Contemporary environmental accounting: issues, concepts, and practice
It is a re-engineering process which enhances the chances of performances of the business in any industry. It focuses to ensure that businesses are run as expected and that it manages to meet all its expenses and manages to have positive cash flows. Additionally, it establishes areas of improvement and ways in which an organization can ensure that all things are running according to the expectation of the organization (Abdallah, 2014). Business analysis also determines the ability of the business venture into other industries and enhances the essence of cultivating your procedures. To investigate business systems taking a holistic view of the situation, evaluate actions to improve the operations of business systems and enhance the business performances in the business world. Business analysis tries to analyze all costs who tries to ensure that all PESTLE and Porter’s Five Forces that help business stick to the industrial operation. Understanding the political, economic, social, technological factors in the economic world while Porter’s five forces include the supplier bargaining power, buyer bargaining power and the power of substitutes (Andrews, 2015). The business should be able to understand the customers better and its working world. Understanding the business information helps the business make informed decisions in everything it does and ensures that information is well synthesized and analyzed to deliver information that makes sense to the final user of the information (Brigham, 2016). In conducting business analysis the organization needs to get oriented with the business, identify the business processes, identify the business primary objectives, define scope, create a business plan, define the material requirements, support technical preparation, and help the firm apply the recommendations and finally adding value to the organization.
|
Capital Requirements for the Business |
|||
|
Fixed Costs |
Prices |
||
|
computer/website check up |
$ 150.00 |
$ 150.00 |
$ 150.00 |
|
internet |
$ 360.00 |
$ 360.00 |
$ 360.00 |
|
computer |
$ 2,100.00 |
$ 2,100.00 |
$ 2,100.00 |
|
insurance |
$ 100.00 |
$ 100.00 |
$ 100.00 |
|
technical installations |
$ 200.00 |
||
|
furniture |
$ 1,500.00 |
||
|
storage room |
$ 1,200.00 |
$ 1,200.00 |
$ 1,200.00 |
|
office |
$ 1,500.00 |
$ 1,500.00 |
$ 1,500.00 |
|
Website |
$ 3,000.00 |
||
|
Legal Papers |
$ 3,000.00 |
||
|
Wages |
$ 32,954.74 |
$ 32,954.74 |
$ 32,954.74 |
|
Loan + Interest |
$ 2,664.00 |
$ 2,664.00 |
$ 2,664.00 |
|
Printer & Scanner (2 in 1) |
$ 200.00 |
||
|
Total Fixed Costs |
$ 48,928.74 |
$ 41,028.74 |
$ 41,028.74 |
|
Variable cost |
|||
|
Products |
$ 17,044.74 |
||
|
Marketing and Advertising |
$ 1,800.00 |
$ 1,800.00 |
$ 1,800.00 |
|
Packaging |
$ 400.00 |
||
|
Stationery |
$ 250.00 |
||
|
Total Variable cost |
$ 19,494.74 |
1800 |
$ 1,800.00 |
|
Total Costs |
$ 68,423.48 |
$ 42,828.74 |
$ 42,828.74 |
All costs should be analyzed to ensure that businesses are in a better position to make sure it can be able to track its expenses and ensure that it can match its expenses with its income. For the purpose of determining better ways of mitigating costs. Cost should be tracked and recorded when incurred rather than when expensed based on the kind of accounting principle the business has employed (Brown, 2015). There are quite a number of reasons why cost analysis should be done in an organization to ensure everything as expected. There is various kind of cost that needs analysis. Fixed cost are those costs that do not change over time such as rent, depreciation, electricity bills, water bills and other texts (Chen, 2018). Other variable costs that a business may encounter in its operations include salaries and wages, bonuses, administrative costs and establishment cost just to mention but a few. The process of cost analysis is a continuous process that acts as an internal consultancy activity that business strives to achieve on a daily basis (Christensen, 2015). Cost analysis is key since it helps the firm prepare and evaluate projects, prioritize investments, establish goals and help evaluate whether a project is feasible or not.
In every startup business, it is vital for the pioneers to conduct a demand and revenue estimation to evaluate whether the business will be in a position to generate enough income to cover all the expenses. The business will be in a position to generate cash inflows for the organization in an attempt to ensure that in future that projected cash inflows. Additionally, the business will have the ability to project whether the business is in a position to project when it is likely to break even and to start making a profit. Projections on revenue will be based on the ability of the organization to identify its target customers and identifying a market niche.
|
Account |
Amount |
|
Revenue Year 1 |
$ 58,150.00 |
|
Revenue Year 2 |
$ 73,100.00 |
|
Revenue Year 3 |
$ 73,100.00 |
|
Total |
$ 204,350.00 |
Audit Delay and Its Implication for Fraudulent Financial Reporting
The process of determining the point at which the business will cover all its costs both fixed and variable costs. The point at which marginal revenue and marginal costs are equal is the point at which the firm will start to break even and any extra unit sold should generate the firm profits to the organization. Additionally, breakeven analysis allows a firm to target the amount of profit it wants to generate in a given period of time. Additionally, the analysis helps the business define the contribution margin it wants to make between the prices and variable costs. The difference between the two costs determines at what margin the business should sell its units to cover all its cost in terms of fixed and variable costs.
