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Four Factors for Forming the Business Structure, Statistics Problem Example

Pages: 4

Words: 1000

Statistics problem

Every structure has its advantages, responsibilities and disadvantages which needs to be considered before the decision is to be made. The structure selected needs to have the potential for transforming the circumstances with minimal disruption, provided opportunities for legitimate reduction in tax, gives adequate protection to the assets and has an efficient profit distribution. The four factors that needs to be considered before forming the structure of the business are;

  • Liabilities and requirements of taxation
  • Liability which is legal
  • Costs
  • Capital
  • Requirements of management

Major Differences between Proprietary Company and Public Company limited by shares

A sole proprietorship company is the most popular by far and is the most suitable type corporation for a business which is small, for an individual or a private entity for investment. It is mostly proposed as a trading company. One of the major differences between the proprietary and a public company limited by shares is that within sole proprietorship there is a mechanism which stops the persons unwanted to be the owners of the company. It means that in sole proprietorship there is only one owner whereas in public company the shares are traded publicly and there can be more than one owner.

In a proprietary company the directors of the company may reject the share transfers in the corporation for any reason and it lies in the Corporations Act 2001 under 1072 G section. U till the share transfer is registered, the seller and transferor remains the shareholder when being transfer. This is the major reason why the family corporation majority are proprietary companies. A sole proprietorship corporation is restricted from involving in an activity which would require the prospectus lodgment. Speaking broadly, the selling of shares itself to the public of seeking loans from the public are not allowed in a private company.

The questions my friend need to ask the seller of the company is to ask for an audited financial statement. If the company is audited annually with the auditors listed in the SEC. On the other hand, the friend needs to ask the seller the type of liabilities both in current and long term. Also, assets should be segregated to both current assets and fixed asserts. Besides, the accuracy of the balance sheet can be checked by asking for an income statement of the company and the cash flows.

By looking at the profitability of both of the companies i.e. Of Ability Ltd. And Absolute Ltd. We can see that Absolute Ltd. Is more profitable than Ability Ltd. Absolute Ltd. Has a net income of $ 1,345,000 and Ability Ltd. Has a net income of $ 875,000. If my friend wants to invest by solely looking into the profitability of the company, I would not advise him. The things need to consider before investing is that to look into the industry the company is operating. Other thing needs to be considered are to look at the amount of debt the company has. If the company has he amounts of debt it is a risky company. When there is high risk, there is a high return. Other thing to consider investing in Absolute ltd. Is to look at its financial ratios and past performance. Apart from that the trend analysis of the company needs to be looked at. Looking at the audited financial statements of the company will give a clear picture.  If the company has been performing well in the past years and is profitable continuously then I would advise my friend to invest in Absolute ltd.

Overall Company Financial Performance

If we look at the Trend analysis it shows that the worse period of the company is the present period with profitability significantly declining as compared to 2013. The major reason is the decline in sales revenue which was 33% in year 2013. So, the performance of the company as per trend analysis is not good. The company needs to pick up and increases its sales revenue to be back on the track. One the other hand, looking at the ratios, the liquidity of the company is sound with current ratio of 1.32. Inventory turnover on the other hand indicates a positive sign as the company is utilizing its inventory well. However, due to the decline in sales, this ratio can go up. If we look at the return on assets, it is a positive sign. The Return on assets of the company is 16% which is a decent percentage. The margin on sales as compared to previous year is significantly reduced.

The ratio of the company overall shows a strong financial position but the trend analysis shows that the company has performed worse in all the years. The sales have drastically declined and this is a major concern. The future outlook of the company is not looking bright and the company might lean into loss if it doesn’t overcome the issue of decreasing sales. The company is having problems collecting money from its debtors. This ratio needs to be looked at and reduced so that the company can utilize its cash into more profitable things. If we compared the performance of year 2014 with that of year 2013, we can say that the company is in the stage of declining. Profitability and decline in sales are the major factors that creates a difference in the financial performance of the company as compared to previous year. The company has invested more on inventory and this is the reason why the inventory ratio is high as the sales were not as expected. The company also has financed its fixed assets with the help of raising equity as can be seen in the balance sheet. The Profits in 2013 is 20,884 $ whereas the Profit in 2014 is $ 18,222.The cost of finance have also gone up which leads to the decline in profits. The sales revenue in 2013 is 115,750 whereas in 2013 is 117,564. The company performed exceptionally well in the year 2013 abut compared to that 2014 was not a bright year in terms of financial performance of the company.

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