Accounting For Managers

Page 1 of 16

MBA Assignment Two

Accounting for Managers

Written by {Author Removed} {Author Removed} { Removed} Registration Number

{ Removed}

Prepared for Mark Makepeace - Management Centre

Word Count: 3857

Page 2 of 16

Contents Page

1. Assumptions made in order to complete assignment

2. Ratio Analysis of Company "X"

3. Ratio Analysis of Company "Y"

4. Ratio Analysis of Company "Z"

5. Summary of ratios

6. Overview

7. Marginal and Absorption Costing

8. Summary

9. Bibliography

Page 3 of 16

Assumptions

In order to complete this assignment, the following assumptions have been made.

1. A similar sales figure for all three companies has been assumed and this is

illustrated in the appendix 1. Although in reality, a similar sales figure would

not be the case. Whilst a sales figure is not vital in answering the question, this

helped me in my thinking.

2. The figures represented in appendix 1 are of course purely arbitrary and have

been included purely to illustrate my thought process and support the

assignment. I have based these figures on a mean average sales figure of

Ј13.4bn. This being a sales average for Tesco, Sainsbury and Safeway for

2002. Whilst the assignment question did not indicate the type, size and nature

of the food retailer in question. I looked to these businesses as an indication.

(a) Tesco Ј12.7Bn (based on 24 week period)

(b) Sainsbury's Ј18.1Bn

(c) Safeway Ј9.5Bn

3. That the net profit ratio relates to net profit before tax and any dividend.

4. That debtors would be negligible, as retail tends to be cash orientated business.

5. Stock, Creditor and Debtor figures are based on 365 days.

6. Return on Capital Employed is based on profit before interest and tax divided

by fixed assets plus net current assets.

7. The fixed asset figure has been calculated using the capital employed figure.

Example:

If capital employed had equalled 13478 and net assets had equalled 1325. Then

fixed assets are assumed to be 12153 (13478 - 1325).

8. That capital employed is financed by share capital plus reserves and that the

companies have no borrowings.

9. That the ratio figures presented in the question would have been based on

figures calculated on a consistent basis and that all three companies are

following the same accounting concepts and conventions. For example, that all

three companies costs are based on historical costs as opposed to one using

historical costing and the other two using modified costing. Or, that one

company has not based their figures using marginal costing whilst the other

two having used absorption costing.

Page 4 of 16

Company X

Ј - 000

Sales 13478

Cost of Goods Sold @ 85% (Sales minus G.P.B.T) 11456

Gross Profit Before Tax @ 15% 2022

Expenses @ 6% ( G.P.B.T minus N.P.B.T) 809

Net Profit Before Tax @ 9% (G.P.B.T - Expenses) 1213

Corporation Tax @ 30% 243

Net Profit after Tax before Dividend 970

Return on Capital Employed @ 15% 2022

Return on Shareholders funds @ 20% (N.P.A.T - before dividend) 970

Share capital (if 970 equals 20%) 4852

Total Capital Employed (Fixed Assets + Reserves + Net Current Assets) 13478

Current Assets:

Stock - 18 Days (11456 / 365 x 18) 565

Debtors - 9 Days (13478 x 10% - "amount on credit" / 365 x 9) 33

Cash (13478 x 90% / 12 months) 1010

1608

Current Liabilities (amounts falling due within a year)

Creditors - 9 Days (11456 / 365 x 9) 283

Net Current Assets / 1325

Page 5 of 16

Company Y

Ј - 000

Sales 13478

Cost of Goods Sold @ 78% (Sales minus G.P.B.T) 10512

Gross Profit Before Tax @ 22% 2966

Expenses @ 12% (G.P.B.T minus N.P.B.T) 1617

Net Profit Before Tax @ 10% (G.P.B.T - Expenses) 1349

Corporation Tax @ 30% 405

Net Profit after Tax before Dividend 944

Return on Capital Employed @ 13% 2966

Return on Shareholders funds @ 13% (N.P.A.T - before dividend)