Provide a brief comment on each of these to help the bank

Question

Task:

You are the Managing Director of ATC Ltd, a small but successful manufacturer of re-circulating chillers for thethermal management of high technology instrumentation and industrial process equipment.   The financial year ends on 31^st December and a stock take has been carried out in the first week of January 2011 before trading begins in 2012.   The company's Bank has requested a set of accounts prior to a meeting to discuss the budget for 2012.   You are given a set of financial data and you must now put together the report for the Bank for 2011.

The financial data provided to the Managing Director on 20^th January 2012 prior to his meeting with the Bank Manager is as follows:

                                                       £

sales				994,207
20 year mortgage				284,155
accumulated depreciation to 31.12.10				116,670
Share capital				62,754
P &L reserve - prior years				58,015
creditors				143,299
Other direct production costs				22,276
Depreciation charge for period				7,172
Cash at bank				56,497
Closing stock				111,249
Overheads for the year				97,674
Direct Labour				155,283
Management salaries				156,526
Debtors				179,733
Cost of sales (materials)				423,108
Building and Machinery				449,582

• First decide if each item is a balance sheet or a Profit &Loss (P&L) item.  Provide detail which will enable you to construct the P&L and balance sheet (for example,allocate to each item "Fixed asset", "current liability", "Cost of sales" etc....)
• Construct the  Profit and Loss account
• Construct the balance sheet for 31^st December 2011.

 

Once you have the set of accounts, you decide to carry out an analysis so you are prepared for the meeting with the bank manager.

You decide to calculate:

1. The gross margin (in percentage terms) including only cost of materials.
2. The gross margin also including direct labour and other production costs (as a percentage).
3. The return on sales (as a percentage).
4. The written down value of the building and machinery at 31^st December 2011.
5. The break even for the company.  What level of sales were required in 2011 for the year for the company to break even (this will be a useful starting point for the 2012 budget).
6. The approximate stock turn (in days).
7.  Average creditors (in days).
8. Return on capital employed as a percentage.  For capital, use two calculations one using only the initial share capital investment and one including also the P&L reserve (exclude the bank mortgage).

Provide a brief comment on each of these to help the bank manager review the accounts.