22 SsASCO pvt ltd company is a salt trading compan1.docx

7/25/2019 22 SsASCO pvt ltd company is a salt trading compan1.docx

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SASCO pvt ltd company is a salt trading company. The company situated in

kollappuram, azad nagar, A.R Nagar- po, malappuram-dt, erala-st, !ndia. The

Company distri"utes its products primarily in domestic markets. Sasco salt trade

premium #uality $ree $lo% iodized salt. The company not compromise #uality o$

the product.

The company have &' employee & manager & accountant ( marketers, )

production, they are producing *+'''kg per month they selling price is Rs , and

the material cost is .+kg direct la"or cost is /0+ and marketers ('' $or manager

&/''' and accountant &'''' electricity "ill +'''.

PROFIT AND LOSS ACOUNT OF 2014

12ro$it and 3oss Statement - 2431A $inancial statement that summarizes therevenues, costs and e5penses incurred during a speci$ic period o$ time - usually a

$iscal #uarter or year. These records provide in$ormation that sho%s the a"ility o$ a

company to generate pro$it "y increasing revenue and reducing costs. The 243

statement is also kno%n as a 6statement o$ pro$it and loss6, an 6income statement6

or an 6income and e5pense statement6.

Sale 95000*12=*7 7890000

Cost of sale

Direct material 2.5*1140000 2850000Direct labor .6*1140000 684000Electricity .05*1140000 57000Ret .1*1140000 114000!ac"a#i#

co$er

1*1140000 1140000 %4845000&

GP 3045000

'ess a(mi

cost)ar"eti# 499200maa#er 156000accotat 120000!+oe bill 12000 %787200&


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Proft 2257800,terest o

loa 12-

200000

24000

,terest o(ebetre 10-

of 400000

40000 64000

Proft beore

t!

21"3800

a/ 20 - 48760Proft ter

t!

1755040

referece

12- of 400000 48000Eity 160860Ret#$e%

er$#$&'

"8680

7alance Sheet1 A $inancial statement that summarizes a company1s assets, lia"ilitiesand shareholders1 e#uity at a speci$ic point in time. These three "alance sheet

segments give investors an idea as to %hat the company o%ns and o%es, as %ell as

the amount invested "y the shareholders.

(ALANC) S*))T OF 2014

RS RS RSF#!e% A''et+

'a( 298680

3il(i# a( Eimet 200000

4"8680

C,rre$t ''et+


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Cas+ a( ba" 100000

0 1000000

Tot- A''et 14"8680

).UIT/+000 RD,R SRE rs.100EC 00000

RE,ED ER,:S 98680!REERCE SRE12- 400000

TOTAL ).UIT/ 7"8680

NON CURR)NTLIA(ILT/+

DE3E;RE 10- 400000 400000

' 12- 200000 200000 600000

CURR)NT LIA(ILT/+

CRED,RS 100000

100000

TOTAL ).UIT/ AND LIA(ILIT/ 14"8680

(,%&ete% Rt#o A$-'#'

is a $orm o$ 8inancial Statement Analysis that is used to o"tain a #uick indication

o$ a $irm1s $inancial per$ormance in several key areas. 8inancial ratios are

mathematical comparisons o$ $inancial statement accounts or categories. These


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relationships "et%een the $inancial statement accounts help investors, creditors,

and internal company management understand ho% %ell a "usiness is per$orming

and areas o$ needing improvement.

LI.UIDIT/ RATIOSA class o$ $inancial metrics that is used to determine a company1s a"ility to pay o$$

its short-terms de"ts o"ligations. 9enerally, the higher the value o$ the ratio, the

larger the margin o$ sa$ety that the company possesses to cover short-term de"ts.

3i#uidity ratios are the ratios that measure the a"ility o$ a company to meet its

short term de"t o"ligations. These ratios measure the a"ility o$ a company to pay

o$$ its short-term lia"ilities %hen they $all due.

The li#uidity ratios are a result o$ dividing cash and other li#uid assets "y the shortterm "orro%ings and current lia"ilities. They sho% the num"er o$ times the short

term de"t o"ligations are covered "y the cash and li#uid assets. !$ the value is

greater than &, it means the short term o"ligations are $ully covered.

