Task 1

List with description at least two sources of internal and

external finance for Al Shams Engineering SAOG (SE).

Source of finance:
Source of finance is a method of getting funded for a business. Most of
the time employer needs funds for raising business or to increase
productivity. And for that he needs funds means money or cash. This
money or fund is provided by some sources and these sources are known
as source of finance.

These sources are of two types.

 Internal sources
 External sources

Different companies have different way of getting financed; I am given

the company named, Al Shams Engineering SAOG (SE). In this task I
am going to describe these two different sources of finance according to
Al Shams Engineering SAOG (SE).
First I am going to elaborate internal sources of finance, definition, its
uses and how Al Shams Engineering SAOG (SE) is using these internal
sources of finance.

Internal sources:
Internal sources are the money found inside the business. The money
saved from the business or the kept money for some business purpose.
We know every company needs money for its smooth working and for

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future progress and this money should come regularly in the company.
Internal finance is usually easy to arrange because it is the money
obtained from inside the organization. Large amount of money
sometimes internal sources cannot provide, but small amounts are easily
provided by internal sources of finance. Al Shams Engineering SAOG
(SE) is also a company which is arranging finance internally from few
sources.
In this part of assignment I am going to describe these internal sources in
brief. Following are few internal sources which are used by Al Shams
Engineering SAOG (SE).

 Personal capital:
Personal capital is an income or money which is found in the
company or organization, kept as a saving or the money kept for
unpredictable expenses of the company.
In Al Shams Engineering SAOG (SE), employer can use their
personal saving, or the directors can use their personal saving
when needed. Directors or investors of Al Shams Engineering
SAOG (SE) can use their personal saving as investment in the
company on which they can get some more benefit also in the
future.
 Working capital:
The capital or money of any business or organization used in their
day to day operations, and it is calculated as current assets minus
current liabilities.
Directors of Al Shams Engineering SAOG (SE) can use their
working capital for the betterment of their organization whenever
necessary. And this capital is calculated as the positive difference
of their current assets and current liabilities. If this difference is
positive that means that organization and the ration of current

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 asset and current liabilities is more than one and below two means
the organization is doing well.
 Sale of stocks:
Sale of stocks or assets is a term when company sells their assets
in need of time. This is the money used in need of time. For this
need, a company has to have some assets with it which they can
use in their time of need.
Al Shams Engineering SAOG (SE) has a good amount of assets
and they are using their assets on their time of need. In other
hand, it could work as a short-term or long-term financing
depending on what kind of assets are sold. For example, selling a
vehicle or extra furniture can meet the smaller financial needs in
the short term and selling land, buildings, or machines can meet
the bigger financing needs in long-term. But there is some
drawbacks also in this type of money. The big drawback in this
type of internal sources of finance is that these assets cannot be
sold for more return. These assets are already used and are called
second hand. One of the possible and the perfect solution to this
situation is a "rent back sale '. It is a type of lease under which we
can get the necessary cash, and at the same time the use of assets
under concern in exchange for the lease rental. With this option,
the work ultimately may end up paying more money in the long
term, but the current financial problem can be solved.
 Fixed assets:
Fixed assets are the assets which are purchased for long term and
those are not likely to be sold and converted into money are
called fixed assets. For example if a company is buying some
land or expensive equipments. These are called as fixed assets.

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 Al Shams Engineering SAOG (SE) has some fixed assets. These
fixed assets have a good valuation and are used for future
investment.
Fixed assets are also known as tangible assets or property plant
and equipment. This is the property which cannot be easily
converted to cash; these assets are long term and cannot be
converted easily into money.
Al Shams Engineering SAOG (SE) purchased some high quality
equipments and invested some money in land also.
 Debtors:
A person who owes money to the company or organization is
called a debtor. A company or organization can raise the finance
by collecting or taking back the money owed to them from their
debtors. All the business doesn’t have debtors. But the companies
having debtors can get their money back in times of need. This is
a short term way of finance.
Al Shams Engineering SAOG (SE) is also having some debtors
and they can get financed by the money they owe from their
debtors. The only problem in this type of internal source of
finance is that if the debtor goes bad and denies returning the
money he owed.

These are some internal sources which are used by Al Shams

Engineering SAOG (SE).
Now I am going to elaborate about External sources definition, its uses
and how Al Shams Engineering SAOG (SE) is using external sources of
finance.

