Research School of Accounting

GROUP ASSESSMENT COVER SHEET

Student Names &
ID Numbers: __ Weiping Wang-U7563113________________________________

__ Xing Luo-U7530203____________________________________

__ Yiting Zheng-U7519123_________________________________

_______________________________________________________

Course Code: __BUSN7008____________________________________________

Tutor’s name: _Stanley Choi____________________________________________

Tutorial Day/Time: __Tue/17:00_____________________________________________

Assignment No: _MYOB Group 220________________________________________

Topic: Reports on Financial Statements of Mia Cleaning________________

_______________________________________________________

Word Count: ______1060__________

Due Date: _____10/7/2022_______ Date Submitted: _____10/6/2022_____

I declare that this work:

• upholds the principles of academic integrity, as defined in the University Academic

Misconduct Rules;
• is original, except where collaboration (for example group work) has been authorised in
writing by the course convener in the course outline and/or Wattle site;
• is produced for the purposes of this assessment task and has not been submitted for
assessment in any other context, except where authorised in writing by the course
convener;
• gives appropriate acknowledgement of the ideas, scholarship and intellectual property of
others insofar as these have been used;
• in no part involves copying, cheating, collusion, fabrication, plagiarism or recycling.

Signed: _ Weiping Wang ___________________________ Date: _____10/5/2022______

Signed: __ Xing Luo_______________________________ Date: _____10/5/2022______

Signed: __ Yiting Zheng _____________________________ Date: _____10/5/2022______

Signed: _________________________________________ Date: ___________________

| ANU COLLEGE OF BUSINESS AND ECONOMICS

 Reports on Financial Statements of Mia Cleaning

(Part B)

Catalogue

Introductions ...................................................................................................................... 2

Profitability ......................................................................................................................... 2

Liquidity .............................................................................................................................. 2

Financial Position ............................................................................................................. 3

Suggestions.......................................................................................................................... 3

Limitation............................................................................................................................ 4

Appendix ............................................................................................................................. 5

References ........................................................................................................................... 6
Introduction

Based on the financial statements of Mia Cleaning, this report will use some
financial ratios to analyze the profitability, liquidity and financial position of Mia
Cleaning. Through comparing the firm’s conditions with the cleaning industry’s
average level, this report will provide some useful suggestions to improve the
company’s operation conditions. And finally, there will be some discussions about the
limitations of ratio analysis.

Profitability

According to the financial indexes (e.g. profit margin and rate of return on total
assets), obviously, Mia Cleaning still needs to improve its profitability.
The profit margin of Mia Cleaning is 28.05% (given in Appendix), which means
that Mia Cleaning would extract 0.2805 units of profit from 1 unit of revenue. However,
compared with the average profit margin (35%) of the cleaning industry, the
profitability of Mia Cleaning is not enough. Considerable expenses and insufficient
pricing power are likely to cause this problem.
What’s more, the 22.17% rate of return on total assets implies that 1 unit of assets
put into use could generate 0.2217 units of net profit. Considering that the average level
of the cleaning industry is 30%, the assets may not be used effectively or some internal
resources are not allocated reasonably. Hence, a great number of measures ought to be
taken to enhance operating capacity and boost profit margin.

Liquidity

In terms of liquidity, the current ratio would be taken into consideration, which
shows the ratio of current assets and current liabilities. The higher the ratio, the stronger
the liquidity. The current ratio of Mia Cleaning is 6.36, which is far higher than the
cleaning industry average (1.80).
Generally, a high current ratio presents that the company has sufficient liquidity to
meet short-term liabilities and enough cash to address daily business needs with lower
financial risk. On the other hand, maintaining an excessive proportion of current assets
may limit the ability to expand the scale of operations and lead to a decline in the overall
profit margin.

Financial Position

When it comes to financial position, the debt-to-assets ratio can reflect a

company’s debt situation and long-term solvency. Straightforward, Mia Cleaning has a
healthy financial position while its ratio (10.56%) is only about half of the industry
average (20%). It shows that the company operates with low leverage and has sufficient
assets to cover the long-term debt. Although there is less debt pressure, Mia Cleaning
is expected to expand the scale of operations and earn increased profits.

