An organization has to pay special emphasis over financial belongings and financial competitiveness in order to ensure long term sustainability. Among many objectives one is to enhance the productivity and organization management tends to prefer only those projects that can help increasing the organizational efficiency (Warfield, p.26). This article attempts to analyze and select the best possible project which company can select in total. The information over which the decision would be made is the projected income statement of both those projects. Financial ratios will be calculated on the basis of which the effectiveness and efficiency of both the projects will be considered and final decision would be suggested.
Analysis for Project-1
Income allows organization to closely examine its expenditure and source of income and efficiency of each function and department. This tool helps organization in allocating the resources for each function when selecting a specific project (Carey, p.59). In this paper two projects have been analyzed and their income statement of two year i.e. 2011 and 2012 is examined.
The financial has reflected that the revenue of the project has been sourced from 8 different activities which include
- Rooms
- Food
- Beverages
- Other Food & Beverage
- Telecommunication
- Other Operated Department
- Rental and Other Income
- Cancellation Fee
When analyzing project I it has been analyzed that in 2012 the revenue growth was 8.532% when the income figure was $10,074. This shows the revenue was increasing as compared to the past year when the earning was $9,282. From this project the major source of income was rooms which helped in generating $9,896 which shared 98.23% of the total income. The positive aspect which was in this project was low rate of departmental expenses which incurred only up to 16.27% in the year 2012. Rooms cost 14.20% of the departmental expenses from the 98.20% of the revenue generated from the total project. So the cost incurred over rooms can be stated as reasonable. But on the other hand telecommunication which is incurring a cost of $208 million has only been able to generate revenues of $ 27 million. This means telecommunication is a costing a net deficit of $181 million.
Gross profit of the company in the 2012 stood at $5,434 exhibiting an increase of 5.39%. Gross Profit Margin is extremely healthy as not many companies can attain such a rate. However the most concerning factor in any income statement is the Net Profit or Loss. This project is at a loss when expenses like Debt service charges, fixed charges and total payroll expenses are subtracted from the net income of the project 1. In 2011 it was positive with a figure of $ 419 million but went to loss in the next year.
The major cause of the net losses if the high rate of the expenses that telecommunication department is incurring. The function has failed to extract any profit from the cost invested over the operation. This has resulted in costing the project a high value loss of $181 million in total. This is a serious concern for this project that can cause in listing this as unfavorable so management has to seriously address this factor when making the decision.
So in opting for project 1 is not worthwhile for the organization and would prove to be costly since it is indicating a net loss. Even if in any situation project 1 is preferred it must be ensured that payroll expenses are decreased significantly.
Analysis of HW#3
Now the next project which has been termed as HW#3 will be analyzed in order to find its efficiency and effectiveness.
In the year 2012 the revenue generated by HW#3 is $15,148 exhibiting a growth of11.67% as compared to the past year when the earnings were $13,565. The major source of income in HW#3 was rooms which extracted $14,792 which means a major proportion of the project. The share contributed by rooms was 97.65% from the total earnings. The best aspect which this project comprises was it low rate of expenses incurred in departmental expenses. The only cost incurred over such expenses was 8.96% from the total revenue in the year 2012. Rooms cost 8.96% of the departmental expenses from the 97.65% of the revenue generated from the total project. So the cost incurred over rooms can be stated as reasonable. On the other hand telecommunication which is incurring a cost of $198 million has only been able to generate revenues of $ 29 million. This means telecommunication is a costing a net deficit of $179 million.
Gross profit of the company in the 2012 stood at $5,868 exhibiting an increase of 10.49%. Gross Profit Margin is extremely healthy as not many companies can attain such a rate. However the most concerning factor in any income statement is the Net Profit or Loss. This project is at profit when expenses like Debt service charges, fixed charges and total payroll expenses are subtracted from the net income of the project 1. In 2011 it was positive with a figure of $ 510 million and increased with a rate of 132.35% in the year 2012 reaching up to $1,185.
The major cause of the concern is the high rate of the expenses that telecommunication department is incurring. The function has failed to extract any profit from the cost invested over the operation. This has resulted in costing the project at a high value which otherwise have resulted in generating high income profit. This is a serious concern in this project that management has to seriously address this factor when making the decision.
So it could be state that this project HW#3 would be a favorable one for the company and should be selected from the two as it is generating net profit.
Works Cited
Carey, Mary. Accounting: A Smart Approach. London: Oxford University Press, 2011.
Warfield, Terry D. Intermediate Accounting, Volume 1. Miami: John Wiley & Sons, 2011.