CURR)NT RATIO

An indication o$ a company1s a"ility to meet short-term de"t o"ligations the higher

the ratio, the more li#uid the company is. Current ratio is e#ual to current

assets divided "y current lia"ilities. !$ the current assets o$ a company are morethan t%ice the current lia"ilities, then that company is generally considered to have

good short-term $inancial strength. !$ current lia"ilities e5ceed current assets, then

the company may have pro"lems meeting its short-term o"ligation.

Current Ratio:

Current Assets

Current 3ia"ilities


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2189800/495200 = 4.42

Analysis.

A#%te't rt#o

The term ;Acid-test ratio< is also kno%n as #uick ratio. The most "asic de$inition

o$ acid-test ratio is that, ;it measures current =short term> li#uidity and position o$

the company. !n order

to clear the short term de"ts they pro"a"ly %ould need to sell some o$ their assets.

7ut such an option a$$ects the overall position o$ the company "ecause i$ the

company o%ns very little assets.

Acid ratio : =Current Assets ? !nventory> Current lia"ilities

= (218900 84000) / 495200

= 4.25

Sto T,r$oer Rt#o

The inventory turnover $ormula or stock turnover ratio is the rate at %hichinventory is used over a measurement period. !nventory turnover is typically

measured on a trend line or in comparison to the industry average to @udge ho%

%ell a company is per$orming in this area. !t is o$ use to those organizations that

have a large investment in inventory, to @udge %hether this investment is changing

in comparison to sales.


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This ratio should "e compared against industry averages. A lo% turnover implies

poor sales and, there$ore, e5cess inventory. A high ratio implies either strong sales

or ine$$ective "uying.

igh inventory levels are unhealthy "ecause they represent an investment %ith arate o$ return o$ zero. !t also opens the company up to trou"le should prices "egin

to $all.

Average Stock Cost o$ Sale 5 /)+

: =84000/5668800) x 365

= 5.41 days

Proftb#-#t Rt#o Def$#t#o$

A pro$ita"ility ratio is a measure o$ pro$ita"ility, %hich is a %ay to measure a

company1s per$ormance. 2ro$ita"ility is simply the capacity to make a pro$it, and a

pro$it is %hat is le$t over $rom income earned a$ter you have deducted all costs and

e5penses related to earning the income. The $ormulas you are a"out to learn can "e

used to @udge a company1s per$ormance and to compare its per$ormance againstother similarly-situated companies.

Common pro$ita"ility ratios used in analyzing a company1s per$ormance

include gross pro$it margin =92B>, operating margin =OB>, return on assets

=ROA>, return on e#uity =RO>, return on sales =ROS> and return on investment

=RO!>. 3et1s take a look at these in some detail.

Gro'' Proft r$

The gross pro$it margin looks at cost o$ goods sold as a percentage o$ sales. This

ratio looks at ho% %ell a company controls the cost o$ its inventory and the

manu$acturing o$ its products and su"se#uently pass on the costs to its customers.

The larger the gross pro$it margin, the "etter $or the company.

9ross 2ro$it Net Sales 5 &''


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: (2815200/8484000) x 100

= 33.18

Oert#$& Proft r$

Operating pro$it is also kno%n as 7!T and is $ound on the company1s income

statement. 7!T is earnings "e$ore interest and ta5es. The operating pro$it marginlooks at 7!T as a percentage o$ sales. The operating pro$it margin ratio is a

measure o$ overall operating e$$iciency, incorporating all o$ the e5penses o$

ordinary, daily "usiness activity.

Operating 2ro$it Net Sales 5 &''

= (2028000/8484000) x 100

= 23.90

So-e$ Rt#o'

Solvency ratios, also called leverage ratios, measure a company1s a"ility to sustain

operations inde$initely "y comparing de"t levels %ith e#uity, assets, and earnings.

!n other %ords, solvency ratios identi$y going concern issues and a $irm1s a"ility to

pay its "ills in the long term. Bany people con$use solvency ratios %ith li#uidity

ratios. Although they "oth measure the a"ility o$ a company to pay o$$ its

o"ligations, solvency ratios $ocus more on the long-term sustaina"ility o$ a

company instead o$ the current lia"ility payments.