|
Breakeven Analysis |
Amount |
Contribution Margin |
|
Price |
$ 12.56 |
$ 0.15 |
|
Variable costs |
$ 12.41 |
|
|
Fixed Cost |
$ 48,928.45 |
|
|
Breakeven Units |
326,189.67 |
The breakeven units for the organization will be 326, 189 Units
Financial statements are reports that show how a firm is operating in terms of profit and losses and the statement of financial position will show the number of asset and liabilities the organization how it is effectively using them to generate profit to the organization. The projection for income statement shows the amount of profit the company has made since its inception and its current period of operation. Additionally, it targets to ensure that financial statements projected are tailor-made to serve the purpose they are meant for. Preparation of financial statements is essential to the firm in an attempt to track its spending and the income is generated from what it has and in effect recommend better ways of conducting the business.
|
Capital Requirements for the Business |
|||
|
Year 1 |
Year 2 |
Year 3 |
|
|
Revenue |
$ 58,150.00 |
$ 73,100.00 |
$ 73,100.00 |
|
Fixed Costs |
|||
|
computer/website check up |
$ 150.00 |
$ 150.00 |
$ 150.00 |
|
internet |
$ 360.00 |
$ 360.00 |
$ 360.00 |
|
computer |
$ 2,100.00 |
$ 2,100.00 |
$ 2,100.00 |
|
insurance |
$ 100.00 |
$ 100.00 |
$ 100.00 |
|
technical installations |
$ 200.00 |
||
|
furniture |
$ 1,500.00 |
||
|
storage room |
$ 1,200.00 |
$ 1,200.00 |
$ 1,200.00 |
|
office |
$ 1,500.00 |
$ 1,500.00 |
$ 1,500.00 |
|
Website |
$ 3,000.00 |
||
|
Legal Papers |
$ 3,000.00 |
||
|
Wages |
$ 32,954.74 |
$ 32,954.74 |
$ 32,954.74 |
|
Loan + Interest |
$ 2,664.00 |
$ 2,664.00 |
$ 2,664.00 |
|
Printer & Scanner (2 in 1) |
$ 200.00 |
||
|
Total Fixed Costs |
$ 48,928.74 |
$ 41,028.74 |
$ 41,028.74 |
|
Variable cost |
|||
|
Products |
$ 17,044.74 |
||
|
Marketing and Advertising |
$ 1,800.00 |
$ 1,800.00 |
$ 1,800.00 |
|
Packaging |
$ 400.00 |
||
|
Stationery |
$ 250.00 |
||
|
Total Variable cost |
$ 19,494.74 |
1800 |
$ 1,800.00 |
|
Total Costs |
$ 68,423.48 |
$ 42,828.74 |
$ 42,828.74 |
|
Profit before Depreciation |
-$ 10,273.48 |
$ 30,271.26 |
$ 30,271.26 |
|
Non-current Assets |
Amount |
|
computer |
$ 6,300.00 |
|
furniture |
$ 1,500.00 |
|
storage room |
$ 1,200.00 |
|
office |
$ 1,500.00 |
|
Printer & Scanner (2 in 1) |
$ 200.00 |
|
Total Non-Current Assets |
$ 10,700.00 |
|
Current Assets |
|
|
Stationery |
$ 250 |
|
Legal Paper |
$ 6,005 |
|
Products |
$ 17,045 |
|
Total Assets |
$ 34,000 |
|
Liabilities |
|
|
Bank Loan |
$ 10,000 |
|
Contribution Capital |
$ 24,000.00 |
|
Total |
$ 34,000.00 |
The process of financial feasibility projects the total amount of capital base required by the organization to carry out its business and recommend whether it is feasible to start up the firm with such a capital base or it is not possible to start a business with that amount of finances. After a feasibility of study is conducted the business can go ahead and start up the organization in pursuit to supply services that are customized to meet the needs of the customers in the most efficient manner and within the shortest possible. The capital base dictates the ability of the business to cover all its expenses as they fall due and how easy the firm will be in ensuring its liquid enough to avoid insolvency problems. The section focuses on capital start-up requirements, startup capital sources, and potential returns to the customers. There are various types of feasibility techniques that are key such as payback period, NPV, Return on Investment and return on equity.
