Please help with Maths sum. Thanks

[Jacksthelad]

Hi everyone I am new here just need a little help with this Maths question.
Thanks guys.



Michael is reviewing his home baking business after he has reported losses in the last six months. Here is a basic outlay of his financial figures.


Assets (What he owns)

Cash £7,000

Machinery £10,000

Motor vehicle £12,000

Liabilities (What he has to pay)

Loans £27,000

Overdrafts £19,500

Tax payable £18,000


Michael is now making £3,000 a month profit after all expenses, including overheads and staff costs, as demand for his produce is steadily increasing.

Should Michael continue his business based on these figures? Explain your answers with supporting details.

 

[Otis]

just need a little help with this Maths question … £3,000 a month profit after all expenses … Should Michael continue his business

Hi Jack. What kind of little help do you need?

From my reading of the posted information, Michael's financial situation is not entirely clear. For example, are the monthly payments toward the overdrafts and back taxes included in the monthly amount that you've described as "all expenses"? And how much are the monthly loan payments? Please ensure that you've shared all available information and instructions for this exercise.

Whether Michael "should" continue his business is up to him and his personal goals, tolerances and time table. Not really a mathematical question.

Explain your answers with supporting details.

What have you thought about, so far?

 

[Jacksthelad]

Hi Jack. What kind of little help do you need?

From my reading of the posted information, Michael's financial situation is not entirely clear. For example, are the monthly payments toward the overdrafts and back taxes included in the monthly amount that you've described as "all expenses"? And how much are the monthly loan payments? Please ensure that you've shared all available information and instructions for this exercise.

Whether Michael "should" continue his business is up to him and his personal goals, tolerances and time table. Not really a mathematical question.


What have you thought about, so far?

Hi Otis, I was given this question to do, as I am studying Functional skills Maths at Level 1. I have copied the sum out exactly as it was presented. I believe it needs a yes or no answer with some justification, i.e. some workings out. Can you help? Thanks

 

[Otis]

Can you help?

Hi. I cannot help without first making a number of assumptions.

Mainly, I'd like to approximate how many months it will take Michael to pay off those three debts. It's not clear whether he's making monthly payments toward those debts or how much. He's making £3,000 profit each month "after all expenses, including overheads". So, you tell me. Shall we assume that payments toward all three debts are being made monthly and that those debt payments are included in "expenses" and/or "overhead". (That would be easiest, I suppose.) Or, shall we assume that Michael doesn't make monthly payments toward each of the three debts. Shall we assume that some debt payments are made quarterly and that those payments are taken from profit?

£3,000 is currently more than $4,060 US. That seems like a nice income, but what are Michael's personal expenses? What's the cost of living like, in his area? Is he married? How many mouths does he have to feed? Is he putting four daughters through college? Is he helping to support a parent in poor health? It seems like we have to make a lot of guesses, before deciding if Michael "should" keep his business.

They haven't provided a clear picture of Michael's finances, so I assume that we get to decide the details. Let's start by making some choices. Please state your assumptions.

Any 'yes or no' answer and justification will be our personal opinions. In other words, there is no right or wrong answer to this question, as long as our eventual math is correct. I'd asked you what you've thought about so far. What sort of workings have you tried?

 

[Jacksthelad]

Hi, this is what I came up with.

What Michael owns?

7000+ 10 000+ 12 000= 29 000

He owns £29 000



What he has to pay?

27 000+ 19 500 + 18 000= 64 500

He has to pay £64 500



64 500- 29 000= 35 500

Liabilities - £35 500

Profit - £3000 a month

Michael can continue with his business. If he pays his profit towards expenses each month , he could be debt free in 12 months



£3000 × £12= £36 000

Appreciate the assistance.

 

[Otis]

He owns £29 000
He has to pay £64 500

64 500- 29 000= 35 500
Liabilities - £35 500

Hi. Please do not type a minus sign in front of a number unless you're actually subtracting the number.

I agree with your totals above. However, reducing Michael's debt by subtracting the value of his machinery and vehicle would mean that he's already liquidated those assets. (To stay in business, I've assumed that he needs to keep the machinery and vehicle.)

He could use some of the £7000 cash on hand to pay down his debt. How much cash he needs to retain on hand is up to us to decide.

What are your assumptions regarding the statement about profit after "all expenses"? Have you decided that he earns £3000 profit each month after making loan, overdraft and tax payments? If you assume that he is making debt payments, how much each month?

 

[Otis]

I ought to have asked about your classwork, earlier. What sort of financial math has your class discussed? Have they provided any considerations or formulas for determining the health of business finances? The given exercise is vague. It's not clear to me what your instructor expects to see.

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