Question

After examining all the following information, provide a DETAILED comment on the financial  position of the firm, making it as detailed as possible

Req.3 6,78,100.00 9,600.00 6,87,700.00 Carlton Tennis Club Income Statement For The Year Ended June 30, 2014 Revenue Revenue From Court Fees Revenue From Locker Fees Total Revenue Expenses Wages Expense Maintenance Expense Advertising Expense Utilities Expense Supplies Expense Depreciation Expense - Building Depreciation Expense - Equipment Property Taxes Expense Miscelleneous Expense Total Expenses Net Income 351000 51600 39750 64800 6000 30000 12000 22500 6900 5,84,550.00 1,03,150.00 Carlton Tennis Club Statement of Owner's Equity For The Year Ended June 30, 2014 J. Kojas, Capital, June 30, 2013 Add: Net Income Less: Withdrawals J. Kojas, Capital, June 30, 201 4,71,150.00 1,03,150.00 54,000.00 5,20,300.00 26,200.00 9,600.00 1,200.00 1,00,000.00 3,85,200.00 Carlton Tennis Club Balance Sheet June 30, 2014 Assets Cash Prepaid Advertising Supplies Land Building Less: Accumulated Depreciation - Building 2 Equipment Accumulated Depreciation - Equipment Total Assets Liabilities Accounts Payable Wages Payable Property Tax Payable Unearned Revenue-Locker Fees Total Liabilities Owner's Equity J. Kojas, Capital Total Liablities and Owner's Equity 6,45,200.00 ,60,000.00 1,56,000.00 50,400.00 1,05,600.00 6,27,800.00 73,000.00 9,000.00 22,500.00 3,000.00 1,07,500.00 5,20,300.00 6,27,800.00

Answer 1

Analysis on financial  position of the firm- Carlton Tennis club:

Income Statement

Revenue comprises of 2 components Court fees and Locker fees. Court fees stands for 98.60% (6,78,100 / 6,87,700 * 100) of total revenue of the firm. Locker fees accounts for balance 1.40% of total revenue

Net Income of firm is 1,03,150 on revenue of 6,87,700. Net profit ratio on sales is 15% (1,03,150 / 6,87,700 *100). This profitability ratio is good

Looking at the expenses, wages expenses is the highest contributor to the total expenses. Total expenses of the firm are 5,84,550 while wages expenses are 3,51,000. Wages expenses account for 60.05% (3,51,000 / 5,84,550 * 100) of total expenses. If any cost reduction program is to be started with by the firm then first target should be to reduce wages expenses as it is the highest contributor to the total expenses, else firm should focus on the points whereby next year it should be tried that wages expenses should not increase so as to maintain the profitability

Statement of Owner's equity

Disbursement is made to owner for the year for 54,000

Return on equity = Net Income / Average Owner's equity * 100

= 1,03,150 / (4,71,150 + 5,20,300) * 100 = 20.81%

The return on equity provided by the firm is good

Balance sheet

Total assets are 6,27,800 and fixed assets land, building and equipment accounts for 94.11% ( 590,800 / 6,27,800 * 100 ). Composition of assets is good as major assets are fixed assets.

There is no debt on the firm i.e. no borrowings made by the firm. Firm is being run on the capital invested by the proprietor. Financial position of firm is strong as there is no external debt.

However to pay to its current liabilities firm has limited cash and equivalents. Current liabilities of firm includes Accounts Payable, wages payable, unearned revenue and property tax payable which sums up to 1,07,500. While current assets sums up to 37,000 (cash, prepaid advertising and supplies)

Current ratio= Current assets / current liabilities = 37,000 / 1,07,500 = 0.34

For every 1 of current liability firm has 0.34 of current assets. Firm's current ratio is weak