Please find the attache documents for the assignment, i have already done the whole business plan, but i failed one subject because i haven't done two sections correctly, which is 6.3 and 7.3 of the business plan. I have attached my business plan and the marking sheet, please have a look on the comments in marking sheet to get an idea about what need to be done.
6.3 Financial ratio analysis-
Profitability Ratios
01. Net profit (before interest & tax) ratio
Net profit (before interest/ Total revenue * 100
$385,744/ $1,260,532*100
=30.60%
This shows that Dan's kitchen has made $0.30 of profit for every $1 of sales. Industry benchmarks shows that net profit is around 6.5% in similar industry, when compare with my business, it shows a higher profit margin of 30%.
02. Gross profit ratio
Gross profit/ Total revenue*100
$897,125/ $1,260,532*100
=71.17%
This shows that Dan's kitchen has made $0.71 of gross profit for every $1 of sales. Industry benchmarks shows gross profit margin is between 65-70%, Therefore my business has a gross profit margin above average.
03. Net Profit (after interest & tax) ratio
Net Profit (after interest & tax)/ Total revenue*100
$263,427/ $1,260,532*100
=20.89%
This shows that Dan's kitchen net profit after tax and interest is around 21% from the revenue. Industry benchmark for net profit after tax and interest is around 6.5%
Efficiency ratios
04. Inventory (stock) turnover
COGS / Average Stock
$363,407/
Measure of the number of times inventory is sold or used in a time period such as a year called as Inventory turnover.
05. Wages cost ratio
Total wages/ Total sales*100
$353,344/ $1,260,532*100 = 28.03%
This ratio is to show what percentage of each dollar of sales taken to pay for employees. Lower the amount is better for the business. Industry benchmark is between 30%-35%.
06. Return of total assets
Profit (Before interest & tax)/ Average assets*100
$385,744/ $254,102*100 = 151.80%
This found by dividing net income by total assets. The higher the ration gets, the better the company is at using their assets to generate income. In here it show a higher ration which is 151.80%.
07. Net return on total assets
Net profit (after tax)/ Average assets*100
$366,904/ $254,102*100 = 144.39*%
This is measuring company's earnings before interest and taxes against its total net assets. This shows how effectively a company is using its assets to generate earnings.
08. Operating expense ratio- labour
Total labour cost/ Total revenue*100
$353,344/ $1,260,532*100 = 28.03%
This calculates total labour cost divided by total revenue and multiplies by 100 to get the percentage. If this gets low percentage that's good to the company as this company gets 28.03%.
09. Operating expense ratio- purchases
Total purchases/ total revenue*100
$374,968/ $1,260,532*100 = 29.74%
Dividing a company's annual purchases by its total assets. In here it shows purchases are low. So it's good for the company.
10. Income per employee
Total sales/ Number of employees
$1,260,532/ 12 = $105,044.75
This shows how company's net income divided by the number of employees. In here employee will get $105.044.75.
11. Profit per employee
Net profit (before interest & tax)/ number of employees
$385,744/ 12 = $32,145.33
This shows how profit will divide among employees. If the net profit is high employees will get high share.
7.3 Financial control strategies
Financial control is a guide, which can manage the business properly. It reduces the harm from unexpected conditions. According to national restaurant association, Employee theft cost cafés and restaurants from 4 to 5 percent of annual sales revenues each year. There are some more risks, which occur in business, this internal financial control will decrease the risks and it helps to grow the business. Financial controls are critical tool in business.
Financial Controls
Financial controls are the means by which an organization's resources are directed, monitored, and measured. Why we need financial controls?
Financial controls play an important role in ensuring the accuracy of reporting, eliminating fraud and protecting the organization's resources, both physical and intangible. These internal control procedures reduce process variation, leading to more predictable outcomes.
The moment you lose control of business cash flow, you're entering a danger zone. That is why it is essential for even the smallest commercial operation to have basic financial controls. These help you to retain a grip on your cash by reducing the risk of it being lost through inappropriate actions.
Control petty cash
Petty cash tin might never contain large amounts of money, but that doesn't prevent it being a drain on your cash flow. If possible, avoid having one altogether. But if it's needed to fund purchases of small incidentals, ensure that all cash payments are matched with receipts and that these are checked and accounted for on a regular basis.
Approval of payments
Your business will need to pay suppliers and various other organisations. While the timing of many controls will be dictated by legal or commercial deadlines, it's still good practice to have a payment approval process. If you have several people in your business, it's good to consider requiring two signatures on cheques or to approve online payments.
Approval of purchases
Exercising firm control over spending can make a huge difference to your cash flow. Consider requiring all purchases to go through an approval process. This encourages people to think twice before committing to expenditure.
Putting delays into the buying process can give you time to consider less costly alternatives. You may discover that while something appears to be an urgent need, in a few days time, you realise it wasn't required after all.
Attachment:- Assignment.rar