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Introduction : Manage organisational finances
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Cash flow analysis and budget variance are the financial roadmaps of a company. This report shed light on analyzing the financial report of Houzit Pty Ltd. Proper discussion of the various terms in financial statements is calculated in this report. These financial statements are helped the investors and the shareholders to invest their money. In this financial report, the company of Houzit Pty Ltd find out various types of issues and identifies the variance results. Furthermore, certain suggestions have been provided with help of these suggestions the company can earn more profit.
Issues find in this case study:
Insufficient cash flow amounts are the vital issue found in the case study. Cash flow is a type of amount which is always come and go for a business account. Insufficient cash flow affects the Companies’ financial health (Abdukarimovich, 2020). If the company cash flow account more cash is always out in the business account more than cash into the business account, then the financial managers of the company need to boost their company's cash flow.
Businesses or any kind of organization make more profit by properly utilizing their budget figures. In the company Houzit Pty Ltd, there was more lack of values by comparing the values with the actual values expenses by the company. If this was happening more over time the company cannot gain more profit for the future accounting year.
Unexpected expenses of the company Houzit Pty Ltd are increasing this was created an unfavorable financial situation for the company. Company financial experts make enough sufficient budget for a company, but increasing unnecessary expenses will make the company’s financial health weak. If the company's financial condition is not well then, the investors are not wanted to invest their valuable money in this company.
Actual amount and Budget variance
Comparing actual results to the budgeted values
The company budgeted their sales amount of 5000000 and their actual sales value was 3371200, there was a huge difference in this sales figure. It is an unfavorable condition for this Houzit Pvt Ltd. Houzit ltd budgeted their cost of goods sold value was 2400000 but in this quarter the cost of goods sold value was 141590400. There were 45.54 per cent changes in this cost of goods sold variance. The budgeting amount of accounting fees was 3000 and the actual cost of the accounting fees was 2500. The variance of this accounting cost is 16.67 per cent. Fewer amount expenses for the purpose of accounting costs are a favorable condition for Houzit Pty Ltd.
The company allocated their interest expenses value is 30000 but the actual expenses in the regard of interest are 28150. Fewer amount expenses for the purpose of interest expenses are a favorable condition for Houzit Pty Ltd. The company budgeted their deprivation charges for this quarter as 30000 but this quarter the actual depreciation charges are 42500. Huge difference in the values of actual and budgeted values. The Variance of the depreciation charges is 41.67 per cent. It is an unfavorable condition for this company.
For the purpose of the Gross profit ratio percentage, the company budgeted the amount of 52 per cent but due to some unknown reason, the gross profit ratio percentage is decreased and this quarter the current value is 42 per cent. The variance percentage regarding the gross profit ratio purpose is 19 per cent. The decreasing value of the company Houzit Pty Ltd made an unfavorable condition for the company. The company financial experts budgeted the total expenses for the company in this specified quarter are 862500 but due to some unknown reason and also the unnecessary expenses make the cost of total expenses value is increasing and values increased by 548072, therefore in this quarter, the actual cost for total expense purposes is 1410572. The variance percentage regarding the luxury car purpose is 63 per cent. The increasing value of total expenses cost also made an unfavorable condition for the company.
company financial performances
comparing financial performances
In this quarter comparing the budgeted value and the actual value there was a huge difference in this comparison. Various types of expenses cost more than the budgeted value (Tecle, and Perez-Verdin, 2018). The gross profit percentage for this company is 42 per cent. It was a closer percentage to the required Gross profit percentages. The required value of a profitable company's gross profit percentage is 42.5 per cent. The financial experts of the company Houzit Pty Ltd are ensured that their gross profit percentage will be increased in the future day. The higher authority of the company Houzit Pty Ltd expected that this quarter the gross profit percentage will be 52 per cent but due to some unnecessary expenses, the company cannot fulfill their budget gross profit percentage.
Responding to the performances
The net profit percentage of the company Houzit Pty Ltd is not well, in this quarter the net profit percentage for the company is 11.2 per cent. Due to the expenses, the company can not earn more profit. The company budgeted their wages and salaries for the company was 420000 but this quarter the company expenses 410500 amount for their wages and salary purpose. For the purpose of Luxury cars, the company budgeted the amount of 10000 but due to some unknown reason, the cost of luxury cars value is increasing and values increased by 2000 therefore in this quarter, the actual cost for luxury cars purposes is 12000. The variance percentage regarding the luxury car purpose is 20 per cent. The increasing value of luxury cars made an unfavorable condition for the company. The company financial experts budgeted the telephone cost as 3000 but due to some unknown reason, the cost of telephone charges value is increasing and values increased by 100, therefore in this quarter, the actual cost for telephone cost purposes is 3100. The variance percentage regarding the luxury car purpose is 3 per cent. The slightly increasing value of telephone charges cost also made an unfavorable condition for the company. For the purpose of cleaning charges for the required company, the financial experts of the company budgeted the amount of 4000 but due to some unknown reason, the cost of cleaning charges values are decreasing by 675, therefore in this quarter, the actual cost for cleaning charges purposes is 3325.
