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Financial Analysis for Managers

Knickknack Division performed well financially in 2005. The division achieved higher returns than budgeted with a Return on Investment of 29% compared to the approved budget of 25%. Sally, the General Manager of Knickknack, showed positive performance and should receive her agreed bonus. Additional information is needed on leverage and liquidity ratios like long term debt, short term debt, cash, and shareholder's equity for a more comprehensive evaluation of Knickknack's results.

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1K views7 pages

Financial Analysis for Managers

Knickknack Division performed well financially in 2005. The division achieved higher returns than budgeted with a Return on Investment of 29% compared to the approved budget of 25%. Sally, the General Manager of Knickknack, showed positive performance and should receive her agreed bonus. Additional information is needed on leverage and liquidity ratios like long term debt, short term debt, cash, and shareholder's equity for a more comprehensive evaluation of Knickknack's results.

Uploaded by

jhadarshna
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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KNICKKNACK: CASE STUDY

CLASS: RED
TEAM: 11

TEAM MEMBERS:

ANCHAL CHELLANI
POOJA KANKRECHA
SHUBHIKA MALHOTRA
SHIVANGI RATRA
SHREYA BAJPAI
ANMOL
Q1. ANALYSIS OF KNICKKNACK’S
RESULTS: 2005 (PART A)
Particulars Actual Approved Budget
Return on Investment 29% 25%
(Income/Investment)
Return on Sales 51.2% 46%
(Operating profit/Sales) (921/1800*100) (920/2000*100)
Asset Turnover Ratio 57.14% 54.35%
(Sales/ Assets) (1800/3150*100) (2000/3680*100)
Working Capital Ratio 1.2 2
(Currents Assets/Current
Liabilities)

It is evident from the information above that


Kniccnack Division has been able to perform well financially.
Q1. ANALYSIS OF KNICKKNACK’S
RESULTS: 2005 (PART B)
Particulars Actual Approved Variance
(thousands of Budget (thousands of
dollars) (thousands of dollars)
dollars)
Sales 1800 2000 200(U)

Variable Cost 586 640 54(U)

Contribution 1214 1360 146(U)

Contribution margin 67.44% 68% Marginal decrease


Q2. JUDGEMENT: SALLY’S WORK
IN KNICKKNACK DIVISION
(POSITIVE OR NEGATIVE) (PART A)
Method used by Corporate Managers to evaluate division’s performance is the Return
on Investment (ROI)

Budgeted ROI was 25% and Sally’s Division was able to achieve an ROI of 29%, which is
an increment of 4%

Therefore, since
 Sally has been able to achieve a higher ROI than she budgeted for
 And there has been sufficient growth,
We conclude a Positive Judgement for her work as the General Manager of
Knickknac.
Q2. JUDGEMENT: SALLY’S WORK IN
KNICKKNACK DIVISION
(POSITIVE OR NEGATIVE) (PART B)
Additionally,
A. Actual Operating Income > Budgeted Operating Income
$ 921,000 > $ 920,000
Implies a Variance of 1,000 (Favorable)
B. Actual Fixed Costs < Budgeted Fixed Costs
$ 879,000 < $ 10,80,000
Implies a Variance of $ 2,01,000 (Favorable)

Therefore, Kniccnack Division has been able to perform well financially.


Q3. WILL WE ASSIGN THE AGREED
BONUS TO SALLY?

We would assign the agreed Bonus to Sally since her division’s economic performance
has been exemplary in 2005.

She has been able to achieve a significant increase of 4% in the Return on Investment
and a $ 1,000 increase in Operating Income
Q4. FOR BETTER EVALUATION OF
KNICKKNACK’S RESULTS: ADDITIONAL
INFORMATION REQUIREMENT
Basis of comparative analysis of Budget with Actual figures mainly comprise of 3 main
elements:
1. Profitability
2. Leverage
3. Liquidity

The information for Leverage and Liquidity ratios are missing. Mainly, Long term debt, short
term debt, cash and shareholder’s fund

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