Category Archives: Financial Consulting

Profit & Loss, Balance Sheet, Cash Flow Statements, Cash Flow Projections, Business Plan Financials

Article Writing and Blogs, Financial Consulting

FINANCIAL RATIOS

Ratio Analyses is a tool used to measure the performance of a company based on the information provided in the financial statements. The results are compared against other companies in the industry, the industry in general or any predetermined targets set for the company. Ratios are also useful in tracking movements or trends in the financial data that could signify that critical changes in the company’s operations may be needed.

The following are the most frequently used financial ratios and the related calculations.  A very brief analysis is included to help in understanding how the ratios may be interpreted.

  1. Operating Profit Margin:

This is a profitability ratio that examines the company’s operating performance at a basic level. What is an acceptable profit margin will depend on the industry, the other players in the market and the company’s objectives.

Example:

Year ended Year Ended
   Mar 31, 2015 31-Mar-14
Operating Profit Margin: 17.04% 8.50%
 (Profit before tax and Other Income ÷ Total Revenue)    
Profit before tax and Other Income 40,283          19,462
Total Revenue 236,355  

228,936

The operating profit margin for Y/E March 2015 is higher than 2014 due to significantly higher earnings and higher total revenue.  This implies that the expenses for the current year are significantly lower than in 2014.

 2. Net Profit Margin:

This ratio seeks to measures the profitability of the company’s operations for every dollar’s worth of revenue and/or income it earns.

Example:

Year ended Year Ended
  31-Mar-15 31-Mar-14
Net Profit Margin 17.32% 9.71%
(Profit after tax ÷ Total Income)    
Profit after tax 45,877          22,895
Total Income (Revenue + Other Income) 264,888 235,807

The net profit margin for 2015 increased over that of 2014 resulting from a reduction in overall expenditure in 2015.  This margin is well above industry performance and in line with the company’s expectations based on promotion and expansion efforts put in place in 2014

  1. Return on Assets:

This ratio seeks identify how effectively the company in utilising its total assets in order to generate revenue, and therefore profit for the business.

Example:

Year ended Year Ended
  31-Mar-15 31-Mar-14
Return on Assets 5.44% 0.31%
(Profit after tax ÷ Total Assets)    
Profit after tax 45,877           2,290
Total Assets 842,621 728,214

The Return on Assets for 2015 increased significantly over prior year as a result of reduction in operational expenditure.   Again the activities undertaken in 2014 may be bearing fruit, possibly the closure of a loss making unit or the acquisition of a profit making one.

  1. Return on Equity:

Here we are looking at the interest of the shareholders what they can expect to gain from their investment in the business. Shareholders usually benchmark their expected return based on say, industry practices or maybe government bond rates.

Example:

Year ended Year Ended
  31-Mar-15 31-Mar-14
Return on Equity 8.31% 0.42%
(Profit after tax ÷ Total Shareholders’ Equity)    
Profit after tax 45,877           2,290
Total Shareholders’ Equity 552,024 547,436

The Return on Equity for 2015 increased dramatically over that of 2014 due mainly to significant increase in profitability.  The performance may still be well below industry results and the company will need to consider what, if any, actions need to be taken.

  1. Current Ratio:

This ratio measure how many times total current assets will cover (or take care of) total current liabilities.  Industry best practice suggests that a minimum ratio of 2 times is generally acceptable.

Example:

Year ended Year Ended
  31-Mar-15 31-Mar-14
Current Ratio 2.12 times 2.85 times
(Current Assets ÷ Current liabilities)    
Current Assets 581,761 469,073
Current Liabilities 274,148 164,328
Working Capital (Current Assets less Current Liabilities ) 307,613 304,744

The Current Ratio is higher than the generally accepted minimum ratio of 2 times, which implies that the company is more than capable of meeting its short term/current liabilities from its current assets.

  1. Quick (Acid Test) Ratio:

This ratio is derived from the Current Ratio in that, only liquid (can be easily converted to cash) or near liquid current assets), and “true” current liabilities (excluding things like deferred income) are only considered. A minimum ratio of 1 time is generally accepted by most companies.

Example:

Year ended Year Ended
  31-Mar-15 31-Mar-14
Quick (Acid Test) Ratio 11.58 times 9.30 times
(Liquid Assets ÷ “True” Current liabilities)    
Liquid Assets (Cash & short-term investments) 513,369 421,881
“True” Current Liabilities 44,351 40,747

The Quick (Acid Test) Ratio  more than exceeds the minimum acceptable ratio of 1 time (numerous times over),

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Financial Consulting

How to give your Bookkeeper access to your Xero

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To add an accountant or bookkeeper to your Xero organization is quite simple once you know the steps.

Follow the instructions below to add any user to your Xero account:

  1. Login to Xero.
  2. Click your organization name to the top left of your screen.
  3. Click My Xero.
  4. Under the Organisations header, and under the Access column click the blue link.
  5. A warning screen window will appear and be sure to click Manage user access for [your organization name] (don’t click Remove my access to this organisation).
  6. Click Invite a user.
  7. Enter your accountants or bookkeepers first name, last name and email address and choose an appropriate role (this is often the role of Adviserfor accountants and bookkeepers).
  8. Click the Continue button.
  9. Check the email contents that will be sent to the new user and send the invite.

