I-Events Financial Health
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I-events
Financial Health
I-events is a small events company which was established only two years ago the financial information I have been provided span over the second year of business, I will look at all the information I have produced to assess the financial health of I-events.
The first figure that I shall look at is the sales, which is ÐЈ195,000. For a small business it has a healthy Sales figure as the Gross profit margin 58.35% meaning for each event they take on board they will take in 58.35% of the payment to cover the cost of operations or profit for the business, with a cost of sales being 41.65% per event gives I-events a healthy gain to their business for every event which is planned, making this business’ product very efficient, now the possible problems on the business are the expenses and the number of clients. First I shall look at the expenses of the operation.
Looking first at the total expenses of ÐЈ96,010 which is almost 50% of total sales figure (49.2%) a rather large percentage of amount of money coming into the business. The highest value and most notable expenses is the wages is the salaries and wages of the employees being ÐЈ77,000. Suggesting the wages and salaries are too high, the option of redundancy cut backs on staff could be an option to increase the net profit. Because of such high expenses the net profit is only ÐЈ17,766. With such a profitable raw product and a ÐЈ195,000 in sales, the net profit is rather disappointing. Which explains why the break-even point is rather high and the margin of safety is low. Which shall be discussed later. Now to look at the financial health, using the balance sheet.
Current assets: ÐЈ10,278. Fixed assets: ÐЈ11,000. Liabilities: ÐЈ4,512
Both current and fixed assets are healthy when comparing to the liability, which is low in comparison. With no long-term liabilities such as loans, this adds additional safety in terms of financial health for the business. And the total liabilities being easily covered by the current assets, ensures financial security. The closing capital of ÐЈ16,766 shows the wealth of the business or the owner of I-events, which is healthy but not as high in comparison to sales, but this capital can be used to re-invest into the business by taking on proposals such as business expansion, such as advertising or branching to expand its client base.
201 customers out of 250 is the break-even point for I-events, meaning after 201 customers the business will start making a profit giving a safety margin of 19.8%, in other words if the company can afford to lose 19.8% of its customers before losing money. This can be used to calculate a set target for the company if it wished to take on one or multiple proposals, a good way to plan the future of the company, the disadvantages of the break-even analysis is that it displayed as a straight line which is based on average over the 250 customers, this does not take into account of variations in sales such as discounts or events which have a lower gross profit or those which are higher, hence distorting the sales line, therefore the break even point that has been established will be inaccurate. (Kotas, 1999) The margin of safety could be higher if the company decided to cut back on some expenses where possible, increasing its