Date 14th August 2021
To Teacher Name
From Student Name
Subject Performance Analysis
The performance analysis of Stuart’s Inc has been done on the basis of 2012 and 2013 reports. Following findings have been found.
The allowance on the debts set aside or deducted from the total debtors in order to assess the estimated account receivable that will be at least recovered from the debtors. Each business organization set their own ratios to set against the total receivables. The reserve ratios of bot2012 and 2013 is different. The following table shows the allowances for debtors and rate of allowances,
|Rate of Allowances||0.538%||0.944%|
The above table has four elements of debtors for both 2012 and 2013. in 2013 the sales were more than 2012 which shows that company management has performed well comparatively to 2012. The management of the company has set lower rate of allowances against the total sales. This shows that company is confident enough to get the maximum money from their debtors in 2013, comparatively to 2012. The following graph shows the allowances rate for both years.
The above graph shows the rate of allowances against the total debts or receivable in both years. In spite of higher sales in 2013, the allowances for debtors or account receivable are lower. Almost 50 % is less allowance in 2013 comparatively to 2012. The total allowance for 2013 on the basis of 2012 ratio would be 16571. So these statistics shows that company was confident enough to materialize these account receivables. On the other hand side, the tax rate or total payable tax will be higher than 2012, because allowance are allowable deductions. In 2012 allowances were higher comparatively to 2013, which mean that company had paid less tax comparatively to 2013.
It is general phenomena that when price increases than LIFO reserves increases, on the other hand if price decreases than LIFO reserves decreases. Thus increase and decrease of LIFO reserve dependent upon the prices. The LIFO reserve is the difference between the carrying inventory amount and inventory amount under FIFO. In simple worlds the difference between LIFO and FIFO cost of inventory is called LIFO reserves. In inflationary environment LIFO reserves increases and in deflationary environment LIFO reserves decreases. As for liquidation is concerned, company sells the most recent or newest inventory first. Due to LIFO liquidation, the cost of goods sold of the company decreases and net profit increases due to which more tax burden is shifted towards the company. Under LIFO liquidation the old cost are matched with the current revenues which results in more net income. This shows that under LIFO liquidation, the net income of the company increases comparatively to FIFO. The overall tax burden will also increases as well. As for this company is concerned, using LIFO instead of FIFO, the earning before tax will increase around 4 percent, which means 5.6 million USD will increase. Under the LIFO reserve or according to notes, there are 29500 USD reserve for 2013 and 35100 USD reserve for 2012.
According to FAS 115 trading investment for making fast earning or profits don’t need to classify investment as available for sale. Any gain which have not yet realized or any unrealized loss from available for sale securities are part of other comprehensive income only. In my point of view its dependent on the intention on the security holders, depending upon intention, if security holder does not want to trade along with not willing to held till maturity than on his investment that income would not be transferred to profit and loss account.
As for second case is concerned, if he held available for sale along with received dividend or any type of interest or even sold the securities, it must be mentioned or reported in income statement for 2013 with realized gain of around 4.2 million USD. Otherwise in case of unrealized gain it will be transferred to other comprehensive income with following principles.
- Available security for sale are not held or traded for profit
- AFS is reported on the balance sheet at fair value, but in case of unrealized loss or gain arising out will not transferred to income statement but reported in other comprehensive income as part of equity.
- Any interest income, gain or loss or dividend received due to selling of securities will be recognized in the income statement.
- AFS assets are reported on the balance sheet at the end of year at the fair market value.
The depreciation charge by the companies in each year on their fixed assets are the indirect expenses which are reported in the income statement. The accumulated depreciation fund is generated to transfer the each year depreciation into it. Accumulated depreciation fund depending upon the company accounting policy will be either taken as liabilities or deducted from the fixed assets on the assets side. Each fixed assets is used for a reasonable time period and depreciation is charged accordingly. Depreciation is charged keeping in mind the total life of the assets along with salvage value. So in case of straight line method, the depreciation charged in each year will remain fixed over the life of the assets. Though management of the company can change the deprecation method at any time according to the requirement. The useful life of the fixed assets can be figured by dividing the gross fixed assets by depreciation expenses. So for 2013 and 2012, the life of the assets is followed.
Depreciation for 2012 = 24 Million USD
Depreciation for 2013 = 26.9 Million USD
Gross Fixed Assets 2012 = Net Assets 2012 + Depreciation Expense 2012
Gross Fixed Assets 2013 = Net Assets 2013 + Depreciation Expense 2013
|2013 (Million)||2012 (Million)|
|Net Fixed Assets||374||370|
|Gross Fixed Assets||409.6||399.6|
|Average life of Assets||11.50562||13.5|
|2013 (Million)||2012 (Million)|
|Net Fixed Assets||430||356|
|Gross Fixed Assets||456.9||380|
|Average life of Assets||16.98513||15.83333|
The above tables shows the average life of the assets of both Nuware and R.P Stuart. R.P Stuart average life increases from 15 to 16. 98. This shows that company has invested more into fixed assets comparatively to Nuware’s. that is why the average life of the R.P increases.
Based on the above findings I will do investment in the company through purchasing shares of the company.