External sources:

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Different ways or methods or venues for obtaining fund or money from
outside the business is called as external sources of finance. When a
company cannot arrange the required funds or money from inside
sources of finance then company has to look for some external sources
which can help or provide finance externally in some documented
methods like loan, new business partner, equity funds etc. Al Shams
Engineering SAOG (SE) is also using few external sources of finance to
raise funds or to solve money matters.
In this part of assignment I am going to describe these external sources
in brief. Following are some external sources which Al Shams
Engineering SAOG (SE) is using for solving money matters in the
company.

 Business loan:
Business loan is a type of external source of finance used by many
companies or organizations, especially small businesses. This type
of source is actually money borrowed by a business at an agreed
rate of interest to be paid over a set period of time to return.
This type of finance is usually a medium or long-term source of
finance. And most of the companies use this source of finance
many times.
Al Shams Engineering SAOG (SE) is also having some bank loans
to be paid. Theses bank loan are to be paid with some interest and
for a number of months which is signed between the bank and Al
Shams Engineering SAOG (SE).
 Share holders:
Some limited companies go for share issuing, means some
companies issue share of their business for the other parties, and
other parties buy those shares to become a share holder of a
company. This is a long term source of finance. Company doesn’t
have to repay the money unless the share holder wants to take a
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 step back. Moreover company doesn’t have to pay interest also to
the share holders.
Al Shams Engineering SAOG (SE) is also have few shareholders,
and theses shareholders invested their money on account of certain
conditions which is mutually agreed by both the company that is
Al Shams Engineering SAOG (SE) and the share holders.
 Commercial mortgage:
Commercial mortgage is a mortgage loan usually taken against the
commercial property such as company building, industrial
warehouse, shopping centers etc.
Al Shams Engineering SAOG (SE) can take commercial mortgage
loan if they require cash in hands.
 Leasing:
Leasing means assets on rent. Without paying a large amount,
assets can be taken for the company. This provides a company
better and updated assets.
Al Shams Engineering can get the required assets on lease. This
source of finance is very common and small companies are used
to it.

These are some external sources of finance used by Al Shams

Engineering SAOG (SE).

Advantages of internal sources of finance

 More ownership:
Internal sources of finance provide more ownership. Company is
using the money from inside the company itself; therefore
company completely owns the business.
 More control:
Internal sources give more control on the business, because money
required is arranged within the company.
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  Less interest:
Company tries to arrange the money from inside the company
therefore they don’t have to pay any big interest to any bank.
 Better company value:
Internal sources of company make the company more in valuation.

Disadvantage of internal sources of finance

 Capital needs:
Internal sources can provide very few requirements, as the money
saved in the company or taken from the assets is very less. For big
capital needs, company is unable to fulfill its requirements from
internal sources.
 Knowledge requirement:
How to use internal sources is a big question, company should
have a thorough knowledge regarding the requirements and uses of
the company and the money saved in the company. This is
drawback if company is lacking in knowledge and don’t know
what is required in the company to run it smoothly without hassles
and problems.
 No tax benefit:
Internal sources don’t get any tax benefit from the government,
unlike the external sources. This is a big disadvantage of internal
sources of finance.
 No discipline:
Internal sources are provided within the company, so they are not
usually bound with rules and regulations. Therefore it is difficult to
be in discipline. This is also a big disadvantage of internal sources
of finance.

Advantages of external sources of finance

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  Increased growth rate:
External sources of finance can increase growth rate of company.
The money received from external sources of finance is not limited
like internal sources of finance. That means more money can solve
more issues and can provide the necessary things and needs will be
fulfilled. This is an advantage of external sources of finance.
 Competitive position:
To be in the competitive position, company requires money.
Internal sources cannot provide this extra money. External sources
can help a company to be competitive in the corporate world by
providing good amount of money.
 Preserving your resources:
External sources of finance give you extra money which is
required for the business; because of it internal resources can be
preserved.

Disadvantage of external sources of finance

 Sacrifice:
Extra money cannot come without sacrifice. When you get this
extra money from any other external sources of finance, you have
to give your little control to the shareholders also, means your
share holders want to know the details of the company balance
sheet, and where you are using their money is a big concern for
them.
 Added scrutiny:
When you take money from external sources, you have to provide
your progress report to them periodically. They will assess your
business on some interval to check whether their money is in safe

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 hands. This will give you extra workload and it is a big
disadvantage of external sources of finance.
 Interest:
External sources of finance will ask for some interest on the money
provided by them. Like if you have taken any bank loan or taken
money from any firm, they will charge you a good percentage as
an interest for the money given to the company. This money as
interest can be a very big amount.
 Ownership:
Some external sources of finance like share holders can ask for
ownership in the company. Means the share holders can ask for the
partnership of some percent in the company. This will make the
owner of the business with less ownership.

