Financial position of a company and impact of taking on a green project

Answer

Financial Position of XYZ Company

& Impact of taking a Green Project

Abstract

The final position for XYZ is stable however it needs to implement the green project as it is profitable in future. The traditional setup for XYZ Company initially had a contribution margin of $542208 compared to 649972 in case of the green project, an increase of 107,764. The contribution margin ratio for the traditional setup amounted to 13.74% compared to 15.47%. The Fixed General & administrative expenses amounted to $267, 808 for both scenarios. The current ratios are calculated to indicate a company’s liquidity status and they provide an evaluation on the company’s ability to pay its debts and honor other obligations. The current ratios below indicate that XYZ are 1.65. The ratios indicate the financial performance and trend forecasts for future implementation and would reduce to 1.55 if the company goes green. The company’s liquidity would reduce relatively. Liquidity ratios, financial leverage, profitability and management ratios are some of the ratios that this paper seeks to calculate and apply them in ratio analysis. The projected estimates that are related to the Green project are growing very fast. It would be more productive if the new project would be implemented hence XYZ should continue with its project.

                                                        Introduction

Financial ratios are used to illustrate the performance of a company.  The ratios indicate the financial performance and trend forecasts for future implementation. Liquidity ratios, financial leverage, profitability and management ratios are some of the ratios that this paper seeks to calculate and apply them in ratio analysis.  This paper evaluates the financial performance of XYZ Company in relation to the green project in an effort to determine if it would be a good investment project.

Analysis of Part A Ratios

Part A: Ratios

Ratios are utilized to compare the financial information available in a company’s financial statements. They are used to determine different aspects of a company’s financial performance such as liquidity, solvency, and profitability (Corporate finance Institute, 2021).

 The current ratios are calculated to indicate a company’s liquidity status and they provide an evaluation on the company’s ability to pay its debts and honor other obligations. The current ratios below indicate that XYZ are 1.65 and would reduce to 1.55 if the company goes green. (XYZ Construction Co. Inc., n, d).  The company’s liquidity would reduce.

Analysis

Collection receivables refer to the period it takes a company to collect all its debts and accounts receivable. It is important as it indicates the time it takes for the company cash to be collected from its debtors. It takes about 56 days for the company to collect all its debt (Corporate finance Institute, 2021). The collection period would remain the same even after the company adopts green measures.

Implementing the green project would increase the company’s profit margin from 4.35% to 6.99% an increase of 2.6%. The Net profit margin before taxes amounts would increase from 7.02% to 9.37% when the green project is implemented. The amount increased by 2.4%. The receivable turns refers to the average number of times the accounts receivables collected every year. The receivable turnover ratio is the number of accounts or times the receivable is collected every year. It is an efficiency ratio that indicates a company’s financial performance. The higher the ratios the better are its advantages.
                                                                   

Analysis of Part B Work Flow Schedule

The total expenses for th e first month would be for excavation, footings and foundation that would cost $13400. The second month it would cost $8600 and it would include waterproofing, backfilling, under slab gravel, structural, electrical, plumbing and heating. The last four activities would continue for another two months while the fifth and final month it would cost $3700 and $800 for roofing and cleanup respectively.

Analysis of Part C Expenses

The current cost amounted to 26980 so that but they were forecasted to increase by 8 and 9% respectively.

Professional fee increased by a rate of 0.045. The total projected cost for professional services which amounted to $20,694 and 17,893 respectively.

                                       Analysis of Part D Payroll

The burden markup amounted to 41.5% allowing the employees to earn 42 cents as an expense to the company. The company pays bonuses and makes other arrangements to provide incentives to the employees including profit sharing schemes.

Analysis of Part E Margins

The contribution margin evaluates a company’s variable sales and differences between sales, and other costs (Lumen, 2020). It reveals the amount set aside in China. The higher the ratio the more the increase in students

The traditional setup for XYZ Company initially had a contribution margin of $542208 compared to 649972 in case of the green project, an increase of 107,764. The contribution margin ratio for the traditional setup amounted to 13.74% compared to 15.47%. The Fixed General & administrative expenses amounted to $267, 808 for both scenarios. It provides a breakeven of 1949439 for the traditional setup while the one for Green setup has a breakeven of 1730630. Compared to the total revenues the breakeven contribution ratio amounted to 6.79% and 6.38%.

Conclusions and Overall Recommendations

Most of the ratios for the green project are fairly similar to those of traditional XYZ setup. The contribution margin ratio for the traditional setup amounted to 13.74% compared to 15.47%. The Fixed General & administrative expenses amounted to $267, 808 for both scenarios. It provides a breakeven of 1949439 for the traditional setup while the one for Green setup has a breakeven of 1730630. Compared to the total revenues the breakeven contribution ratio amounted to 6.79% and 6.38%. XYZ company should implement the green project as it will increase the company’s profitability.