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 otherparts. 

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

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:

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) 

c) The sales for the company during 2017 totalled $307,500 of which $62,750 represented cash sales Accounts receivable at the end of the year amounted to $67,751. 

Assuming a 250 day trading year and an industry average accounts receivable collection period of 30 days, comment on the firm’s credit management policy. Show the formula used and the calculation for each of your answers.

2017 2018 Sales 100% Less Cost of Goods Sold Gross Profit 100% 65% 35% 45% 55% 2017 2018 Current Ratio 3.0:1 3.0:1 Liquid Ratio 1.2:1 0.8:1