Table of Contents
Part 1: Business Performance Analysis.
1.1 Statement of profit or loss.
Total profits against revenue.
Profit or loss margins.
1.2 Statement of financial position.
ROCE and ROE.
Net Asset Turnover
Current Ratio and Acid Test Ratio.
Gearing Ratio and Debt/Equity Ratio.
Part 2: Understanding financial information and management of cash.
2.1 Accruals vs. cash accounting.
2.2 Profit vs. cash flows.
Part 3: budget and company finance.
3.1 Meaning and purposes of budget
3.2 Benefits of forming a limited company and getting it registered on a stock exchange.
Appendix: Supporting calculations.
Calculation related to the statement of profit or loss.
Calculation related to the statement of financial position.
This report has three parts for analyzing the financial performance of the business of T-shirts Plc. Part one includes the business performance analysis that includes the statement of profit or loss and the statement of financial position of T-shirts Plc. Part two includes the understanding of financial information and management of cash that contains the accruals vs. cash accounting and profit vs. cash flows of T-shirts Plc. Part three analyses the budget and company finance that indicates the meaning and purposes of budget and the benefits of forming a limited company and getting it registered on a stock exchange.
Part 1: Business Performance Analysis
1.1 Statement of profit or loss
Rosemary (2020) stated that the profit or loss statement is regarded as a financial statement of business that includes the revenues, costs, and expenses over a certain period of time. This statement is normally prepared in a quarter or year. The main aim of this statement is to identify the financial information of the company and the business’s ability to generate profit by a reduction in cost and enlargement of revenue. The main steps of preparing a profit or loss statement include the selection of a time frame, identify the revenue for the time frame, identify the total expenses of the time frame and find the gross profit by subtracting the total costs from the total revenue of the time frame (Wormald, 2018). This statement focuses on the amount of earning capability of the business. It is also called an income statement that contains either net profit or a net loss. If the revenue exceeds the costs, it is termed as net profit (Awatey, 2018). On the contrary, if the costs exceed the revenue, it is termed as a net loss. The regular net profit of a business indicates the good financial capability of the business. But the regular net loss of a business indicates the bad financial capability of the business.
Total profits against revenue
The analysis of the Profit or loss account of T-shirts plc, has found that the total profits against the revenue in 2018 and 2019. This company has £2101000 as revenue in 2018 and £1366000 as revenue in 2019. The gross profit of the business was £1261000 and £615000 in 2018 and 2019 respectively. The operating profit of the T-shirts plc was £441000 in 2018 but the net operating loss was £394000 in 2019. The net profit of the T-shirts plc was £372000 in 2018 but the net loss was £500000 in 2019. From the analysis of the data, it has been notified that T-shirts plc had a good condition in 2018 but this company has faced difficulties in the financial management in 2019 that reduces its revenue and profits.
Chart: T-shirts plc profits against revenue (in £000) in 2018 and 2019
Profit or loss margins
The following figure represents the profit or loss margins of T-shirts Plc in 2018 and 2019. The gross profit margin of the business was 60.02% and 45.02% in 2018 and 2019 respectively. The operating profit margin of the T-shirts plc was 20.99% in 2018 but the operating loss margin was 28.84% in 2019. The net profit of the T-shirts plc was 17.71% in 2018 but the net loss margin was 36.60% in 2019. From the analysis of the data, it has been notified that T-shirts plc had good profitability in 2018 but this company could not be generated enough profit margin in 2019 due to financial challenges and difficulties.
1.2 Statement of financial position
A statement of financial position represents the value of a business on a specific date. It is also termed as a balance sheet which includes the assets, liabilities and owners equity of a business over the duration (Halsey, 2018). The financial position statement helps to understand the business position in a particular period of time by which a firm can take the decision to improve the financial position of the business. This statement is prepared on the basis of following some steps. Firstly, it starts with the heading of the name of the company and then identifies the short-term and long-term assets. After that, this statement presents the liabilities of the entity and adds the owners’ equity (Gitman and Chad, 2018). Both sides of the balance sheet are equal and there is no balance.
In case of T-shirts Plc, this company is facing challenges due to the present economic climate and increase in expenses. Additionally, this company has needed more costs for advertising to increase sales. In addition, this company has also increased the credit duration terms and the interest is also higher for the band overdraft. For this reason, this company has faced challenges to ensure financial soundness on the basis of liquidity risk, financial risk, credit risk and business risk. The ROCE and ROE, Net Asset Turnover, Inventory Turnover, Current Ratio and Acid Test Ratio and Gearing Ratio and Debt/Equity Ratio of this company in 2018 and 2019 are presented and described below:
ROCE and ROE
ROCE stands for return on capital employed of the business firm and ROE stands for return on equity (Paramasivan, 2019). By the analysis of ROCE and ROE of T-shirt plc, it has notified that this company has a positive return on equity and return on capital employed in 2018. But this company has a negative return on equity and return on capital employed in 2019. The return on equity of this company was 46.05% in 2018 but it was (161.29%) in 2019. The return on capital employed of this company was 26.29% in 2018 but it was (23.18%) in 2019……………………………………
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