it serves the benefits and the marginal costing is used by the firms for its registered benefits. Among all its benefits the primary advantage it serves is its attempt to distinguish the fixed and variable costs, and the method only considers the related variable costs to be included in production cost and the fixed costs are thus later deducted out for ascertaining net profit. The inventory at the year-end is also valued on the bases of variable cost. With all these beneficial characteristics of the said system firms using marginal costing are clearly aware of its ...
It focusses on the types of estimation used, accuracy level in estimation and the disadvantage of not having a standardized form for estimation. It is known that during the early twentieth century, there has been six methods used for estimation. From then till now the method for estimation is very much the same, but we have noticed differences in preparation of these estimation with respect to each company. The main idea in this paper is to identify if there can be a common source of preparation and find out the various types of estimation techniques used by different types of companies and try to draw a conclusion from that, and to understand the importance of accuracy level in any estimation. Shane et. al (2009) says accuracy is an exquisite issue and can influence estimation in numerous manner. Inaccuracy in estimation can pilot to countless problems like change the order, construction delays and failure of business. Two critical problems such as producing the cost estimate manually and consequences of imprecise estimation are the soul reasons to conduct this study and investigate the problem in estimation (Albogamy et al.,
The business always develops due to investments and the correct most accurate analysis is an integral part of any initiative. Any initiative should be studied by financial analysts, correctly predicted in terms of financial investments and beneficiaries, tracked at various times, studied , changed on time, if necessary. Success of investments depends From financial analysis, it helps to protect the business from financial losses and predict cash flow and return of investment.
In the past, the company performance was measured by asking ‘how much money the company makes?’ To a certain extent, they are right because gross revenue, profitability, return on capital, etc. are the results that companies must bring to survive. Unfortunately, in today business if the management focuses only on the financial health of the company, numerous unwanted consequences may arise.