Accounting
Net Profit Formular
Net Profit / Net Sales x100
Gross Profit Formular
Gross Profit / Net sales x100
Rate on Owners Equity Formular
Net Proft / Avg Owner Equity x 100
Turnover of Inventories Formular
COGS / Avg Inventories
Turnover of Acounts Recievable Formular
Net credit sales / Avg Accounts Recievable
Net Profit what does it reveal?
Reveals how the business is growing in equity
Net Profit illistrates
the amount of money available to cover its costs, higher it is the more money can be invested back into the business.
if there is a net loss and not a net proft
A Net Loss, which reveals that the business is in debt
Stratergies to improve net profit
- Increase sales revenue (selling techniques, prices) which reduces expenses and results in the improvment of controls and conduct audit.
Gross Profit if number is low
there will be insufficient funds to pay for the expenses (wages, electrity) and business may experience a net loss instead of a net profit
If Gross Profit is high
business can cover all its expenses and a net profit can occur
Straterrgies to improve Gross Profit
- increase sale price of goods this aims to increase sales
- reduce costs as consumers aim is to pay the lowest price
if rate of Owner's Equity is low
the owner may derive more benefits from investing in other options and may indicate insufficient management policies
if Rate of OE is high
a sound investment choice and indicates efficency
Stratergies for ROE
- increase the businesses net profit, to achieve this is to increase revenue and decrease expenses
Turnover of Inventories shows
how quickly prodcuts are being sold
Turnover of Inv low
when the number is low its benefical for the business as this means that when the days are less it means that they are turning over more requently
If TOI is high
this measn there are slow moving inventories, so inventories arent moving out of the store
Stratergies to imrpove TOI
- improve better internal controls to increase turnover rate and liquidity
- remove items that are not selling
- sell more inventories through targetting customers(advertisment)
Turnover of Accounts Revcievable relates to
how quickly debts are recovered
TOAR is high
means cash flow isnt efficient / credit policy is not being implemented which can lead to bad debts and less cash for the business
TOAR is low
business has effective credit policy and is recieving nessesary cash to use withihin the business and bad debts are kept to a minimum
internal controls why its cruicial
its crucial for any business that wants to make sure its operations are not only efficeint but also meet certain ethical standards
Internal controls
are accounting and auditing processes used in companies finance departments hat ensure the intergrity of finance reporting and regualroty compliance
Internal controls helps
companies to comply within laws and regulations and to prevent fraud
Segregation of duties
intended to minimise errors and frauds. ensure that no employeew has the ability to both perptrate and conceal areas (seperate different activites and individuals)
documentation procedures
methods by which documentation is created, stroed, approved etc. (evidence xample reciepts, are recorded and numbered)
human reasources control
that focuses on employees (background checks, vacations, rotate and seperate regulating, bonding'teams' insurance)
Recomendations
1. review suppliers of inventories - is the product still in demand, changing the selling price, selling stragery will result in better price and higher profits.
2. Reduce errors ie fraud - check the internal controls of assets such as cash and inentories ensuring tighter controls over assets such as bank reconciliation and assets being kept safe will reduce waste and therfore maintain profits.
3. Continuing to maintain investing into the business and review regulary - consider selling if the ROI is lower then the interest rate. The busines should ensure that the startergies have time to improve the profitbaility and liquidity with higher controls over assets