Acct1002 Financial Decision-Making Template For Assessment 3

Acct1002 Financial Decision Making Template For Assessment 3 Submiss

Drafted announcement instructions that cover multiple course requirements, including analyzing financial ratios for two years, completing a business simulation, and writing a detailed report with introduction, analysis, and conclusion sections. The focus is on financial ratio calculation, interpretation, and business decision-making analysis related to COVID-19 impacts.

Sample Paper For Above instruction

Introduction

The purpose of this report is to analyze the financial performance of our company over two years, 2019 and 2020, with particular focus on the impact of the COVID-19 pandemic on key financial ratios. Our company, XYZ Pizzeria, operates in the food service industry, and our strategic decisions involve pricing, marketing, and operational adjustments to navigate the pandemic’s challenges. The analysis will compare profitability, liquidity, and solvency ratios to understand the shifts in financial health and inform future strategies.

Overview of the Company and Strategies

XYZ Pizzeria specializes in delivering high-quality pizza through dine-in, takeaway, and delivery services. Pre-pandemic, our focus was on expanding market reach through promotional campaigns and improving operational efficiency. During 2020, pandemic-related restrictions prompted us to revise our strategies, emphasizing delivery services, digital marketing, and cost management to sustain operations.

Key Performance Figures and Trends

The financial ratios indicate noticeable trends: net profit margin declined from 2019 to 2020, reflecting reduced profitability amidst operational challenges. Liquidity ratios like the current ratio and acid-test ratio also showed a decrease, indicating tightening cash flow and liquidity constraints. However, some ratios such as total asset turnover remained relatively stable, suggesting asset utilization remained efficient despite external pressures.

Analysis of ratios from 2019 to 2020

Profitability Ratios

Net profit margin decreased from 0.125 in 2019 to 0.075 in 2020, a reduction of 40%. This decline was driven by a drop in net profit from $75,000 to $45,000, while net sales declined from $600,000 to $600,000, reflecting lower sales volume and increased promotional discounts due to COVID-19 restrictions. The reduced gross profit margin from 50% to 45% further illustrates increased costs and lower sales prices during the pandemic period.

Liquidity Ratios

The current ratio fell from 2.5 in 2019 to 1.8 in 2020, indicating reduced short-term liquidity. The working capital also decreased correspondingly. The cash ratio, a more stringent liquidity measure, declined from 1.2 to 0.8, pointing toward cash flow challenges. These changes reflect difficulties in meeting immediate liabilities during the pandemic.

Financial Stability Ratios

The debt ratio increased slightly from 0.4 in 2019 to 0.45 in 2020, suggesting a marginal rise in leverage as the company relied more on debt to fund operations. The debt to equity ratio similarly increased from 0.67 to 0.81, indicating a higher proportion of debt relative to shareholders' equity. These shifts might be interpreted as strategic borrowing to maintain liquidity amid declining revenues.

Operational Ratios

Turnover ratios such as total asset turnover remained steady at 0.6, highlighting consistent asset utilization. Accounts receivable turnover decreased slightly, indicating a lengthening of collection periods possibly due to customers experiencing financial difficulties during the pandemic. Inventory turnover also declined, reflecting slower sales and increased stock retention.

Discussion and Explanations

The notable decline in profitability ratios coincides with reduced sales volumes and increased promotional discounts as part of our COVID-19 response. The pressure on margins was compounded by rising operating costs, such as enhanced sanitation and health measures. The liquidity ratios’ deterioration reflects the declining cash inflows, necessitating strategic borrowing and cost control measures. The modest increase in leverage indicates a cautious approach to debt, aimed at maintaining operational continuity without overly risking financial stability. Asset efficiency remained unaffected, which suggests that operational management retained its effectiveness despite the external shocks.

Conclusion and Recommendations

Overall, XYZ Pizzeria faced significant challenges during 2020 due to the COVID-19 pandemic, resulting in decreased profits, strained liquidity, and increased leverage. The primary drivers were reduced sales volume and higher operating costs. To improve future financial stability, we recommend implementing more robust liquidity management strategies, such as maintaining higher cash reserves and optimizing inventory turnover. Diversifying revenue streams, enhancing digital engagement, and exploring more flexible supply chain arrangements could mitigate similar disruptions in the future.

Additionally, strategic cost reductions and targeted marketing campaigns should be prioritized to restore profitability. The ability to adapt quickly to changing market conditions will be vital in ensuring the company’s resilience and sustainable growth post-pandemic. Continued monitoring of financial ratios will inform management decisions and help target areas for operational improvements.

References

  • Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management. 14th Edition. Cengage Learning.
  • Gibson, C. H. (2017). Financial Reporting and Analysis. Cengage Learning.
  • Higgins, R. C. (2018). Analysis for Financial Management. McGraw-Hill Education.
  • Harrison, J. S., & Horngren, C. T. (2014). Financial Accounting. Pearson Education.
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2019). Corporate Finance. 12th Edition. McGraw-Hill.
  • Damodaran, A. (2015). Applied Corporate Finance. 4th Edition. Wiley.
  • Chen, H., & Barrett, R. (2020). Financial Ratio Analysis and COVID-19 Impact. Journal of Business Finance, 45(3), 245-260.
  • Black, B. S., & Gärtner, M. (2021). Managing Financial Ratios during a Pandemic: Strategies for Small Businesses. International Journal of Financial Studies, 9(2), 17.
  • Thompson, A. A., Peteraf, M. A., Gamble, J. E., & Strickland, A. J. (2018). Crafting and Executing Strategy: The Quest for Competitive Advantage. McGraw-Hill Education.
  • Australian Securities and Investments Commission (ASIC). (2021). Financial Reporting and Analysis Guidelines. ASIC Publications.

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