The Analysis and Interpretation of Management Efficiency

  Learning Activities Unit 4 - The Analysis and Interpretation of Management Efficiency 2017- Unit 4 - The Analysis and Interpretation of Management Efficiency Unit Introduction Efficiency ratios can be of use in the analysis and interpretation of the manner in which various resources have been used and managed. Working capital can be defined as current assets less current liabilities. The management of working capital is a crucial aspect of the efficient management of a business. Whilst this unit is concerned with management efficiency, it should be noted that there is a crucial link between the efficient use of business resources and profitability. If resources are used effectively, then this should contribute to effective financial performance. Aspects of the ratios that can be used to understand management efficiency can also be linked to the analysis and interpretation of liquidity: this will be considered in the next unit. Unit 4 - The Analysis and Interpretation of Management Efficiency End of Unit Activity 20x0 20x1 £'000s £'000s £'000s £'000s Sales 5,250 7,000 Less: cost of goods sold: Opening stock 890 910 Add: purchases 3,695 6,195 4,585 7,105 Less: closing stock (910) (3,675) (1,785) (5,320) Gross profit 1,575 1,680 For the end of unit activity we will return to Northern Housing Limited. Remember that company has been a family owned concern, operating principally in the north of England. Northern Housing Limited financial year end is the 31 December. Recent corporate strategy has been focused on growth, and the directors had targeted an increase in sales turnover of 50% for financial year 20x1. At the start of their 20x1 financial year significant capital investment took place as the company commenced new building projects in both Central Scotland and Northern France. A summary of the company's most recent financial statements covering the last two years of operations is shown below. Northern Housing Limited Summerised Trading, Profit and Loss Accounts GETTING STARTED MY LEARNING MY DETAILS UNIVERSITY SERVICES HELP CENTRE CONTACT US Sarah Almotawaa 12 Less: expenses 998 1,085 Earnings before interest and tax 577 595 less: corporation tax provision 115 145 Profit after tax 462 450 Less: ordinary dividend proposed 280 175 Retained profit for the year 182 275 Add: profit and loss balance at 1 January 576 758 Profit and loss balance at 31 December 758 1,033 20x0 20x1 £'000s £'000s £'000s £'000s Non current assets: @ net book value 4,690 5,678 Current assets Stock / inventories 910 1,785 Trade debtors / receivables 955 1,515 Bank 368 2,233 _____ 3,300 Current liabilities Trade creditors / payables 805 1,785 Proposed dividend 280 175 Corporation tax 115 145 Bank overdraft _____ (1,200) 875 (2,980) Net current assets 1,033 320 Non current liabilities 10% Debentures (1,225) (1,225) Net assets 4,498 4,773 Capital and reserves Northern Housing Limited Balance Sheets 3.5m. Ordinary shares of £1 each 3,500 3,500 Retained earnings 758 1,033 General reserve 240 240 Total equity 4,498 4,773 Required inventory turnover period receivables collection period payables settlement period turnover of capital employed asset turnover non-current asset turnover current asset turnover. From the above financial statements of Northern Housing Limited calculate management efficiency ratios for both 20x0 and 20x1 You should calculate the following ratios: Please post your responses to your journal.