Student Name:

Student Number:
Course Code: OMCM6005 Financial Analysis for Supply Chains
Assignment Title: Financial analysis

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 Table of Contents
Task 1:.............................................................................................................................................2
Part 1: Income statement and Balance sheet................................................................................2
Part 2: Forecast.............................................................................................................................5
Part 3: Analysis............................................................................................................................6
Task 2...............................................................................................................................................7
Part 1: Credit Terms.....................................................................................................................7
Part 2: Inventory Management.....................................................................................................8
References......................................................................................................................................10

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Task 1:

Part 1: Income statement and Balance sheet

Income Statement for Horizon

For the months of 30 June 2027

2026 ($)

Sales 65000000

Less: Purchase 35000000

Gross Profit 30000000

Gross Profit Margin 9000000

Less: Variable Expenses -5000000

Less: Fixed cost -4000000

Less: Interest Expenses -1000000

Less: Bad Debts -650000

Less: Depreciation -1650000

Net Profit Before Tax 26700000

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Less: Tax 8010000

Net profit after tax 18690000

Balance Sheet for Horizon

As at 30th June

Assets

Cash 1600000

Account Receivable 5200000

Inventory 5200000

Current Assets 12000000

Fixed Assets 22000000

Depreciation 3000000

Net Assets 25000000

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Total Assets 37000000

Liabilities

Account Payable 4200000

Long Term Debt 4965000

Equity

Ordinary Shares 27835000

Total Liabilities & Equity 37000000

Work Notes

Changes in sales (by 30% increase) Sales 2026 X 30%

1 65000000
Sales 2026

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 2 Gross Profit Margin (30%) 9000000

3 Variable expenses (10% of sales in 2026) 5000000

4 No Changes in Fixed Cost

5 Interest Expenses 1000000

6 Bad Debts (1 % of sales) 650000

7 Decrease in depreciation by $350000 -1650000

8 Tax rate of 28%

9 Cash 1000000

10 Account receivable (8% of sales) 5200000

11 Inventories 5200000

12 Fixed assets 22000000

13 Account Payable (12% of purchases 4200000

14 Long Term Debt 4965000

Part 2: Forecast

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 Forecast 2027 2026

260000
1 Total Sales in Unit ($2.50 Per unit) Sales / Cost per unit) 00

1.3461
2 Stock items purchase price (purchase / Unit Sold) 54

400000
3 Total Variable Cost (purchase + variable expenses) 00

1.5384
4 Total Variable costs per unit (Total variable cost/unit sold) 62

Profit per additional unit produced (Sell price - Total variable 0.9615
5 cost per unit produced) 38

0.5051 0.0616
6 Return on asset (Net profit after tax / total assets) 35 76

0.6714 0.0887
7 Return on Equity (Net profit after tax / ordinary shares equity) 57 94

Part 3: Analysis

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Analysis of the financial statement for Horizon is effectively followed for determining the
financial condition of its business. Based on the analysis of sales it is assumed that good sales
enable businesses in getting qualified leads or customers that enable them in bringing value. If
Horizon gets goods sales, the production, as well as the business growth, is also affected
positively. A positive effect on sales will bring effort to the productivity and higher performance
of the business in an organized way (Fenyves et al. 2019. p.27). With analysis of changes in
sales for Horizon in 2027 in comparison to 2026, it is identified that there was an increase in
sales which states an increase in revenue of Horizon by 30%, showing an improvement in
financial condition.

Moreover, the profit margin is observed to increase by 30% on contrary due to increasing sales
of Horizon, which states that the business of Horizon is having an opportunity of making more
profit by selling or enhancing production reasonably. The higher gross margin of profit signifies
the potentiality if Horizon of attracting more investors with huge dividends along with
reasonable capital intensity that can be applied for business expansion.