These are the advantages and disadvantages of internal and external

sources of finance.
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Task 2
Using the financial statements of Al Shams Engineering
SAOG (SE) provided in Appendices, interpret three key
elements of the trading and profit and loss account and
balance sheet. Give a brief explanation of the purpose of
each of the mentioned elements.

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There are three types of accounts in
any business. I am going to
elaborate all the accounts with
contents in detail. They are as
following.
 Trading account
 Profit and loss account
 Balance sheet
Trading account:

Trading account is a statement made in the beginning of all the accounts.

This is the initial accounts showing gross profit of previous year and
gross loss of previous year, sales and services, and costs of goods sold in
the following year.

Al Shams Engineering SAOG (SE) also shows a good turnover or sales

in 2013, it is little less in 2012.

 Sales:
Sales are the total value of what have been sold during the given
period of time. It is the total calculated value of sold goods. It is
the total sales value.
 Cost of goods sold:
Cost of goods sold is the cost directly related to the sales made by
any company.

Profit and loss account:

Profit and loss account is an account in which incomes and gains are
credited and expenses and losses are debited. The profit and loss
statement is a financial statement which outlines the revenues, expenses
and costs received during a specific period of time. These are the records

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of Al Shams Engineering SAOG (SE), showing their balance sheet,
which provides ability of the company to generate profit by increasing
revenues and reducing costs or making loss by reducing profit and
increasing cost.

 Gross profit:
Gross profit is a profit calculated as a company's total revenue
minus the cost of goods sold. Gross profit is the profit an
organization or a company makes after subtracting the costs related
to making and selling their products, or the costs related to
providing its services.
 Net profit:
Net profit is referred as net income or net earnings. Net profit is the
actual profit without including all other expenses. Net profit is the
presentation in which it is represented that how much money the
company has received by doing business over a period of time.
This is shown in the income statement of the account of the
company. Net profit is actually calculated as total revenue minus
total expenses of that company.
In Al Shams Engineering Company SAOG (SE) is making
increasing net profit. From 2011 to 2013 net profit is increasing
gradually every year.

Balance sheet:

Balance sheet is a statement containing assets, liabilities, and owner’s

equity. Balance sheet of accounting of any company is one of the very
important financial data used by accountants and business owners of any
company. This is also referred as the balance sheet statement of financial
position in any organization or company.

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This balance sheet provides the financial position of the Al Shams
Engineering SAOG (SE). The balance sheet shows assets, liabilities, and
owner’s equity in the statement.

As you can see in the consolidated statement of Al Shams Engineering

SAOG (SE), liabilities are increasing from 2011 to 2013, and assets also
increasing from 2011 to 2013.

 Assets:
Asset is a property owned by a person or company, and this asset
will have a value and it will be available to meet all debts,
commitments, or legacies.
Assets mean the things or property owned by company in very
simple language.
In Al Shams Engineering SAOG (SE), you can see in appendices
that the company’s assets are on growing rate.
Assets in balance sheet include bank balance and cash, inventories,
property and equipment, contract and other receivable.
 Liabilities:
Liabilities are the amount to be paid or already paid for the service
or goods. The expanses which are owed to the creditors of the
company for the previous transactions, which is usually written as
the word "payable" in the balance sheet accounts
You can see in the statement of Al Shams Engineering SAOG (SE)
liabilities are increasing from 2011 to 2013, but are less than the
assets of the company.
 Owners equity:
Owners equity means, owner’s investment in the business minus
owners withdrawals from the business plus the net income of the
company or minus the net loss of the company. In other terms it is

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 the amount of assets minus the amount of liabilities. And it can be
calculated as subtracting liabilities from assets.
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Task 3
a. Find out the following ratios for Al Shams Engineering
SAOG (SE) from the period of 2011 to 2013:
1. Current ratio
2. Acid test ratio
3. Gross profit percentage
4. Net profit percentage
5. Return on capital employed
6. Stock turnover
7. Debtors’ collection
8. Assets turnover
b. Based on the calculation of the ratios, explain and
provide judgment of how the accounting ratios can be
used to measure the financial performance of the chosen
business.
c. Write your opinion about the financial states of Al
Shams Engineering SAOG (SE) by using the accounting
ratios.
a) In this part of assignment I am going to find out the following
ratios for Al Shams Engineering SAOG (SE) for the period of
2011, 2012 and 2013.
All the calculations are done according to the statement provided
by Al Shams Engineering SAOG (SE). And these ratios are going
to describe the profit and loss of the company.