Ret,r$ o$ A''et' Rt#o ROA

The return on assets ratio, o$ten called the return on total assets, is a pro$ita"ility

ratio that measures the net income produced "y total assets during a period "y


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comparing net income to the average total assets. !n other %ords, the return on

assets ratio or ROA measures ho% e$$iciently a company can manage its assets to

produce pro$its during a period.

= (1568800/2688480) x 100

= 58.35

),#t Rt#o

The e#uity ratio re$ers to a $inancial ratio indicative o$ the relative proportion o$

e#uity applied to $inance the assets o$ a company. This ratio e#uity ratio is a varianto$ the de"t-to-e#uity-ratio and is also, sometimes, re$erred as net %orth to total

assets ratio. The e#uity ratio communicates the shareholderDs $unds to total assets

in addition to indicating the long-term or prospective solvency position o$ the

"usiness.

#uity Ratio : Shareholders $unds Total assets

= 1593280/2688480

= 0.59

ROA :Annual Net !ncome

Average Total Assets


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COST DATA

A9 Co't Per U$#t

Baterial .+

3a"or .)

lectricity .'+

Rent .&

2ackage &.'

2roduction cost per unit (.+

3ess Administration overhead per unitE

Barketing ='.(&>

Banager ='.&(>

Accountant ='.&&>

2hone 7ill ='.'&>

Cost 2er Fnit 3.58

=7> Selling 2rice : per unit

ARGINAL COSTING

ere t+e comay is ee( to icrease t+e ro(ctio caacity

becase of to e/ort to Dbai< so t+e comay ee( ro(ce

more 84000 e/tra


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Sale 84000*7 588000Cost of saleDirect material 2.5*84000 210000Direct labor .6*84000 50400

Electricity .05*84000 4200!ac"a#i#

co$er

1*84000 84000 %48600&

!rot 23"400

=)> COST RE!CT"O# A# COST CO#TRO$

;Cost reduction is to "e understood as the achievement o$ real and permanent

reductions in the unit cost o$ the goods manu$actured or services rendered %ithout

!mpassing their suita"ility $or the use that is intended


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leaves the task o$ purchasing slightly sidetracked. ven seemingly insigni$icant

e5pendituresH$or items like o$$ice supplies, telephone "ills, or overnight delivery

servicesHcan add up $or small "usinesses. On the plus side, these minor

e5penditures can o$ten provide sources o$ cost savings.

As%&'s * Cs Cn+l,

Cost control involves the $ollo%ing steps and covers various aspects o$

management. !t has to "e "rought in the $ollo%ing mannerE

=i> 2lanningE

!nitially a plan or set o$ targets is esta"lished in the $orm o$ "udgets, standards orestimates.

=ii> CommunicationE

The ne5t step is to communicate the plan to those %hose responsi"ility is to

implement the plan.

=iii> BotivationE

A$ter the plan is put into action, evaluation o$ the per$ormance starts. Costs areascertained and in$ormation a"out achievements is collected and reputed. The $act

that the costs are "eing reported $or evaluating per$ormance acts as a prompting

$orce.

=iv> AppraisalE

Comparison has to "e made %ith the predetermined targets and actual per$ormance.

Ie$iciencies are noted and discussion is started to overcome de$iciencies.

=v> Iecision-makingE

8inally, the reported variances are received. Corrective actions and remedial

measures are taken or the set o$ targets is revised, depending upon the

administrationDs understanding o$ the pro"lem.


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The management and control o$ the resources used in most commercial

organizations leaves a great deal to "e desired. Gaste is gro%ing at such an

enormous rate that it has spa%ned a ne% industry $or recycling and e5tracting

use$ul materials.

Baterials are %asted in a num"er o$ %ays such as e$$luents, "reakage,

contamination, ine$$icient storage, poor %orkmanship, lo% #uality, pil$ering and

o"solescence. All these contri"ute to signi$icantly increased material costs and all

can "e controlled "y e$$icient %orking methods and e$$ective control.

Tls * Cs Cn+l

Control has a regulatory e$$ect. 8or "etter per$ormance and "etter results certain

means o$ control have "een evolved. These are called control techni#ues.Bainly t%o types o$ standards are esta"lished to control costsE

=i> 5ternal

=ii> !nternal

5ternal standards are applied $or comparing per$ormance %ith other

organizations. The e5ternal standards are used $or comparing the cost per$ormance

%ith the other $irm take the shape o$ a set o$ cost ratios.

