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ENGM-90011
Economic Analysis for Engineers

Assignment 4:

Submitted by:
Muhammad Waqas (771935)
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My Engineering Company:

The Statement of Financial Performance for the financial year 2015/2016 and Statement of
Financial Position as on 30th June 2016 for My Engineering Company by using the provided
information is given below:

Statement of Financial Performance 2015/2016

$ $ $
Sales 503,400
Starting Inventory (Raw materials) 26,700
Starting Inventory (Finished products) 48,700
Company Purchases 143,400
Inventory available by end of year (Raw materials) 20,900
Inventory available by end of year (Finished Products) 38,300
159,600
Direct Wages 116,300
275,900
Gross Profit 227,500

Expenses:
Consumables (Hand tools, welding gases) 13,391
Utility charges 4,900
Overheads (Salaries) 20,000
Secretarial and financial help 59,000
Rent (2800/month) 33,600
Depreciation 36,615
Stationary and other supplies 2,300
Total expenses 169,806
Operating Income 57,694
Other expenses:
Interest on bank loan 26,250
Loss on asset sale 1,000
Earnings before tax 30,444
Tax expenses 9,133
Net Income 21,311
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Statement of Financial Position on June 30,2016

$ $ $
Assets:
Current assets
Cash on hand 145
Trade receivables 73,003
Tax credits 7,218
Inventory (Raw materials) 20,900
Inventory (Finished products) 38,300 59,200
Total Current Assets 139,566

Property, Plant and Equipment

General Office Equipment

Gross value 11,600
Accumulated Depreciation 5,590 6,010
Computer system
Gross value 15,000
Accumulated Depreciation 4,950 10,050
Processing Equipment (Plant)
Gross value 255,000
Accumulated Depreciation 61,825 193,175
Car
Gross value 48,000
Accumulated Depreciation 20,000 28,000
License fee 30,000
Good will 174,100
Total Property, Plant and Equipment 441,335

Total Assets 580,901

Liabilities and Owners Equity

Current Liabilities
Raw material payables 23,900
Overdraft 9,500
Creditors 900
Total Current Liabilities 34,300

Non-Current Liabilities
Bank Loan (15% interest rate) $175,000

Stockholders Equity
Owners Capital 300,000
Profits Retained, Beginning 50,290
Net income for year 21,311
71,601
371,601
Total Liabilities and Stockholders Equity 580,901
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Assumptions:

Following assumptions have been made in constructing the financial statements:

Straight line depreciation method

Last years purchases are the starting balances since the receivable and payable account
beginning balances are not given.
Utilization of initial tax credits against current years tax liability.
Overdraft interest is not taken in account (no information is given)

Gross Profit:

From the Statement of Financial Performance for year 2015/2016 the Gross Profit has been
calculated to be $227,500.

Earnings before interest, tax and abnormal (EBITA):

EBITA for My Engineering Company has been determined to be $57,694.

Current tax liability for Company:

For given tax rate of 30%, the company tax liability for the current year is $9,133.

Profit/Sales:

The profit/sales for the year 2015/2016 has been calculated by:

Net income
100
Sales
21311
100
503400

4.23 %

The high current ratio indicates strong short term financial health of the company. The asset
turnover ratio for the company is low since it is capitalized heavily. Overall the financial position
of company is strong but some improvements in sales and net profit margin is required.