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 1. Current ratio
Current ratio = Current assets ÷ Current liabilities

2013 2012 2011

30,982,609 26,351,617 26,228,039
Current ratio= -------------- Current ratio= -------------- Current ratio= --------------
26,070,375 20,865,355 19,930,336

= 1.188 = 1.263 = 1.316

2. Acid test ratio

Acid test ratio = Current assets – stock
Current liabilities

2013 2012 2011

Acid test ratio= Acid test ratio= Acid test ratio=

30,982,609 – 3,721,307 26,351,617 – 3,964,155 26,228,039 – 18,762,703
= ----------------------------- = ----------------------------- = -------------------------------
26,070,375 20,865,355 19,930,336

= 1.046 = 1.073 = 0.375

3. Gross profit percentage

Gross profit percentage = Gross profit ÷ Total revenue × 100

2013 2012 2011

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Gross profit percentage = Gross profit percentage = Gross profit percentage =
5,930,124 5,476,465 6,332,234
= ----------------- x 100 = ----------------- x 100 = ----------------- x 100
45,031,292 35,210,730 44,973,293

= 13.17 % = 15.55 % = 14.08 %

4. Net profit percentage

Net profit percentage = Net profit ÷ Turnover x 100

2013 2012 2011

Net profit percentage = Net profit percentage = Net profit percentage =

2,019,873 2,116,789 2,866,875
= ----------------- x 100 = ----------------- x 100 = ----------------- x 100
45,031,292 35,210,730 44,973,293

= 4.485 % = 6.012 % = 6.374 %

5. Return on capital employed

Return on capital employed =Net profit before tax × 100

Capital employed

2013 2012 2011

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Return on capital employed = Return on capital employed = Return on capital employed =
2,347,784 2,255,922 3,201,110
= ---------------------------- x 100 = ---------------------------- x 100 = ---------------------------- x 100
45,055,891–26,070,375 38,024,981–20,865,355 34,807,029–19,930,336

= 12.366 % = 13.147 % = 21.52 %

6. Stock turnover
Stock turnover = Sales ÷ Inventory

2013 2012 2011

45,031,292 35,210,730 44,973,293
Stock turnover = --------------- Stock turnover = --------------- Stock turnover = ---------------
3,721,307 3,964,155 18,762,703

= 12.10 = 8.88 = 2.39

7. Debtors’ collection
Debtor’s collection = (Debtors ÷ Credit sales) x 365

2013 2012 2011

Debtors collection = Debtors collection = Debtors collection =

=(26,648,818÷16,373,688) x 365 =(21,687,528÷12,622,013) x 365 =(5,809,654÷10,555,577) x 365

=594.1 days =672.2 days =200.9 days

8. Assets turnover
Assets turnover = Sales ÷Total asset

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 2013 2012 2011
45,031,292 35,210,730 44,973,293
Assets turnover = --------------- Stock turnover = --------------- Stock turnover = ---------------
45,055,891 38,024,981 34,807,029

= 0.999 = 0.926 = 1.292

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b) Based on the above calculations, I will explain how each

calculation can be used to measure the performance of Al Shams
Engineering SAOG (SE) in the financial.

1. Current ratio:

Current ratio is the ratio which shows how much money is there
in the company, means, it is a liquidity ratio measures the
company’s ability or capacity to pay some short terms and some
long terms payments which are obligatory upon the company.
This ratio shows the total current assets compared with total
current liabilities.

If current ratio of the company is more than 1 that means

company is able to pay all its liabilities. And if less than 1 that
means company is in some danger.

As you can see in Al Shams Engineering SAOG (SE) current

ratio was very good in 2011 which was 1.316, but by the time
2013 it reduced to 1.188. This is also a good current ratio but
continuous decrease can cause problem in future.

2. Acid test ratio

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 Acid test ratio is ratio which describes the ability of a company
or organization to use its quick cash to finish its current
liabilities. Quick assets are those assets which can be easily and
quickly can be converted into cash.

