Cuaresma Acct Assgnmt 2
Cuaresma Acct Assgnmt 2
Cuaresma Acct Assgnmt 2
Table of Contents
List of Abbreviations................................................................................................................2
Executive Summary.................................................................................................................3
Introduction............................................................................................................................3
Financial Statement Analysis...................................................................................................4
Table 1. Classification of Variables....................................................................................................4
Variables Classification 2021 - 2023....................................................................................................................4
Table 2. Income Statements for 2021-2022.......................................................................................5
2021 – 2022 Income Statement and Performance Assessment..........................................................................5
Conclusion.............................................................................................................................11
Appendixes:..........................................................................................................................12
Appendix 1 2023 Cashflow Workings..............................................................................................12
Appendix 2 2023 Balance Sheet by Month......................................................................................12
References.............................................................................................................................13
ACCT801 222 ASSIGNMENT 2
List of Abbreviations
ACCT801 222 ASSIGNMENT 2
Executive Summary
This report analyses BTL’s financial health from 2021 to 2022 and 2023 forecasts by
examining its financial statements, variable classifications, income statements, cash
flows, and balance sheets. Comprising of examination of BEP, MoS, and budget
projections to aid in implementing its recovery plan from 2022.
BTL encountered a decline in customer numbers from 2021 to 2022, reducing revenue
and profitability. The company benefited from the government grant in 2022 to manage
liquidity. The breakeven analysis highlighted the connection between customer numbers
and profits. The 2023 forecast predicts increased prices despite a decrease in expected
customers, which would lead to better financial outcomes, and I recommend that BTL
adopt this approach.
Cash flow forecasts indicate potential challenges, such as needing more funds in Q1
and large tax payments in Q3 and Q4. However, the company is financially stable
despite these payments. I recommend proactive management strategies to ensure
sustained financial health and operational fluidity.
Introduction
This report analyses BTL’s financial performance from 2021 to 2022 and utilises
accounting tools to forecast 2023. It includes financial statements, variable
classification, income statements, breakeven and MoS analysis to gauge the company’s
financial health. Additionally, it proposes a strategy for 2023, considering customer
numbers, inflation, operating costs, and price adjustments.
Furthermore, it will present a cash flow and balance sheet forecast to anticipate
potential requirements for additional funds in 2023 to maintain liquidity. This report
presents an overview of BTL's financial health and utilises accounting tools to make
strategic decision-making for the company's recovery.
ACCT801 222 ASSIGNMENT 2
Understanding the differences between debit and credit in financial statements holds
paramount importance. These reports serve distinct purposes: debits affect assets or
expenses, and credits impact liabilities or equity (Accounting Tools, 2023). This is vital
for a comprehensive grasp of a business’s financial well-being and strategic direction
(Sanjay, n.d.).
ACCT801 222 ASSIGNMENT 2
BTL experienced a 40% decrease in customer numbers from 2021 to 2022, significantly
dropping operating revenues and CM, as shown in Table 2. Despite the lower operating
costs in 2022, as shown in Table 2, the revenue declined adversely due to the decrease
in customers, impacting the company's financial health and signalling the need for
strategic interventions to restore operational efficiency and drive profitability. It is also
worth noting that the company hugely benefited from the government grant in 2022 to
maintain BTL’s liquidity.
ACCT801 222 ASSIGNMENT 2
In 2021, the company demonstrated robust financial health, requiring just 8479
customers for the breakeven Units, substantially exceeding this with over 35.3% more
customers indicated in the MoS. However, the subsequent year, 2022, reflected minimal
profitability, shown by the NPaT's standing at a mere 12.1%. This decline could be
attributed to a reduced customer count, mitigated to some extent by the government
grant, which supported the company's liquidity during this period.
The BEP is the critical sales threshold at which revenue equals total costs. Financial
planning sets sales targets and resource allocation strategies. According to Mitchell
(2023), the BEP is the production level at which production costs equal the revenue
from a product. When combined with other CVP analysis tools, BEP provides a
comprehensive view of a company's financial status—enabling decision-makers to
create and evaluate strategies and determine the most suitable one. Kenton (2022)
highlights the importance of using CVP analysis in understanding how changes in costs
and sales volumes affect a company’s profitability.
While the BEP and MoS are valuable metrics, it is essential to acknowledge their
limitations. The MoS provides a cushion above the BEP, safeguarding against potential
sales drops that could negatively impact profits (Averkamp, n.d.). However, these
metrics often rely on fixed cost assumptions, which might not align with the dynamic
nature of businesses. Consequently, decisions based solely on cost recovery might
miss opportunities for maximising profits and ensuring long-term sustainability. Hence, it
is imperative to take a balanced approach that considers quantitative metrics like BEP
and MoS and qualitative strategic insights to make effective decisions.
ACCT801 222 ASSIGNMENT 2
Table 5. Income Statement from Year 2021 - 2023 Budget and Forecast
ACCT801 222 ASSIGNMENT 2
Several trends transpire in reviewing BTL's financial performance over three years and
forecasting potential scenarios. In 2021, the company had a solid financial position with
a 59% CMR, generating 15% NpAT against revenue, showcasing stability and a 35.3%
MoS. However, due to a decline in customer numbers, the subsequent year saw a
significant drop in revenue and profitability, with a mere 5.7% NpAT and a reduced MoS
at 12.1%. This decline persisted in the 2023 budget, where although customer numbers
increased, high variable operating costs impacted the CMR at 56%, leading to a 14%
NpAT. However, the forecasted scenario with a price hike displayed a promising outlook.
Despite fewer customers, the CMR increased to 64%, resulting in a notable 22% NpAT
and a significantly improved MoS at 47%. The company's healthy financial outlook for
2023 is indicated by the need to go to a loss to break even. This examination highlights
the importance of accounting tools and techniques to find areas of improvement in
strengthening a company’s financial health and aiding BTL’s financial recovery.
Given the promising outcomes of the 2023 forecast, especially with the 20% price
increase leading to higher NPaT and a more substantial MoS, it is recommended to
adopt this forecast. It suggests improved financial stability and increased profitability for
the company. However, it's essential to closely track customer numbers after the price
adjustment to maintain a balanced customer base while maximising profits.
ACCT801 222 ASSIGNMENT 2
Conclusion
ACCT801 222 ASSIGNMENT 2
In BTL's financial story from 2021 to 2023, accounting data, breakeven analysis, and
the MoS emerged as crucial guiding lights. These tools assist managers and
stakeholders in understanding costs, revenue thresholds, and potential risks in making
empowered decision-making, especially in uncertain times brought to the company in
2022.
The forecast for 2023 looks promising, but managing cash flow, mainly tax payments
will be critical to maintaining liquidity. Managers should utilise accounting tools to
navigate uncertainties, maintain financial health, and make informed decisions for
growth and resilience in a dynamic market.
ACCT801 222 ASSIGNMENT 2
Appendixes:
References
ACCT801 222 ASSIGNMENT 2
Kenton, W. (2022). Cost-volume-profit analysis: what it is and the formula for calculating
it. Investopedia. https://www.investopedia.com/terms/c/cost-volume-profit-
analysis.asp
Sanjay, V. (2023). Balance sheet vs. income statement: what’s the difference?.
Businesss News Daily. https://www.businessnewsdaily.com/16513-balance-
sheet-vs-income-statement.html