• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Analysis of Financial Statements for Business Y and Z

Extracts from this document...

Introduction

Name: Hassan Ahmed Unit: 2 Task: 8 Analysis of Financial Statements for Business Y and Z Y Z £ £ £ £ Sales 250,000 160,000 Less cost of sales Opening stock 90,000 30,000 Add Purchases 210,000 120,000 300,000 150,000 Less Closing Stock 110,000 50,000 190,000 100,000 Gross profit 60,000 60,000 Less expenses Wages 14,000 10,000 Salaries 10,000 10,000 General expenses 11,000 8,000 35000 28,000 Net profit 25,000 32,000 Retained profit at the beginning 15,000 8,000 40,000 40,000 Less appropriations General reserve 2,000 2,000 Dividend 25,000 20,000 27,000 22,000 Retained profit at the end 13,000 18,000 Business Y&Z Balance sheet as at December 2010 Y Z Fixed assets Equipment 12,000 3,000 Motor Lorries 18,000 13,000 30,000 16,000 Current Assets Stock 110,000 50,000 Debtors 62,500 20,000 Bank 7,500 10,000 180,000 80,000 Less Current Liabilities Creditors 90,000 16,000 Net working Capital 90,000 64,000 Net Total Assets 120,000 80,000 Financed By: Issued Share capital 100,000 50,000 Reserves General Reserve 7,000 12,000 Profit and loss 13,000 18,000 20,000 30,000 120,000 80,000 Solvency Current ratio The current ratio is An indication of a company's ability to meet short-term debt commitment; the higher the ratio, the more liquid the company is. Current ratio = Current assets Current liabilities This ratio shows how many assets a business has compared to liabilities. Business Y 180,000 90,000 = 2:1 Ratio For business Y this ratio indicates that current assets are twice as large as current liabilities. ...read more.

Middle

Net profit percentage This calculation takes the idea of profitability on stage further by actually considering the profit as a percentage of turnover after all the other expenses have been taken out. This shows the profit that the business has made before tax has been taken off. This also shows how well the business manages its other expenses especially when it is compared to the gross profit percentage. If a business has a high gross profit but a low net profit percentage, its day to day running costs such as wages, rent and insurance is too high, as they are taking too much profit from the business. Net profit X100 Turnover Business Y 25,000 X100 = 10% 250,000 This shows that business Y is not managing its operating costs (day to day running costs) as well as it should and should think about saving in some area such a rent, wages and insurance because they are taking too much money from the profits and cutting down on some operating costs it could increase the profit. Business Z 32,000 X100 = 21.3% 150,000 This shows that business X is not managing its operating costs (day to day running costs) as well as it should but it doing a better job than business Y because the net profit percentage is higher. They should also think about cutting down on operating costs in order to keep costs down and increase profit. ...read more.

Conclusion

The fewer the number of days means the business has better credit control, because it collects what is owed more quickly. Debtors X 365 = Debtors? collection period Credit sales Business Y 62500 X 365 =91.25 days 2500 This shows that business Y is not in a ideal position because it will have to wait 91 days, the problem of waiting 91 days to collect debts is that it increases the risk of not being paid and could end up losing the business money. The ideal time it takes it receive debts is on month and business Y is three times that amount. Business Z 20,000 X 365 =45.6 days 160,000 Business Z is a better position than business Y because it takes them 45 days to collect their debts which are just over the required amount of 30 days, which means the risk of not being paid is less than business Y. Asset turnover By using Asset turnover, the business is able to work out how many pounds it earns for every pound invested, this is a good indication for investors and shareholders for the business. Sales = asset turnover Total assets Business Y 250,000 = 1.39 180,000 Business Z 160,000 = 2 80,000 This calculation shows business Y is getting 1.39 pounds on every pound it invests in which is not as high as business Z. whereas business Y is making 2 pound on every pound it invest which means that is the better business to invest in. investors will look at this type of information to see where to invest in. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Accounting & Financial Management section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Accounting & Financial Management essays

  1. A2 Business CourseWork

    There is a number of ways that this can be achieved. Products on sale is pretty obvious, you don't want to stock things people never buy. Also product placement is key to increasing sales. Tesco will invest a lot of time and resources into studying this.

  2. Edexcel Applied Business A2 unit 11 finance task A

    Although they are receiving less money from shareholder Thomas Cook now has much more control over the business. Thomas Cook bought back shares when merging with My Travel Group as they would've wanted a higher control of the business. Thomas Cook has the right to issue 2billion ordinary shares at 10cents each.

  1. Introducing Accounting - Purpose, Information, Statements and Ledgers

    date of the transaction, title of the account debited, title of account credited, amount of the debit and credit, and description of the transaction. Journal is where the information from the source document first enters the accounting system, therefore it is known as the book of original entry.

  2. The maintenance of accurate records supplies the company with the financial data that assists ...

    Profit and loss, assets and liabilities: The key reason for any form of business in the private sector after survival is to generate profit at a point. In order for a business to determine its profit figure it needs to keep up-to-date records of its sales, expenditure and purchases figures

  1. Investigating Business Resources

    How do you push you're employees to work hard? Good payment, growing possibilities and a familiar atmosphere mutually. What if employees are sick? Nothing, see you get better soon as you can. Illness will be keep paying for 100%.

  2. In this section I am going to be looking at various life stages and ...

    one time and have paid the previous month's balance in full and on time) If not the interest rates will apply. The card is very flexible because it can be managed online from a computer or MAC to check balances etc.

  1. Financial Ratio Analysis.

    Other strengths are as follows: * It summarises relationships and results relevant to an organisation's performance. * It allows year-to-year performance comparison. * It allows performance comparisons of organisations in the same industry. * It allows trends to emerge and hence predictions to be made.

  2. ASSIGNMENT P5, M2 & D2- RATIO ANALYSIS

    As they are receiving their money back in a good period of time (a month), this indicates a positive and strong relationship between the company and its partners. This will be good in the future as well, simply because they will remain financially stable even after lending their partners money.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work