Quantic MBA Accounting Project - Class of Sept 2024 Group 58

Accounting Project
MBA Class of Sept 2024

Group #58
Eng Chee Liang [email protected]
R Karmene Amanda [email protected]
© 2023 Quantic Holdings, Inc. All rights reserved. 2/1/23

Accounting Project
Introduction
This report aims to analyse Highland Malt Inc's (Highland) financials for 2018 and 2019 and design
actionable recommendations to improve its financial health.
Assumptions
The assumptions herein encompass treating whisky sales as immediate revenue, regardless of
delivery timing. Employing the first-in, first-out (FIFO) method for Cost of Goods Sold (COGS)
calculations, excluding expenses from Exhibit 4 as they are under fixed costs and Selling,
General, and Administrative expenses (SG&A). Spencer's sales are Revenue, debt are Accounts
Receivable. Initial funding involves 10,000 shares at $75/share, yielding $750,000 Paid-In Capital
sans dividends. Adger's $30,000 payment for 2020 is excluded from current calculations. Taxes
are excluded in the income statement, full principal repayment is due on Jan. 1, 2020, operating
expenses will begin in 2019 and rent is excluded in 2018 due to customer warehousing coverage.
Lastly, all transactions in this paper are denominated in USD.
Financial Ratio Analysis

In 2018, Highland lacked current liabilities, preventing computation of the current and quick
ratios. However, in 2019, the current ratio and quick ratio stood at 16.9 and 9.40 respectively,
indicating Highland's ample liquid assets to settle its current debt obligations. The Return on
Equity (ROE) and Return on Assets (ROA) were negative in 2018 at -0.671% and -0.629%
respectively due to the absence of sales. Yet, 2019's positive ROE (6.29%) and ROA (5.92%)
reflected revenue generation. While the net margin couldn't be determined for 2018 due to the
lack of recorded revenue, it reached 2% in 2019. Noteworthy, debt-to-equity and debt-to-asset
ratios improved from 2018 to 2019, from 0.0671 to 0.0629 and 0.0629 to 0.0592 respectively,
affirming healthier financial structures.
Recommendations
Financial Efficiency and Liquidity Boost: Once bank loans have been fully paid by early 2020,
utilize the $380K cash reserve for strategic reinvestment in R&D and sales channels capabilities,
etc, instead of seeking for more loans. Aim to defer dividends until achieving the industry ratio of
10.7% Net Margin (current margin is 2%). Address cash flow challenges by negotiating extended
credit terms with suppliers, bolstering liquidity management and financial stability.
Strategic Growth Initiatives and Optimizing Partnership with Spencer: Reinvesting in

advertising through international e-commerce platforms to expand the brand, B2B and B2C
distribution landscape, Go-To-Market Strategies, and potentially increase conversion rates.
Negotiate with Spencer’s about the current contractual agreement to ensure payment is made
within a shorter agreed period post-sales. Highland should also look into clawing back
commissions from Spencers when customers request for a refund. This safeguards against
losses, maintains fair commission practices or reduces the likelihood of fraud cases.
Safeguarding Production Continuity: Establish a long-term contract with Adger, ensuring

stability and quality for Highland’s whisky production. In parallel, train more skilled labour and
source for cheaper raw material to reduce overhead costs while ensuring that ample supply can
be produce in Scotland to benefit from the expected increase in global whisky demand.
© 2021 Pedago, LLC. All rights reserved. 8/2/21 2

Accounting Project

Accounting Project

Accounting Project
Calculations
Year 2018 (Cost in USD$) Year 2019 (Cost in USD$)
Cash Ending Cash Ending Cash

= $750,000 + $50,000 - $300,000 (Jan = $170,000 (Opening Balance) - $700,000 (Jan 2019)
2018) - $325,000 (Jul 2018) - $90,000 (Accounts Receivable) - $5,000 (Interest) -
= $170,000 $50,000 (equipment lease) - $75,000 (Advertising
Cost) - $50,000 (distiller) + $2,160,000 (240 units x
$10,000/ Barrel x 90% ABV) - $750,000 (Paid-In Capital)
= $380,000
Inventory Reference from Exhibit 3, Reference from Exhibit 3,

Inventory Cost Inventory Cost
= $300,000 (Jan 2018) + $325,000 (Jul 2018) = $625,000 (Opening Balance) + $700,000 (Jan 2019)
= $625,000 + $750,000 (Jul 2019) - [$300,000 (Jan 2018) +
$325,000 (Jul 2018) + $700,000 (Jan 2019) +
($7,500 x 50) (Jul 2019)]
= $375,000
Retained Retained Earnings (2017) + Net Income Retained Earnings (2018) + Net Income (2019)
Earnings (2018) = (-$5000) + $50,000
= $0 + (-$5000) = $45,000
= - $5000
Sales Sales Revenue = $0.00 Sales Revenue

Revenue = No. of Units Sold x Average Price
= 250 x 10,000
= $2,500,000
Cost of COGS = $0.00 Reference from Exhibit 3,

