Allman Brothers Cleaning

Allman Brothers Cleaning is a family run business that provides domestic cleaning services in Melbourne. The business has 1 employee and is operated by Ron and Mikala Allman. You are preparing a Client Advice Plan and you need to establish what the operational state of the business is. They are wanting to grow the business and are seeing advice for business loans.

You must complete each of the tasks below and treat each question independently from all other parts.

a) Percentage summary income statements for the business of Allman Brothers for the years 2017 and 2018 are as follows:

2017

2018

Sales

100%

100%

Less Cost of Goods Sold

45%

65%

Gross Profit

55%

35%

Give reasons that may explain the gross profit variations as disclosed by the above percentage analysis.

b) The following ratio calculations were made for the Allman Brothers for 2017 and 2018:

2017

2018

Current Ratio

3.0:1

3.0:1

Liquid Ratio

1.2:1

0.8:1

Give reasoned opinion on the composition of the current and liquid assets and the short- term liquidity situation as disclosed by the above ratios. (Note: the firm does not have a bank overdraft)