Newton Co is a new business, selling standard quality imported men's ties through the internet. The managers, who also own the company, are young and not experienced enough but they are prepared to take risks. They are confident that importing quality ties and selling through a website will be successful and that the business will grow rapidly. This is well known fact that selling clothing is a very competitive business.

They were prepared for a loss-making start and decided to pay themselves normal salaries (included in administration expenses in Table 1 below) and pay no dividends for the foreseeable future.

The owners are so convinced that growth will quickly follow that they have invested significant money in website server development to ensure that the server can handle the very high levels of foreseable growth. All website development costs were written off as incurred in the internal management accounts that are shown below in Table 1.

Significant expenditure on marketing was incurred in the first two quarters, to launch both the website and new products. It is not expected that marketing expenditure will continue to be as high in the coming time.

Customers can buy a variety of styles, textured and colours of ties at different prices.

The business's trading results for the first two quarters of trade are shown below in Table 1

Table 1

Quarter 1 Quarter 2

$ $

Sales 420000 680000

less cost of sale (201600) (340680)

Gross profit 218400 339320

Less expenses

Website development 120000 90000

Administration 100500 150640

Distribution 20763 33320

Launch marketing 60000 40800

other variable expenses 50000 80000

loss for quarter (132863) (55440)

The owners are well aware of the importance of non-financial indicators of success and therefore have identified a small number of measures to focus on. These are measured monthly and then combined to produce a quarterly management report.

The data for the first two quarters' management reports is shown below:

Table 2

Quarter1 Quarter2

Number of ties sold 27631 38857

On time delivery 95% 89%

Sales return 12% 18%

System downtime 2% 4%

The industry average for sales return is 13%.

How can we assessfinancial performance of the business in its first two quarters using the data in Table number 1.Write the detail whether the losses made by business in first two quarters are a fair reflection of current and likely future performance of the business.

Briefly comment on each of the non financial data given in Table 2,provide assessment of the performance of the business.