Accounting for Managers

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Accounting for Managers
Section A
Part 1 (A)
Part 1 (B)
Section B
Questions
Why NPV is a better investment appraisal tool?
Weaknesses of Other Investment Appraisal Tools
References

Section A of Accounting for Managers
Part 1 (A)
A supplier is interested in financial performance of the company and its efficiency in managing current assets and liabilities. The supplier is interested in these ratios because the company can default and supplier can remain unpaid in such cases. The company pays supplier on time only when it is able to earn significant profits.

Also, the days of receivables and days of payable show the receipt and payment of the company on average; this shows the smoothness of cash inflows and cash outflows of the company and also shows the chances that the supplier will be paid within a certain time period in usual circumstances. The ratios computed for Kesher Ltd are shown in the figure below:

Figure 1 – Ratios required by Suppliers

Part 1 (B)
This report analyzes the potential risks and benefits involved for the suppliers of Keshes Ltd. The ratios analyzed in above part will be used to identify the risk and benefits involved with Kesher Ltd; however, some additional ratios have also been calculated which will further help us analyze the company from suppliers point of view. Those ratios are shown in table below:

Figure 2 – Additional Ratios

Firstly, the supplier will evaluate profitability ratios namely gross profit margin, net profit margin and return on capital employed. In the view of Brigham and Ehrhardt (2013), the profitability ratios are used to measure profit margins of the firm in current period and profit potential in next periods. The profitability ratios indicate how well the company has performed and efficiency in the costs incurred by the company.

The gross profit margin ratio of Keshes ltd was 42.3% in 2013 which slump to 37.5% in 2014; despite significant decline in the ratio, the company still has reasonable gross profit margin as it indicates that company earns 37.5 pence on every pound of revenue. The net profit margin of the company also decreased significantly during the year 2014; the ratio declined from 13.05% in 2013 to 9.25% in 2014 which was mainly due to the rise in direct cost of sales for the company.

The Return on capital employed uses net profit as its numerator so this ratio also declines significantly during the year 2014; it declined from 20.4% in 2013 to 13.1% in 2014. This shows that the return on sum of long-term financing and equity declined for the company. It is due to both slump…