If acid test ratio of the company is more than 1 that means

company is able to pay all its current liabilities by using the
cash collected from selling its current assets. And if less than 1
that means company cannot meet its requirement on time.
As you can see in Al Shams Engineering SAOG (SE) current
ratio was below than 1 in 2011 which was 0.375, but by the time
2013 it increased to 1.046 which is quite good acid test ratio, it
means company can pay all its current liabilities on scheduled
time.

3. The gross profit percentage

The gross margin percentage is a calculation that shows the

proportion of sales made of those costs which are directly
related to one of them, either the goods sold or services rendered
in order to find sales.

Al Shams Engineering SAOG (SE) is giving 14.08 % gross

profit percentage in 2011 and 15.55% in 2012 and 13.17% in
2013.

4. Net profit percentage:

Net profit percentage is a ratio of net profit with turnover. It is

the percentage revenue remaining after all the expenses have
been deducted from the revenue.

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 In Al Shams Engineering SAOG (SE), you can see how net
profit percentage is decreasing year by year. It was 6.374 in
2011 and reduced to 4.485 in 2013.

5. Return on capital employed

Return on capital employed means it’s a ratio of showing the

ability of a company generating profits from its capital
employed by comparing net profit to capital employed. This
will give the ability of a company.

This percentage was very good on 2011 as it was 21.52 % in Al

Shams Engineering SAOG (SE), but by the time 2013 it reduced
to 12.36 %

6. Stork turnover

Stock turnover is a ratio which shows that how many times a

company is selling its stock and replace over a period of time.
Then stock turnover is divided by the days in the period and
then the company will know the days required to sell the stocks
in hand. It is calculated as sales divide by average stock.
As you can see in the appendices stock turnover is increasing
over the period of time. It was 2.39 in 2011 and increased to
12.10 in 2013.

Stock turnover should be less, as it will show the days required

to sell the stock and earn the profit. For finding this we can
divide the days in the period with this ratio and we will get the
stock turnover ratio. This ratio should always be low which will
tell the company that they are doing progress in selling the stock
or not.

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7. Debtor’s collection

Debtor’s collection is a ratio which shows that the time required

collecting the money given to others as a debt. This is the
money which belongs to the company but given to some firms
or any other person. This ratio is calculated by dividing debtors
and credit sales and multiplied with the given period in the table
which will be most of the time 365.

This ratio should be low as this will show the days required to
collect the debt from others. And this ratio should be low.

As you can see in the appendices of Al Shams Engineering

SAOG (SE) debtors collection is quite high. It is 200.9 days in
2011 and it’s increased very high in 2012 as it became 672.2
days. And little bit reduced again in 2013 as 596.1 days.

8. Assets turnover

Asset turnover ratio is the ratio of sales or revenue with respect

to the value of total assets generated in the company. Asset
turnover ratio often indicates the efficiency of any company
with which a company is using its assets in generating revenue
for the company.

Asset turnover ratio should be more to indicate the efficiency of

the company. In the appendices you can see that Al Shams
Engineering SAOG (SE) is not doing that enough. It was 1.292
in 2011 and reduced to 0.926 in 2012 and little increased in
2013 as 0.999.

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 This ratio is the ratio to show the efficiency of the company as it
will tell that how much is its assets are and how much is the
revenue is generating.

**********************************************************

c).My opinion about the financial states of Al Shams

Engineering SAOG (SE) by using the accounting ratios.

In this part of assignment I will talk about my opinion about the

financial states of Al Shams Engineering SAOG (SE).

As you can see in the appendices and in the ratios calculated above, Al
Shams Engineering SAOG (SE) is not doing very well. Company’s
progress from 2011 to 2013 is ok and company’s performance was also
ok. As you can see current ratio was very good in 2011 which was
1.316, but by the time 2013 it reduced to 1.188. This is also a good
current ratio but continuous decrease can cause problem in future. As
you can see current ratio was below than 1 in 2011 which was 0.375, but
by the time 2013 it increased to 1.046 which is quite good acid test ratio,
it means company can pay all its current liabilities on scheduled time. Al
Shams Engineering SAOG (SE) is giving 14.08 % gross profit
percentage in 2011 and 15.55% in 2012 and 13.17% in 2013. In Al
Shams Engineering SAOG (SE), you can see how net profit percentage
is decreasing year by year. It was 6.374 in 2011 and reduced to 4.485 in
2013. This percentage was very good on 2011 as it was 21.52 % in Al
Shams Engineering SAOG (SE), but by the time 2013 it reduced to
12.36 %. As you can see in the appendices debtors collection is quite
high. It is 200.9 days in 2011 and it’s increased very high in 2012 as it
became 672.2 days. And little bit reduced again in 2013 as 596.1 days.
Asset turnover ratio should be more to indicate the efficiency of the