Once your accountant or bookkeeper clicks the confirmation link then they’ll be able to access your organisation in Xero.

Add me as your accountant/bookkeeper and lets get your books in order.
Name: Merine Tulloch
Email:merine.tulloch@gmail.com


Article Writing and Blogs, Financial Consulting

TRACKING YOUR ACCOUNTS PAYABLE

16 Comments

By Merine Tulloch, FCCA

A business that is allowed to accept goods from suppliers before paying for them need to keep very accurate accounting of their payables.  Here, I have provided instructions on how to make your own Excel template that will help you do just that.

  • Why Accounts Payable (A/P) Tracking

When your suppliers  allow you to open a credit account and you purchase from many vendors, how can you know your true accounts payables (A/P) and to which supplier?  Without a proper tracking system, chances are you won’t, and when these credit accounts become due for payment, you’ll be searching for the invoices if you don’t have a good tracking system. Also, at month end you will be spending a lot of time trying to figure out the right expense account to allocate the disbursement to.

To help you appreciate accounts payable cycle, please see below snapshot of an accounts payable template in a Microsoft Excel format that can be utilized as a model for your A/P tracking.

  • The A/P Ledger at a glance

On the screenshot, to the right you can see an accounts payable ledger that keeps track of each vendor, all the transactions done with this vendor, ending balances for each vendor, and total overall accounts payable balances for all vendors.

Almost all accounting software programs will allow you to set up vendors (your suppliers) and the expense accounts connected with those services or supplies that you acquire from them.

Tracking your own accounts payable can be easily done, even if you are without an accounting software program that carries the accounts payable module.

Accounts payable-April 9, 2015

REMEMBER THAT THE ACCOUNTS PAYABLE BALANCE IS USUALLY A CREDIT BALANCE IN THE GENERAL LEDGER.

Here are some steps in using the accounts payable template provided-

  • Collect all Invoices – First, batch all invoices for the month by credit supplier.
  • Update Invoices – Next, you update each supplier with details from the invoices. This is posting in the accounts payables due. You debit the expense account (e.g. office supplies) and credit your accounts payable account. This entry to accounts payables will allow you keep a running total of what is owed to each vendor.
  • Pay the Vendor – When you make payment to your credit accounts, the cash in bank account is credited and your accounts payable account is debited.  Please note that this spreadsheet allows you to keep track of what is owed after each entry.  It is very easy to insert a row if more is needed for that supplier.
  • Subtotals – This accounts payable spreadsheet allows total for each vendor and gives a quick overall glance as to total accounts payable.  It can be sorted by date and be maintained to provide an annual or a Year-to-Date position.

Where a business buys goods and services on credit it is imperative that accurate records of the accounts payable are kept in order to ensure that payments are made on time. This also allows for confidence in the reports generated from the monthly Balance Sheet.  Finally, when you enter information for the credit suppliers and the corresponding entry is made to the expense account it allows for quick and efficient cross checking and accurate capture of the business activities.

© Merine Tulloch -2015
All Rights Reserved
No part of this website or any of its contents may be reproduced, copied, modified or adapted, without the prior written consent of the author, unless otherwise indicated for stand-alone materials.

You may share this website by any of the following means:
1. Using any of the share icons at the bottom of each page

  1. Providing a back-link or the URL of the content you wish to disseminate; and
  2. You may quote extracts from the website with attribution to www.merinetulloch.com For any other mode of sharing, please contact the author at the email: merine.tulloch@yahoo.com

Commercial use and distribution of the contents of the website is not allowed without express and prior written consent of the author.

Article Writing and Blogs, Financial Consulting

Philanthropy-The Power of Charitable Giving

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By Merine Tulloch,FCCA

One of the fastest growing sectors in the United States is that of Tax exempt organizations. Currently there are close to a two million non-profit organisations with more being created each year. This has brought the fierce competition for donations into focus and yet most of us give very little thought to philanthropy.

Of all our financial activities, philanthropy is often the least considered and very ad-hoc.  We are aware that contribution to charity saves us on taxes but we never usually ask how we can maximise this tax benefit.

Philanthropy is a very potent and effective tool.  With well-planned giving you can make changes in the areas that you have strong interest in, teach wisdom and values to your community and invariably leave a legacy that will continue to influence others. The more thought and effort you put into philanthropy, the more rewarding it will be financially, socially and emotionally.

Here are some guidelines that you can follow in making sure that your philanthropy is effective and powerful.

  1. Get the facts straight about your finances. The main reason why most people don’t give more is due to lack of information. They basically do not know how much money is available and are therefore unsure of how much they can give. This can be overcome through conducting detailed financial planning with the assistance of an advisor.
  2. Review your finances regularly. Here four simple, but smart rules that you can follow:
    1. Invest wisely
    2. Spend less
    3. Save more
    4. Give generously

Be sure not to overdo the last rule else there no funds for the first.