Suggestions

Firstly, to increase profitability, the company would carry out some strategies to
cut down expenses.
It is clear that employment expenses take up 61.38% of the total expenses.
Therefore, as a significant influence factor on expenses, employment expenses need to
be analyzed through the present wages and salaries. Thus, the company could survey
the cleaning industry’s average salary and employees’ situation to find out whether the
present wages and numbers of employees are too much higher than the market level. If
so, the company may hire fewer people or lower the level of salaries. Certainly, it is
suggested that other expenses like cleaning supplies expense or rent expenses should
also be analyzed in the same way in order to figure out whether those expenditures need
to be reduced to an optimal level or not.
Secondly, it is recommended that some cash needs to be used more effectively so
as to lower the much high current ratio.
As can be seen from the report, Mia Cleaning’s current ratio is much higher than
the cleaning industry’s average level, which means more investment should be applied.
In that case, the company could use some money to increase its revenue. For example,
the company could improve its advertising strategies to attract more customers, like
asking a bigger advertising company to perform in more advertising channels like social
networking platforms and TVs. What’s more, upgrading the decoration of stores may
also attract more clients to purchase service. Besides those expenses, purchasing new
cleaning equipment with higher efficiency could not only transform cash into non-
current assets but also enhance the company’s profitability.
Thirdly, because of the low debt-to-assets ratio, the firm may choose some
financial instruments to raise money and expand the scale of operations.
With excellent liquidity and low debt-to-assets ratio, Mia Cleaning would be
considered as high credit and low financial risk by some financial institutions, which
provides a chance for Mia Cleaning to easily issue financial instruments like long-term
bank loans with a relatively low-interest rate. With those loans, the company could take
flexible strategies to scale up.
Finally, besides the financial strategies above, Mia Cleaning should improve its
service quality. Well-service could allow the company to put up prices or add new
services with a higher profit margin. And this could work effectively in the long run.

Limitations

Those ratios above provide some information about the operating conditions, and
it is helpful to adjust operating strategies. However, there are still some limitations to
make business decisions by using this kind of analysis.
Firstly, the ratio analysis is based on data from the balance sheet and financial
statements, which means the data is neither up to date nor overall.
Figures in the balance sheet only show the financial conditions on a certain day,
which could have changed now. And the revenue and expense in the income statement
only shows the outcome of the whole period. However, the variation and tendency of
revenue and expense, which are important to find the problems of operation and predict
the outcome, could not be found.
 Secondly, this kind of financial ratio analysis could work more effectively in
forecasting corporate default while not at corporate future performance.
Some research has proved that financial ratios like the current ratio could

demonstrate strong predictability in forecasting company default (Tian et al. 2017).

While the relationship between financial ratios and corporate future performance is not
so strong and remains controversial (Kasasbeh 2021).
Thirdly, running a business is complicated and continuously changed with the
externalities, which means financial ratios analysis may not provide effective guidance
for corporate operations.
There are so many factors like government policies or technology innovations that
may influence corporate conditions. Schaltegger (2015) argued that conventional
accounting ratios could not forecast a company’s value sustainability if we do not take
additional eco-ratios that measure the company’s impact on its environment into
consideration. Therefore, we should not make business decisions only by financial
analysis.

Appendix

From Part A of this assignment, we could figure out some financial indexes of Mia
Cleaning as follows:

Ratios Formula Mia Cleaning Industry Average

Net Profit
Profit margin 0.2805 0.35
Total Revenue
Rate of return on Net Profit
0.2217 0.30
total assets Total Assets
Current Assets
Current Ratio 6.3570 1.80
Current Liabilities
Debt-to-assets Total Liabilities
0.1056 0.20
Ratio Total Assets
References

Kasasbeh FI (2021) ‘Impact of financing decisions ratios on firm accounting-based

performance: evidence from Jordan listed companies’, Future business journal, 7
(1):1–10, doi:10.1186/s43093-021-00061-0

Schaltegger S (2015) Contribution to sustainability, what kind of information is

needed, 2015, ‘Eco-ratio analysis’, in Business sustainability performance
measurement, Proceedings of the WECSD and EMAN’, Joint International
Sustainability Accounting Symposium, Leuphana University, Geneva, 79–83.

Tian S, Yu Y (2017) ‘Financial ratios and bankruptcy predictions: An international

evidence’, International review of economics & finance,51:510–526,
doi:10.1016/j.iref.2017.07.025.