!nternal standards, on the other hand, are used $or the evaluation o$ intra $irm cost

elements like materials, la"or, etc.

The internal standards used $or cost control areE

=i> 7udgetary control

=ii> Standard costing

(i) -d&a+y Cn+l,

7udgetary control is derived $rom the concept and use o$ "udgets. A "udget is an

anticipated $inancial statement o$ revenue and e5penses $or a speci$ied period.

7udgeting re$ers to the $ormulation o$ plan $or given period in numerical terms.


13/33

Thus "udgetary control is a system %hich uses "udgets as a means $or planning

and controlling entire aspects o$ organizational activities or parts thereo$.

According to 8loyd . Ro%land and Gilliam. . 7arr, ;7udgetary control is a tool

o$ management used to plan, carry out and control the operation o$ "usiness. As a$urther e5planation, it esta"lishes predetermined o"@ectives and provides the "asis

$or measuring per$ormance against these o"@ectives.d&

Sales unit &&'''Q

Selling price

Total 0(0('''

?+d'in !ni

&&'''&''' : &('''

?+d'in -d&

Baterial &('''Q .+ /')''''

3a"or &('''Q '.) /((''

lectricity &('''Q '.'+ )&''

Rent &('''Q '.& &(''

2acking cover &('''Q & &('''

Total : +''''

?+'as& >d&

A purchases "udget contains the amount o$ inventory that a company must

purchase during each "udget period.

Baterial $or products closing stock-opening stock

&&'''&''' -': &('''

Baterial price :

Baterial =A> salt : .+ =per unit> material =7> pack : &=per unit>

Baterial =A> &('''Q.+: /')''''


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Baterial =7> &('''Q&:&('''

7udgeted material purchase =rupee> : (0('''

Lbor (,%&et

;its of

ro(ctio

1224000

mber of (irect

labor

6

otal 'abor >a#e

er it

0.6 1224000* 0.6

otal (irect labor

cost

734400

Ex%&ns& >d&

?a+i'la+sBarketing (**''

Banager &+)'''

Accountant &''''

2hone "ill &'''

Rent &(''

Tal &x%&ns&s 909600

Cas -d&

,E) ?1 ?2 ? ?4

3e#ii# cas+ balace 1000000 1272700 1560400 18810010000

00

cas+ sales %01000*7& 2121000 2121000 2121000 212100084840

00


22/33

tot- ': o--ete% 121000 9700 681400 95910094840

00

P;e$t+

Ro> material 1071000 1071000 1071000 1071000!ayroll 77400 77400 77400 77400

!ac"i# Co$er 06000 06000 06000 06000

DIR)CT )


23/33

Cas+ 2105800 218"800

otal sset 2688480

).UIT/+

000 RD,R SRE rs.100EC 00000

RE,ED ER,:S 89280

!REERCE SRE 12- 400000

' E?;,@ 15"3280

C;RRE ',3,'@

DE3E;RE 10- 400000 400000

' 12- 200000 200000 600000

C;RRE ',3,'@

CRED,RS 100000

A !3'E 20- 95200 4"5200

' E?;, D ',3,', 2688480

Cs * Ca%ial

Cs * 'a%ialre$ers to the opportunity cost o$ making a speci$ic investment. !t isthe rate o$ return that could have "een earned "y putting the same money into a

di$$erent investment %ith e#ual risk. Thus, the cost o$ capital is the rate o$ return

re#uired to persuade the investor to make a given investment

Cs * Eiy


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The cost o$ e#uity is the return that stockholders re#uire $or their investment in a

company. A $irm1s cost o$ e#uity represents the compensation that the market

demands in e5change $or o%ning the asset and "earing the risk o$ o%nership.

&. arnings per share market price per share

: (627520@893280)/3000

= 2.53

Cs * &>

The e$$ective rate that a company pays on its current de"t. This can "e measured in

either "e$ore- or a$ter-ta5 returnsP ho%ever, "ecause interest e5pense is deducti"le,

the a$ter-ta5 cost is seen most o$ten. This is one part o$ the company1s capital

structure, %hich also includes the cost o$ e#uity.