21
company. In the appendices you can see that Al Shams Engineering
SAOG (SE) is not doing that enough. It was 1.292 in 2011 and reduced
to 0.926 in 2012 and little increased in 2013 as 0.999.
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Task 4
The CEO of Al Shams Engineering SAOG (SE) called for an
urgent meeting because the quarterly sale is declining and
not as expected, but the profit is good. One senior manager
suggested that the company should review its budget and he
argues that “Proper budgeting enables effective planning of
the company’s operations and serves as a monitoring tool”.
a. What are the budgeting problems that could have
caused such a decline in the sales although profits were
as expected? Suggest solutions to those problems.
b. “Costs need to be controlled with budgets”, analyze this
statement by using break-even chart to support your
answer and show how the chart could be used to
manage the costs of business.
c. Evaluate the problems that you have expected in part
“a”, what are the potential consequences for the
organization.
a. Illustrate the use of budgets as a means of exercising financial
control of a selected company.
Budget: Budget is an estimate of income and expenditure for a set
period of time in any company. There are many types of budgets.

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Al Shams Engineering SAOG (SE) should see through the budget and
make the necessary changes. Total cost of the company should be
reduced. Assets should be increased more and liabilities should be
decreased more. This will make improvement in profit making.

 Fixed budget: A budget which is unchanged. Fixed budget is also

known as static budget and it is a fixed budget that remains
unaltered or unchanged regardless of changes in factors such as
sales volume or revenue.
 Zero based budgets:
Zero based budget is a method in which budgeting is done in a
different way. In this budgeting system all expenses must be
justified for each new period of the company. Zero based
budgeting starts from the base where everything is zero. And every
function of the company or organization is analyzed according to
its needs and costs.
 Incremental budgets:
Incremental budget is budget which is prepared by using previous
period’s budget. Or you can say the actual performance of the
company as a basis with new incremental amounts added to it for
the new budget. All allocations of resources are based upon the
previous period’s budget.

Costs:
Cost is the monitory value of the anything that a company has spent in
order to produce the desired things.

 Fixed cost:
A cost which is fixed in short term is called fixed costs. This fixed
cost cannot change irrespective of changes in production or sales.
Fixed cost doesn’t change with the change of any measure activity.
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 This is a basic operating expense that can’t be avoided, such as
payment, rent and other expenses.
 Variable cost:
Variable costs are costs which can vary according to the
company’s production and sales volume. Variable costs rise as
production increases and fall as the production decreases; this is
the phenomenon of the variable cost. Variable cost is very different
from fixed cost.

 Total cost:
Total cost is the sum of fixed costs and variable costs. Al Shams
Engineering SAOG (SE) should lower its total cost by keeping eye
on the cost and reducing it will give the company a better
understanding of how to increase the profit. This will take the
company on higher profit. Company can take strong decisions on
reducing total cost by decreasing the number of employees. Less
employees means more money in the company to circulate in the
staff. This will ensure the staff to do their job with sincerity. And a
job satisfaction will come in all the employees.
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Selling price:
Selling price is a value or agreed exchange value by which you can
purchase or sell a definite quantity or other measure of goods or service
from the company or any organization.

Al Shams Engineering SAOG (SE) should try to lower their selling price
of the company to increase the number of sales. And they should provide
good quality material.

Increase volume of sales leads to an increase in fixed costs per unit

production capacity when capacity exceeds current mechanism or space
of the current facility. Add a second or third shift of production will not
increase the total fixed costs. Decrease in the sale of low-cost value of
the goods. When the fixed and variable costs have fallen, the cost of sale
also drops, because the company will be less the expenses to cover, so

25
they produce their goods in a reasonable manner and sell them with low
prices, and many people then be able to buy products.

What went wrong?

