Manage Finances tasty food kent

QUESTION 1

Current ratio = current assets/ current liabilities = $88,259/ $57,487 = 1.53528:1

Liquidity ratios:

Current ratio = current assets / current liabilities = $88,259/ $57,487 = 1.53528:1

Quick Ratio = (Current Assets –Inventory) /current Liabilities = 88,259 – 52,600 / 57,487 = 0.62:1

Gearing Ratio = Total debt / total equity = 67,487 / 42,372 = 1.5927:1

The current ratio is a measurement of the company’s ability to pay off debts and payables. Therefore having a higher Current Ratio is very good for the business.

It is a way of finding out the company’s efficiency and operational cycles. Usually companies that have trouble paying off their debts and payables will not be able to survive if the keep their current ratio down.

Liquidity ratio is similar to the Current ratio as it can measure that company’s capability to pay off their debts. It is generally the ability for a company to liquidate their assets, meaning to turn assets into cash. The other liquidity ratio is the quick ratio. With both ratios, it is best to have at least 1-2 ratio but higher is better.

The gearing ratio the measurement of how much leverage the company has when it comes to the way it is operated. This means that it is generally the amount of the business that is actually owned outright compared to how much is paid by borrowed money and loans.

The liquidity ratio of this company is too low. There needs to be a high liquidity for the company to ensure that they can pay for bills and expenses on time and easily.

Using sweep accounts is good for increasing the interest of the company by transferring money to and from high interest accounts when they are needed and when they are not.

Making sure that the overhead costs are as low as possible. This is directly decrease the amount of profit that the company can achieve.

Assets that are not needed anymore should not be stored for a time that may or may not happen. The unproductive assets should be sold while the assets have not depreciated.

Monitor the companies accounts receivable to check all transactions and make sure that they are arriving on time.

Try to negotiate longer payment terms to keep liquidity high.

Making sure that money is not taken out of the business for non-business reasons. Try to minimize owner draws.

Try to increase profit where it is achievable.

QUESTION 2

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QUESTION 2

A budget is used to control the amount of money spent on expenses. Money should not be spent on unnecessary expenses. These unnecessary expenses may not be expenses however when they are added up, they can be a very large sum. It is better to plan how to spend the money and make sure that there is enough money for the necessary expenses. It can be any sort of financial plan that involves controlling the amount of money spent on an expense or group of expenses. This example is a budget for an advertising campaign.

Types of Budgets:

Sales Budget

Production Budget

Advertising/marketing budget

Project Budget

Cash flow Budget

Organizational Requirements

Follows the organizational plan of the company

Takes into consideration the timeframe of the organisation

Must be realistic

Follow OH&S standards

ACCC and ASIC Approved

Statutory Requirements

The Business GST – which is the goods and services tax which can be claimed from the customers. Meaning that customers will pay 10% for the GST. Tasty Food Limited must also pay 10% if they are buying products from other suppliers.

PAYG tax – This tax benefits smaller business that do not earn as much revenue and gain. The tax is different because it involves the factor of how much you earn. Businesses that earn more, will be paying a higher percentage of tax rather than a smaller company which only pays a small tax.

The insurance of the company employees is another statutory requirement. Insurances are a risk management system that enables you to cut down the amount of money that needs to be paid if an employee is injured. Insurance will cover most costs of accidents and incidents.

Also the public Liability insurances are important. If any customers are hurt in our premises and were under our supervision, Tasty Food Limited is responsible for the accidents or incidents. The insurance will cover any accidents that had happened which were out of the company’s control.

Also building and equipment insurances

Report

The budget will be very clear and easy to read. The format will be neat and tidy and very easy to understand. Everything in the budget will have easy and accurate labels and headings to show what each number is representing. The budget will also be clearly explained in a management meeting for all managers and supervisors to understand the budget and be able to ask any questions before the budget is implemented.

Financial risks can also be prevalent throughout the implementation of the plan. Business must always control and monitor the cost of expenses and other fess which will affect the profit. A financial risk may be advertising. If an advertising campaign does not gain any new customer than it is not worth the investments. Advertising is only effective if the campaign is certain to attract people.

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