|
Fixed Costs |
|||
|
computer/website check up |
$ 150.00 |
$ 150.00 |
$ 150.00 |
|
internet |
$ 360.00 |
$ 360.00 |
$ 360.00 |
|
computer |
$ 2,100.00 |
$ 2,100.00 |
$ 2,100.00 |
|
insurance |
$ 100.00 |
$ 100.00 |
$ 100.00 |
|
technical installations |
$ 200.00 |
||
|
furniture |
$ 1,500.00 |
||
|
storage room |
$ 1,200.00 |
$ 1,200.00 |
$ 1,200.00 |
|
office |
$ 1,500.00 |
$ 1,500.00 |
$ 1,500.00 |
|
Website |
$ 3,000.00 |
||
|
Legal Papers |
$ 3,000.00 |
||
|
Wages |
$ 32,954.74 |
$ 32,954.74 |
$ 32,954.74 |
|
Loan + Interest |
$ 2,664.00 |
$ 2,664.00 |
$ 2,664.00 |
|
Printer & Scanner (2 in 1) |
$ 200.00 |
||
|
Total Fixed Costs |
$ 48,928.74 |
$ 41,028.74 |
$ 41,028.74 |
|
Variable cost |
|||
|
Products |
$ 17,044.74 |
||
|
Marketing and Advertising |
$ 1,800.00 |
$ 1,800.00 |
$ 1,800.00 |
|
Packaging |
$ 400.00 |
||
|
Stationery |
$ 250.00 |
||
|
Total Variable cost |
$ 19,494.74 |
1800 |
$ 1,800.00 |
The total capital requirements for the project in year 1 amount to 68, 423.48
The structures show the types of financing the organization has or tends to employ for it to operate. The capital structure of the firm will be based on debt and equity. Debt borrowed from the bank and equity generated from the owners’ contribution to finance their needs in effect to start the business. The source of the financing will be derived from the shareholders pocket and debt raised from the banks and loaned to the firm at a certain interest rate. The fund will be contributed by the three owners.
|
Capital Structure |
||
|
Debt |
$ 10,000.00 |
|
|
Contributed Capital |
||
|
Owner 1 |
$ 8,000.00 |
|
|
Owner 2 |
$ 8,000.00 |
|
|
Owner 3 |
$ 8,000.00 |
|
|
Total Contribution |
$ 24,000.00 |
|
|
Total Capital |
$ 34,000.00 |
|
Enhancing business performances with business analysis
The cost of capital is calculated by summing up the funding using equity and the cost of funding using debt. When the two are added together a rate of cost of capital is generated that relates to the kind of investment made by the investors.
|
Capital Structure |
||||
|
Debt |
$ 10,000.00 |
|||
|
Contributed Capital |
||||
|
Owner 1 |
$ 8,000.00 |
|||
|
Owner 2 |
$ 8,000.00 |
Proportion of Debt |
0.294117647 |
|
|
Owner 3 |
$ 8,000.00 |
Proportion of Equity |
0.705882353 |
|
|
Total Contribution |
$ 24,000.00 |
Cost of Equity |
21% |
|
|
Total Capital |
$ 34,000.00 |
The statement shows how cash is generated and how it is being spent on three categories of activities. That is operating activities, investing activities and financing activities. Operating relates to the networking capital of the organization involving depreciation and increase or decrease in account receivables and account payables (Cheung, 2016). Investing activities involve purchase and disposal of company assets while financing activities relates to the debt and equity level of the firm it may even involve the dividends paid to the shareholder if any was paid at a particular time. The firm is expected to have a cash flow of approximately $42, 000 annually to cover all its recurrent expenditure.
Scenario analysis arises especially when the business has conducted an analysis and found out that it cannot break even if some unit is sold but it can if one key factor is altered with others remaining constant. The latter gives a projection of factors that can be changed for the business to generate profit in short while. The best would work well and breakeven early enough if it reduces it’s the variable costs.
These are techniques used by the organization to value the firm stock prices especially when the firm is trading at public markets. There is a various model that can be used to evaluate the firm value such NPV models and payback period. The two dictates whether the investor should go ahead and invest in such an industry or firm. The payback period for the firm is approximately 3 years.
|
Payback Period |
Amount |
|
Initial capital requirements |
$ 68,423.48 |
|
Net Income |
$ 30,271.26 |
|
Payback Period |
2.26year |
|
NPV |
|||
|
Year |
PVIF |
PV |
|
|
– |
(68,423.48) |
1 |
(68,423.48) |
|
1 |
(10,273.48) |
0.7042 |
(7,234.58) |
|
2 |
30,271.26 |
0.4959 |
15,011.52 |
|
3 |
30,271.26 |
0.3492 |
10,570.72 |
|
NPV |
(50,075.82) |
The performance metric of these organization will be considered okay when the firm generates a net present value of a positive value. It means that the firm is in a position to make the shareholders happy and content with the running of the business.
|
Return on Assets |
|
|
Net Income |
-$ 10,273.48 |
|
Assets |
$ 34,000 |
|
ROA |
-0.30216349 |
The analysis shows how different ratio is behaving with respect to the competitors or the industrial average. It is important for analysis, monitoring, and conducting the comparison on a vertical and horizontal basis. Most company needs are financed using debts.
|
Debt to Equity Ratio |
|
|
Debt |
$ 10,000.00 |
|
Equity |
$ 24,000.00 |
|
D/E |
42% |
Conclusion
The organization is performing poor and much need to be done to ensure that everything is run specifically. However, the business can generate profit if only the cost of the product can be reduced to increase the contribution margin ration which will guarantee a positive profit. Additionally, the business can raise the prices to cover the firm expenses.
References
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