In this part of assignment I will discuss the points which went wrong or
you can say against Al Shams Engineering SAOG (SE) and made it
suffer to have minimum profit.
Al Shams Engineering SAOG (SE) can increase their profit by reducing
their cost, increasing the sales and by doing good marketing.
They should increase their marketing team’s members and try to reduce
other staffs which are unnecessary and not required in the company.
They can increase the quality of raw materials and quality of the service
provided by them. This can be done with the good knowledge and skills.
These are few things which can make the Al Shams Engineering SAOG
(SE) to make a good profit.
**********************************************************

b. Analyse the reasons why costs need to be controlled to budget.

Following are the reasons which will tell you that why costs need to be
controlled to budget.

 Costs need to be
controlled because
if a company
doesn’t control the
costs in the budget,
it will make a big
difference in the
balance sheet. Profit
will be less and it
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 will cause the employees to resign the job and unemployment will
increase. Al Shams Engineering SAOG (SE) can control the costs
and making the budget up-to-date.
 Employing too many staff will make a business collapse. More
staff will make more salary giving. And this will make a
misbalance in budget. Al Shams Engineering SAOG (SE) can
make the staff reduction can control the cost of the company.
 Controlling the budget will make the records better. As there will
be eye on the budget and there will be less chances of making loss.
 Overall expenses can be reduced by controlling the cost in the
budget. Expenses can be managed as there is a good control on
budget.
 Mangers can make better plans for the company as they know the
cost control and budget control.

These are the few points which can be taken care by Al Shams
Engineering SAOG (SE) and it can
**********************************************************
c. Evaluate the problems they have identified from unmonitored
costs and budgets.
In this part of the assignment I am going to elaborate few points which
will show you that unmonitored costs and budget can create problems
and make the profit down and company can suffer with loss. Looking at
the appendices of Al Shams Engineering SAOG (SE), I can say that
there are some costs which should not be ignored and a while making
budget these points should be taken care.
Unmonitored costs are the costs which are not monitored at all and not
observed at all by company. These unmonitored costs can bring major
problems in the company. That is the reason, it is very important for any

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business to monitor the budget and control the costs at any time.
Following are some reasons according to my observation which can
benefit the company if taken under consideration.

 The first and main problem can arise if the costs are left
unmonitored is that the amount spend on expenses will increase
too much, and this will make the profit to drop below the
expectations.
 The company would not be able to achieve its goal, and it will be
difficult to identify the main culprit behind this failure.
 Next problem can be that serious faults can occur in the business if
a company doesn’t control the costs and budget. For example
company may have collected very big stock and this stock may be
stored in the stock room and by the time this stock can go out of
fashion. This means the stock will remain in the stock room or
company has to sell it on very low selling price which will turn in
very big loss for the company.
 Over expenditure can happen in certain companies if cost is not
monitored. Over expenditure means spending more money in the
beginning of the year without seeing the budget and costs. This can
lead to very big depreciation of the stock purchased and can result
in big loss. And business has to bear this loss if costs are kept
unmonitored.
These are few problems which can arise if costs are kept unmonitored in
any business.
You can see in appendices of Al Shams Engineering SAOG (SE), they
have spend more money on the things which doesn’t need this much
money. Bank loans are also very high; accounts payable is increasing
every year. And it is almost one and half times then in 2011. In 2011 it
was quite affordable but by the time 2013 it reached the point where
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anyone can say that it is high. Liabilities are increasing and assets are
decreasing. Although the ratio of assets and liabilities is good, but this
can lead to problems in the future if untreated.
Al Shams Engineering SAOG (SE) has to take these points as an alarm
and should concentrate on the budget and should keep a strict eye on the
costs and expenditure. This will help them to reduce the fear of loss and
increase the profit in the upcoming years of the company, which can be
a good company in the future.

These were few points according to my observation which i stated in this

part of the assignment after seeing all their calculations of ratios and
their budget and appendices.
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References

https://www.google.com/#q=if+acid+test+ratio+is+more+than+1

https://www.google.com/search?q=total+cost+graph&biw

https://www.google.com/#q=total+cost+graph

https://www.google.com/#q=stock+turnover+definition

http://www.accountingtools.com/gross-profit-percentage

http://www.wikihow.com/Calculate-Credit-Sales

https://en.wikipedia.org/wiki/Debtor_collection_period

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https://en.wikipedia.org/wiki/Budget

https://www.google.com/#q=trading+account+components+

https://www.google.com/?gws_rd=ssl#q=balance+sheet+contents

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