COST O: E-T

. 3oan interest =&-ta5>capitalQ&''

: 24000 0.8/200000 100

= 9.6

/. Ie"enture !nterest =&- Ta5>capitalQ&''

: 400000.8/400000100

= 8

(. 2re$erence interest- ta5pre$erenceQ&''


25/33

: 480000.8/400000100

= 9.6

I$e't;e$t Ar#'-

C#t-

A;o,

$t

Co't O

C#t-

=e#&

:t =ACC

Eity0000

0 2.5 0.2 0.58

%BD& 'oa20000

0 9.6 0.15 1.48%BD&Debetre

400000 8 0.1 2.46

!refereces+are

400000 9.6 0.1 2.95

otal 100000 29.7 7.48


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The company planning to invest t%o pro@ect in di$$erent place. So a$ter analyzing this thecompony need to $ind out %here is "etter to invest

Company has estimated the e5pected cash $lo%s $or t%o possi"le pro@ects as $ollo%s

?+B&' ear

' & / ( +

& =&+'> (' +' )' ' &''

=&,'''> +'' ('' /'' '' &''

&a+ #& ?+&s&n al&

9D 10D

& '.*& '.*'*

'.0( '.0)

/ '. '.+&

( '.'0 '.)0/

+ '.)+' '.)&

?ay -a' ?&+id

2ay"ack period is the time in %hich the initial cash out$lo% o$ an investment ise5pected to "e recovered $rom the cash in$lo%s generated "y the investment. !t is

one o$ the simplest investment appraisal techni#ues.The pay"ack period $ormula is used to determine the length o$ time it %ill take torecoup the initial amount invested on a pro@ect or investment. The pay"ack period$ormula is used $or #uick calculations and is generally not considered an end-all $orevaluating %hether to invest in a particular situation.


27/33

The $ormula to calculate pay"ack period o$ a pro@ect depends on %hether the cash$lo% per period $rom the pro@ect is even or uneven. !n case they are even, the$ormula to calculate pay"ack period is

2ay"ack 2eriod : !nitial !nvestment Cash

!n$lo% per 2eriod

?ay>a' ?&+id * ?+B&' 1

The &+',''' initial outlay is returned

=(',''' +',''' )','''> : / years

?ay>a' ?&+id * ?+B&' 2

The &,''',''' initial outlay is returned as $ollo%sE

=+'',''' ('',''' &/U/'','''V> : ./ year

So the ranking is

1s, ?+B&' 2

2nd, ?+B&' 1

pro@ect &st

pay"ack period is more than the pro@ect nd

pay"ack period so "ased onthe pay"ack period "etter to select the ndpro@ect


28/33

#& ?+&s&n al&

Ietermining the value o$ a pro@ect is challenging "ecause there are di$$erent %aysto measure the value o$ $uture cash $lo%s. 7ecause o$ the time value o$ money, adollar earned in the $uture %onDt "e %orth as much as one earned today. The

discount rate in the N2K $ormula is a %ay to account $or this. Companies havedi$$erent %ays o$ identi$ying the discount rate, although a common method is usingthe e5pected return o$ other investment choices %ith a similar level o$ risk.

The net present value approach is the most intuitive and accurate valuationapproach to capital "udgeting pro"lems. Iiscounting the a$ter-ta5 cash $lo%s "ythe %eighted average cost o$ capital allo%s managers to determine %hether a

pro@ect %ill "e pro$ita"le or not

#& ?+&s&n al& * ?+B&' 1 (9D)

ear Cash 8lo% 8actor N2K

''' '''

' =&+'> & =&+'.''>

& (' '.*& /).)0

+' '.0( (.&

/ )' '. ()./

( ' '.'0 (*.+)

+ &'' '.)+' )+

0*.))

#& ?+&s&n al& * ?+B&' 2 (9D) ear Cash 8lo% 8actor N2K

''' '''

' =&'''> & =&'''.''>

& +'' '.*& (+0.+


29/33

('' '.0( //).0

/ /'' '. /&.)

( '' '.'0 &(&.)