Goods Sold
(COGS) Sales of 250 units using FIFO
= $6,000 x 50 units (Jan 2018)
+ $6,500 x 50 units (Jul 2018)
+ $7,000 x 100 units (Jan 2019)
+ $7,500 x 50 units (Jul 2019)
= $300,000 + $325,000 + $700,000 +

$375,000
= $1,700,000
Operating Operating Expenses = $0.00 Operating Expenses

Expenses = Sales commission + Fixed Costs + Shipyard
Lease + Equipment Lease + Advertising Cost +
Distiller Fee
= $250,000 + $230,000 + ($7,500 x 12 months)

+ $50,000 + $75,000 + $50,000
= $745,000

Accounting Project
Financial Ratio Analysis
Year 2018 Year 2019 Industry

Ratio
(2019)*
Current Current Ratio Current Ratio 4.69

Ratio (CR) = Current Assets / Current Liability = Current Assets / Current Liability
= 795,000 / 0 = 845,000 / 50,000
=0 = 16.9
Quick Ratio Quick Ratio Quick Ratio 1.15

(QR) = (Current Asset - Inventory) / = (Current Asset - Inventory) / Current
Current Liability Liability
= (795,000 - 625,000) / 0 = (845,000 - 375,000) / 50,000
=0 = 9.40
Return on ROE ROE 17.9%

Equity = (Net Income / Total Equity) x 100% = (Net Income / Total Equity) x 100%
(ROE) = - 5000 / [750,000 + (- 5000)] x = 50,000 / [750,000 + 45,000)] x 100%
100% = 6.29% (3.s.f.)
= - 0.671% (3.s.f.)
Return on ROA ROA 12.9%

Asset = (Net Income / Average Total = (Net Income / Average Total Asset) x
(ROA) Asset) x 100% 100%
= [-5000 / 795,000] x 100% = [50,000 / 845,000] x 100%
= - 0.629% (3.s.f) = 5.92% (3.s.f)
Asset Asset Turnover Ratio Asset Turnover Ratio 302 days

Turnover = Revenue / Average Total Asset = Revenue / Average Total Asset
Ratio = 0 / 795,000 = 2,500,000 / 845,000
=0 = 2.96 (3.s.f) ~ (123 days)
Net Margin Net Margin Net Margin 10.7%

= (Net Income / Revenue) x 100% = (Net Income / Revenue) x 100%
= [- 5000 / 0] x 100% = [50,000 / 2,500,000] x 100%
=0 = 2%
Debt-to- D/E D/E 0.40

Equity = Total Liability / Total Equity = Total Liability / Total Equity
Ratio (D/E) = 50,000 / 745,000 = 50,000 / (750,000 + 45,000)
= 0.0671 (3.s.f) = 0.0629 (3.s.f)
Debt-to- Debt to Asset Ratio Debt to Asset Ratio

Asset Ratio = Total Debts / Total Assets = Total Debts / Total Assets
= 50,000 / 795,000 = 50,000 / 845,000
= 0.0629 (3.s.f) = 0.0592 (3.s.f)
*Beer, Wine, And Distilled Alcoholic Beverages: Average Industry Financial Ratios for U.S. Listed
Companies. https://www.readyratios.com/sec/industry/518/

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Accounting Project

MBA Class of Sept 2024

Eng Chee Liang [email protected]

R Karmene Amanda [email protected]

© 2023 Quantic Holdings, Inc. All rights reserved. 2/1/23

Financial Ratio Analysis

Strategic Growth Initiatives and Optimizing Partnership with Spencer: Reinvesting in

Safeguarding Production Continuity: Establish a long-term contract with Adger, ensuring

© 2021 Pedago, LLC. All rights reserved. 8/2/21 2

© 2021 Pedago, LLC. All rights reserved. 8/2/21 3

© 2021 Pedago, LLC. All rights reserved. 8/2/21 4

Year 2018 (Cost in USD$) Year 2019 (Cost in USD$)

Cash Ending Cash Ending Cash

Inventory Reference from Exhibit 3, Reference from Exhibit 3,

Sales Sales Revenue = $0.00 Sales Revenue

Cost of COGS = $0.00 Reference from Exhibit 3,

= $300,000 + $325,000 + $700,000 +

Operating Operating Expenses = $0.00 Operating Expenses

= $250,000 + $230,000 + ($7,500 x 12 months)

© 2021 Pedago, LLC. All rights reserved. 8/2/21 5

Financial Ratio Analysis

Year 2018 Year 2019 Industry

Current Current Ratio Current Ratio 4.69

Quick Ratio Quick Ratio Quick Ratio 1.15

Return on ROE ROE 17.9%

Return on ROA ROA 12.9%

Asset Asset Turnover Ratio Asset Turnover Ratio 302 days

Net Margin Net Margin Net Margin 10.7%

Debt-to- D/E D/E 0.40

Debt-to- Debt to Asset Ratio Debt to Asset Ratio

© 2021 Pedago, LLC. All rights reserved. 8/2/21 6

© 2021 Pedago, LLC. All rights reserved. 8/2/21 7

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