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  1. Make good use of professionals. Charitable giving can be rather complex when figuring out the legal requirements and financial benefits, so it is better not to try doing on your own. You need the services of an attorney, a financial advisor, an estate planner or an accountant. Just ensure that they are of good repute.  It is common knowledge that many people do not include charitable donations in their will, so feel free to raise it at your next professional consultation.
  2. Include the entire family. You can use philanthropy to teach children about goals, managing their money and ethical and moral values.
  3. Consider posterity. The philanthropy you practice will leave a lasting effect on your community and the organisations that you sponsored. Recognition may be as simple as a memorial plaque or as complex as a perpetual scholarship. The charity that you will be remembered for should reflect your values. Bear in mind that the most influential philanthropist are not necessarily the ones with the highest net worth, but usually those that are financially aware, confident and passionate about their cause.

Philanthropy is powerful when thoughtful focus is placed on an activity that you feel strongly about.  This allows others to be influenced by your ideals and as they buy into it and contribute, it can literally change the world.

© Merine Tulloch -2015
All Rights Reserved
No part of this website or any of its contents may be reproduced, copied, modified or adapted, without the prior written consent of the author, unless otherwise indicated for stand-alone materials.

You may share this website by any of the following means:
1. Using any of the share icons at the bottom of each page

  1. Providing a back-link or the URL of the content you wish to disseminate; and
  2. You may quote extracts from the website with attribution to www.merinetulloch.com.
  3. For any other mode of sharing, please contact the author at the email: merine.tulloch@yahoo.com

Commercial use and distribution of the contents of the website is not allowed without express and prior written consent of the author.

Financial Consulting

Creating Your Own Accounts Payable Spreadsheet

16 Comments

By: Merine Tulloch, FCCA

Keeping track of your accounts receivable is vital, since you need funds to make sure that your business remains in operation.  Not giving your payables the same level of vigilance will result in excess debt and penalties, damaged credit and possibly the lack of supplies to carry on your business. You can monitor accounts payable by creating an accounts payable aging file in a spreadsheet application.  This will assist in figuring out which bills are to be paid first as well as how many bills are past due and by how long.

Step 1

Open your spreadsheet application such as OpenOffice, Microsoft Excel or Google Spreadsheets.  Make sure that this is a new, blank spreadsheet. You may insert a page header and give it a title such as “Accounts Payable Aging.”

Step 2

Use the first row at the top of your spreadsheet as your header row and name the columns from left to right.  The first column is “Vendor” or “Supplier”, then name the next four columns as “Last Invoice Date”, “Last Payment Date”, “Last Payment Amount” and “Reference/Check#”.

Related Reading: Accounts Payable Ledger

Step 3

Name the next four columns as follows “0-30 Days”, “31-60 Days”, “61-90 Days” and “Over 90 Days”.  Based on the invoice date, the vendors balance will fall into one of these columns and therefore will help you determine which bills are past due should be given priority.

Step 4

Name the next column “Total Invoices.”  The figure in this column is the sum total of all invoices regardless of which period they fall in.  The formula might be, “ =G2+H2+I2+J” or “=SUM(H3:J3).”

Step 5

The next column “Total Due/Owed” will provide information on the amount due to the supplier.  To arrive at this figure the formula is “Total Invoices” minus “Total Payments to Date” or “=+K3-E3”.

Step 6

The bottom row of the spreadsheet will display the Total of each column.  Enter the formula to add each column separately.  You will be able to see at glance how much is payable for each period and the total overall accounts payable.   Please see sample below.

SAVE THE SPREADSHEET.

Accounts Payable Aging-April 2015

Update the information on a weekly or monthly basis with new purchases or payments made.  You may also create a new worksheet for each month and track the activity in a single workbook if the spreadsheet application that you are using allows it.  All that you would need to do is copy over the report in to a new spreadsheet and update the aging position as needed.  You can name the bottom of each worksheet as you go along.

© Merine Tulloch -2015
All Rights Reserved
No part of this website or any of its contents may be reproduced, copied, modified or adapted, without the prior written consent of the author, unless otherwise indicated for stand-alone materials.

You may share this website by any of the following means:
1. Using any of the share icons at the bottom of each page

  1. Providing a back-link or the URL of the content you wish to disseminate; and
  2. You may quote extracts from the website with attribution to www.merinetulloch.comFor any other mode of sharing, please contact the author at the email: merine.tulloch@yahoo.com

Commercial use and distribution of the contents of the website is not allowed without express and prior written consent of the author.

Financial Consulting

Welcome

12 Comments

Hello

I am Merine Tulloch, a Certified Chartered Accountant with more than twenty years of experience in the field and I now offer my services as a freelancer.   I am experienced in using Quickbooks, MYOB and ACCPAC accounting software, but I also prepare Financials Statements (Bookkeeping Services, Balance Sheet, Profit & Loss and Cash Flow) using spreadsheets.

I love to read and am quite proficient at Proofreading, editing, article/ blog writing and book reviews.  This site is about all of this and much more.  I am sure you will find the professional help you are looking for and have some fun shopping with my affiliates.