+ &'' '.)+' )+

&//.+

Net present value o$ the pro@ect one is greater than the pro@ect t%o so on the "asisio$ npv here the company pre$er to select the pro@ect t%o.

"n&+nal Ra& * R&+n

The !RR can "e de$ined as the discount rate %hich, %hen applied to the cash $lo%so$ a pro@ect, produces a net present value =N2K> o$ nil. This discount rate can then

"e thought o$ as the $orecast return $or the pro@ect. !$ the !RR is greater than apreset percentage target, the pro@ect is accepted. !$ the !RR is less than the target,the pro@ect is re@ected.

Considering the de$inition leads us to the calculation. The !RR uses cash $lo%s =notpro$its> and more speci$ically, relevant cash $lo%s $or a pro@ect. To per$orm thecalculation, %e need to take the cash $lo%s o$ a pro@ect and calculate the discount

$actor that %ould produce a N2K o$ zero

"n&+nal Ra& * R&+n ?ROECT 1

#? 24D


''' '''

' =&+'> & =&+'.''>

& (' '.0 /&.(0

+' '.)' /&

/ )' '.(00 *.0


30/33

( ' './0( ).00

+ &'' './'/ /'./

-&.')

"n&+nal Ra& * R&+n ?ROECT 2

#? 21D.


''' '''

' =&'''> & =&'''.''>

& +'' '.0) (&/

('' '.)0/ /.

/ /'' '.+)( &)*.

( '' '.()) */.

+ &'' './0+ /0.+

-&.*

?ROECT 1#? 18D,


''' '''

' =&+'> & =&+'.''>

& (' '.0( //.00

+' '.&0 /+.*

/ )' '.)'0 /).(0

( ' '.+&+ /).'0

+ &'' '.(/ (/.


31/33

/).'(

?ROECT 2

#? 18D,


''' '''

' =&'''> & =&'''.''>

& +'' '.0( (/.+

('' '.&0 0.

/ /'' '.)'0 &0.(

( '' '.+&+ &'/

+ &'' '.(/ (/.

/*.0

To determine the internal rate o$ return $or each pro@ect %e can apply the $ormula

aa 5=->

: the lo%er rate o$ interest used

: the higher rate o$ interest used

a : the di$$erence "et%een the present values o$ the out$lo% and the

!n$lo%s at W

" : the di$$erence "et%een the present values o$ the out$lo% and the !n$lo%s at W.


32/33

?ROECT 1 "RR,

18D = 36040

6/37100 36040 = 5.82

24D = 1060

?ROECT 2 "RR,

18D = 39800

3/ 5270039800 = 2.26

21D = 12900

Ghile analyzing the !RR pro@ect one is greater than the pro@ect t%o so "ased on the

!RR pro@ect one is accepta"le

?+*ia>iliy ind&x

2ro$ita"ility inde5 is an investment appraisal techni#ue calculated "y dividing the

present value o$ $uture cash $lo%s o$ a pro@ect "y the initial investment re#uired $or

the pro@ect.

3ooking at the situation o$ divisi"le, independent pro@ects %e%ould need to consider the highest pro$ita"ility inde5. ere the highest

pro$ita"ility inde5 is pro@ect one. !t is greater than the pro@ect t%o.

?+B&' 1 2

2K-!n$lo%s /*.)) &//.+

!nitial investment &+' &'''

: 1.59 1.24

R&*&+&n'&s,

accoti#e/laie(.commaa#erialcaitalb(#eti#aybac"erio(


33/33

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http://www.financeformulas.net/Payback_Period.htmlhttp://www.investopedia.com/walkthrough/corporate-finance/4/npv-irr/net-present-value.aspxhttp://www.investopedia.com/walkthrough/corporate-finance/4/npv-irr/net-present-value.aspxhttp://accountingexplained.com/managerial/capital-budgeting/profitability-indexhttp://www.investopedia.com/walkthrough/corporate-finance/4/npv-irr/net-present-value.aspxhttp://www.investopedia.com/walkthrough/corporate-finance/4/npv-irr/net-present-value.aspxhttp://accountingexplained.com/managerial/capital-budgeting/profitability-indexhttp://www.financeformulas.net/Payback_Period.html

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22 SsASCO pvt ltd company is a salt trading compan1.docx