Structure Should Be Simple Decentralized - Myassignmenthelp.Com

Question: Discuss About The Structure Should Be Simple And Decentralized? Answer: Introduction The manager of the firm is considering the changes in the depreciation method and approaches for recognizing uncollectible amounts from accounts receivable. To improve the performances, following changes can be made to aforementioned policies. Currently, the company is using written down value method in which the depreciation of assets remain high in the initial years and keeps on reducing with the value of the assets. Alternatively, the company can use straight line method to charge depreciation. Under this method, the depreciation is equally spread over the life of the assets, thus it helps in equalizing the profits over the years. Secondly, the alternative approach for uncollectible is to directly write off the uncollectible portion instead of creating provision for that. This will reduce the liabilities portion of the balance sheet and hence, will improve the financial position. Importantly, the company should try to keep the uncollectible as low as possible. This can be done either by changing its collection method and / or giving the less credit period. Ratio Analysis Any companys performance can be well evaluated from its accounting ratios. In the given case, the companys net profit ratio is 29.51%. This ratio indicates the net profit generated against its sales. It is an important ratio for any company and there is no standard ratio numbers for net profit ratio. As the higher the ratio the better it is. Further, it indicates that the companys business is effectively managed and generating good numbers of profit. Next ratio is return on assets ratio which is 3.57%. This ratio indicates the profit generated against the net assets. In given scenario, the companys net assets are $228,416 and net profit is $8,154. The ratio of 3.57% indicates that by employing $1 in net assets the company can generate $3.57. This ratio is also higher the better as it shows effective and optimum utilization of assets. Another ratio is return on equity ratio which is 4.13%. Similar to return on assets, this ratio shows the net profit generated against the shareholders equity. The company has shareholders equity of $197,500 and net profit of $8,154. The ratio of 4.13% indicates that if a shareholder is investing $100 in the company, then the company is generating $4.13 of profit from that. This ratio is also higher the better. Comparative Balance sheet Comparative balance sheet compares the companys current year financial position with the pervious years financial position. The companys comparative balance sheet shows the improvement in the financial position of the company. To briefly explain, the major changes noticed in comparative balance sheet are that the companys non-current assets have been increased by 10.07% and current assets have been increased by 36.43%. In total, there is an increase of 19.59% in total assets. Moving to liabilities, the total liabilities have been decreased by 8.95% and equity portion have been increased by 23.89%. To summarize, the financial position of the company have improved significantly. Particulars 30 June, 2017 1 April, 2017 Increase (decrease) (in $) (in $) Amount Percent (I) Assets Current Assets: Cash 71,900 51,000 20,900 40.98% Supplies 6,675 12,000 - 5,325 -44.38% Accounts Receivable 15,560 6,000 9,560 159.33% Total current assets 94,135 69,000 25,135 36.43% Building 118,950 122,000 - 3,050 -2.50% Furniture 15,331 - 15,331 100.00% Total Assets 228,416 191,000 37,416 19.59% (II) Liabilities Current Liabilities: Accounts Payable 18,600 22,600 - 4,000 -17.70% Water expenses payable 470 470 100.00% Wages Payable 200 200 100.00% GST 3,132 2,400 732 30.49% PAYGW 360 360 100.00% Total current liabilities 22,762 25,000 - 2,238 -8.95% Non-Current Liabilities - - - 0.00% Total liabilities 22,762 25,000 - 2,238 -8.95% Shareholders' Equity Capital 197,500 166,000 31,500 18.98% Retained earnings 8,154 8,154 100.00% Total shareholders' equity 205,654 166,000 39,654 23.89% Total Liabilities and Equities 228,416 191,000 37,416 19.59% Common-size Balance sheet The common size balance sheet shows a horizontal view of the balances. It shows the portion of total assets bifurcated between non-current and current assets and further between non-current and current liabilities. By comparing the common size balance sheet of both the years, we noticed that companys investment in non-current assets have been decreased from 63.87% to 58.79%. This is mainly due to charge of depreciation. Further, the investment in current assets has been increased from 36.13% to 41.21%. Moving to liabilities, the liabilities have been decreased from 13.09% to 9.97%. This is a good sign for the health of the company. To comment overall, the companys financial position has been improved. Particulars 30 June, 2017 1 April, 2017 (in $) (as a %) (in $) (as a %) (I) Assets Current Assets: Cash 71,900 31.48% 51,000 26.70% Supplies 6,675 2.92% 12,000 6.28% Accounts Receivable 15,560 6.81% 6,000 3.14% Total current assets 94,135 41.21% 69,000 36.13% Building 118,950 52.08% 122,000 63.87% Furniture 15,331 6.71% - 0.00% Total Assets 228,416 100.00% 191,000 100.00% (II) Liabilities Current Liabilities: Accounts Payable 18,600 8.14% 22,600 11.83% Water expenses payable 470 0.21% 0.00% Wages Payable 200 0.09% 0.00% GST 3,132 1.37% 2,400 1.26% PAYGW 360 0.16% 0.00% Total current liabilities 22,762 9.97% 25,000 13.09% Non-Current Liabilities - 0.00% - 0.00% Total liabilities 22,762 9.97% 25,000 13.09% Shareholders' Equity Capital 197,500 86.47% 166,000 86.91% Retained earnings 8,154 3.57% 0.00% Total Shareholders' Equity 205,654 90.03% 166,000 86.91% Total Liabilities and Equities 228,416 100.00% 191,000 100.00% Other issues Not only the financial impacts are there on the business, there are many other political, social and environmental factors which need to be considered. For example, the type of business carried in a country is highly affected by environmental and social factors. So, before starting any business a feasibility study needs to be conducted to check whether the proposed business can be carried and is allowed by the government. Further, the organizational structure also plays an important role in the development of business. So, the structure should be simple and decentralized. References: Staff, I. (2017).Return On Assets - ROA. [online] Investopedia. Available at: https://www.investopedia.com/terms/r/returnonassets.asp [Accessed 23 Sep. 2017]. Staff, I. (2017).Return On Equity - ROE. [online] Investopedia. Available at: https://www.investopedia.com/terms/r/returnonequity.asp [Accessed 23 Sep. 2017]. Accounting for Management. (2017).Net profit (NP) ratio - explanation, formula, example and interpretation | Accounting for Management. [online] Available at: https://www.accountingformanagement.org/net-profit-ratio/ [Accessed 23 Sep. 2017]. Bragg, S. and Bragg, S. (2017).Net profit ratio. [online] AccountingTools. Available at: https://www.accountingtools.com/articles/2017/5/5/net-profit-ratio [Accessed 23 Sep. 2017].