Increasing net margin states that Horizon is making ample profit by higher sales and lower rate
of operating expenses. Net margin is better only if overhead cost and other operating cost can be
controlled by an organistaion. Net profit signifies financial health of any business. Horizon is
having increased profit margin of 28.7% in 2027, which was only 3.3% as on 2026. It can be
stated that there is improvemnet in overall profit margin due to controlled variable or overhead
cost by Horizon.

Net profit margin signifies the ability of a company in generating enough profit sales while
controlling the operating cost as well as an overhead cost. The net profit margin is an indicator
that shows the overall financial health of a company. With an evaluation of the profit margin of
Horizon, from 2026 of 3.3% to 2027 of 28.7% it is indicated that the financial health of Horizon
has improved overall in 2027 compared to 2026.

Task 2

Part 1: Credit Terms

Formula for Interest rate associated with not taking the discount

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Discount Offered X
_______________________365_______________________

100% - Discount Offered No. of days with discount - No. of days w/o discount

The interest rate associated with not taking discount from each supplier is as follows

Supplier Credit Terms Interest rate not taking discount

Four Tops 1/10 Net 50 9.217171717

Mountain Tops 2/20 Net 50 24.82993197

Roof Tops 1/9 Net 50 8.992362651

Twist Tops 1/15 Net 70 6.703397612

2. Indication of accepting or rejecting discount

Based on the calculation in the previous section, the annualized cost of not taking a discount for
Four Tops is 9.2%, Mountain top is 24.5%, Roof Top is 8.9 % and Twist Top is 6.7 %. The
annualized cost states that this is the extra cost that will be incurred by the buyer if the prompt
discount is not taken. Further, taking this discount will enable the buyer, (Horizon) in saving the
cost by this discount in annual terms (Krulicky, T. and Horak, 2021. p.38). However, the buyer
needs to borrow this from the bank. Ascertaining the interest rate that will be paid by Horizon is
8.5%, and considering the best and cheaper option for Horizon, it will require to pay either 8.5%
or one of the annualized costs out of 9.2%, 24.5%, 8.9% or 6.7%. For Horizon, the annualized
cost of 6.7% by Twist Tops seems to be cheaper, hence, Horizon will pay 6.7% of interest in
annual terms for saving interest rate of 9.2% from Four Tops, 245% from Mountain Tops, and

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8.9% from Roof Tops. Hence, Horizon should be required to accept the prompt payment
discount of Twist Tops which is to be paid within 15 days for receiving a discount of 1%.

Part 2: Inventory Management

1 EOQ 512347.5

2 Number of Orders 50.7468

3 Daily Usage of Horizon (unit sold / Days operating) 0.000825

4 Quantity of Safety Stock (Daily Usage X Days of safety stock usage) 0.000275

5 Average Inventory 280247.8

6 Inventory Reorder point 240740.7

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References

Crum, M. and Rayhorn, C., 2019. Using Monte Carlo Simulation for Pro Forma Financial
Statements. Journal of Accounting and Finance, 19(5), pp.29-40.

Fenyves, V., Böcskei, E., Bács, Z., Zéman, Z. and Tarnóczi, T., 2019. Analysis of the notes to
the financial statement related to balance sheet in case of Hungarian information-technology
service companies. Scientific annals of economics and business, 66(1), pp.27-39.

Krulicky, T. and Horak, J., 2021. Business performance and financial health assessment through
artificial intelligence. Ekonomicko-manazerske spektrum, 15(2), pp.38-51.

Sales
Cost per unit

Purchase
Unit Sold

Total variable cost

unit sold
Net profit after tax
Total assets

Discount offered___ X __________365________________

100%- Discount offered No. of days w/o discount - No. of Days w discount

√2 (Usage in unit per period X order cost per order)

Carrying cost per unit per period

No. of unit sold

EOQ

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Unit sold
Days operating

No. of unit sold X Delivery time + Safety stock

Operating days

Sales___
Sales Price

Total Purchase price

Units sold

Unit sold
Days operating

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