The variance percentage regarding the cleaning charge purpose is 16 per cent. The decreasing value of cleaning charges made a favorable condition for the company. The financial experts of the company budgeted the repairing and maintenance cost for the company for this quarter are 20000 but in this quarter the company needs only 16150 moneys for this repair and maintenance cost. The variance of the repair and maintenance cost is 19 per cent. The decreasing value of repair and maintenance costs made a favorable condition for the company. If the company manage the expenses regarding the repair and maintenance costs this will help the owners and also the partners of the company to gain more profit. Fewer expenses the purpose of repair and maintenance costs made a great impact on the company income statement and also the cash flow statement.
Average debtor days:
In this above figure evaluate the average debtors’ days for the company Houzit Pty Ltd. In the year 2009/10 the debtors of the company were 152635 and this year the sales of the company were 3210256. The next year 2010/11 the trade debtors' values in the company Houzit Pty Ltd was 741664 and in this year the total sales value of the company was 3371200. This year the company required debtor days to be 5 days. The debtors of this company fulfil their amount within 5 days. In the year 2011/12 the trade debtors' values in the company were 336259 and this year the total sales of this company were 6000000. This year the total debtors' days are 18 days.
Recommendation for better performance of Houzit Ltd
(i) Outline the recommendations
It is suggested to the company that the company can manage their inventory system better in comparing this financial statement. If the company has a production house which is full of the product material, then the company should reduce their cash flow amount (Afiezan et al. 2020). By doing this the company have more money in their cash flow account. Company financial experts should check the cash flow statement on a weekly basis. Proper cash flow analysis on a weekly basis will help the company to find out their sales and purchase values on weekly basis. The company Houzit Pty Ltd. easily finds out their total debtors' and creditors' value without any kind of issues.
For the purpose of marketing and advertising social media plays a major role in this advertising. The company Houzit Pty Ltd can use the online portal to advertise their company. It was a less expensive advertising strategy compared the advertising through man to man. In this process, the company opens a website, and regularly posts its updates and its products. If the company launches their new products on social media platform it can attract more customers for choosing the company. The customer circle of the company is getting increase day by the day. A company earns more profit by advertising its products on social media.
Re-visiting the company budget
The company financial experts should make an extra look at the costs of the company, they will take care of the process that how should reduce the cost of the company. For reducing the cost of the company, the financial experts must find where the expenses are happening (Arnold and Artz,2019). In the process of cost-cutting, the company's financial experts can control an efficient place of the company. Always keep waiting until the next new billing cycle is starting. Many manufacturing thoughts will be provided to the business or the company owners during this time. The business needs to be periodically reviewed by the company's financial experts, by doing this revisiting budget are help the experts to wisely prepare the company budget (Danesh et al. 2022). The experts can publish a calendar regarding the planning of the company's financial budget. This budget calendar will help the company owners in various ways and the owners are ensured by the investors of this company that the company will perform better in the future days. The company managers are suggested that always give a chance to the new retailer. Performing this kind of session will help the company to get far better products. The company is able to make new products for its customer circle.
Summary
The above reports are regarding the financial statements of the company Houzit Pty Ltd. Briefly analyses the values of their budgeted value and actual cost value. At the start of any financial year, the company's financial experts are made a budget variance including various types of costs for the company (Kamaluddin et al. 2019). In this budget, the company allocated enough amounts for the company expenses but somehow, the expenses of the companies may be more than the budgeted value. If the actual expense values are more than the company budget values it makes an unfavorable condition for the company. A small recommendation for the company financial experts and also the company managers are also discussed in this above report. If the company's higher authority will follow the recommended suggestion, then the total earnings of the company get better day by day.
Conclusion
Preparing budget variance helps the company's financial managers to decide where need to expenses more money and where there is no need to expense. Budget analyzing helps the company to secure a lumpsum amount for any kind of company emergency. The analysis of the company debtor’s turnover ratio and the gross profit margin ratio will help the company to upgrade the company's profit scale.
References:
Abdukarimovich, O.A., 2020. Budget organizations formation and improving accounting for out-of-budget budgets. International Journal of Advanced Science and Technology, 29(8), pp.11-16.
Afiezan, A., Wijaya, G. and Claudia, C., 2020. The Effect of Free Cash Flow, Company Size, Profitability and Liquidity on Debt Policy for Manufacturing Companies Listed on IDX in 2016-2019 Periods. Budapest International Research and Critics Institute-Journal (BIRCI-Journal) Vol, 3(4), pp.4005-4018.
Arnold, M. and Artz, M., 2019. The use of a single budget or separate budgets for planning and performance evaluation. Accounting, organizations and society, 73, pp.50-67.
Danesh, E., Saeedi, A., Rahmani Nia, E. and Gholami, A., 2022. Cash flow forecasting using Continuous-Time Stochastic Processes. ?Journal of Financial Management Perspective, 12(37).
Kamaluddin, A., Ishak, N. and Mohammed, N.F., 2019. Financial distress prediction through cash flow ratios analysis. International Journal of Financial Research, 10(3), pp.63-76.
Mujennah, M., Artinah, B. and Safriansyah, S., 2019. Performance-based budgeting as surveillance for the accountability of local governments. Asia Proceedings of Social Sciences, 4(3), pp.125-128.
Tecle, A. and Perez-Verdin, G., 2018. Analytic hierarchy process application for multiple purpose forest resources management budget allocation in Durango, Mexico. International Journal of the Analytic Hierarchy Process, 10(1).
