• Join over 1.2 million students every month
• Accelerate your learning by 29%
• Unlimited access from just £6.99 per month
Page
1. 1
1
2. 2
2
3. 3
3
4. 4
4
5. 5
5
6. 6
6
7. 7
7

# Analysis of Financial Statements for Business Y and Z

Extracts from this document...

Introduction

ï»¿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

# Related AS and A Level Accounting & Financial Management essays

In 2009 Thomas Cook received �97.7million in shares; this means that shareholders in Thomas Cook are very important as they provide a large source of finance. In 2008 Thomas Cook received �303.7million this is a much larger amount then 2009.

Maximising sales: The aspect most closely linked to increasing profit will be the level of sales that go through a business, it is therefore imperative to maximise sales to become more profitable. In a company the size of Tesco increasing level of sales could literally make millions of pounds of difference in revenue.

1. ## Sainsbury's Ratio Analysis

* Gross Profit percentage of Sales. This measures the gross profit of the business as a proportion of the sales revenue. This also shows how much gross profit is being made compared with the sales mode. It is useful to compare the figures from one year to the next, and ideally the percentage will stay relatively stable.

2. ## Financial Ratio Analysis.

The profit margins measure the quality of the business, as the higher the margin the higher quality of the business. On the other hand, low margin could be due to high cost of production, where it cannot enjoy the economic of scale and could also be due to intense competition

1. ## ratio analysis

It indicates that it is cautious for the company to invest by borrowing money, or it has enough capital, therefore there is no need to borrow a lot of money. When looking at interest cover, there is a significant difference that BA is 1.66 times and Easyjet is 18397 times.

2. ## ASSIGNMENT P5, M2 &amp;amp; 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.

1. ## Financial forecasting for business, Start up costs, running costs, variable and fixed costs

Costs may stay the same or may change proportionately in response to a change in activity. Knowing how a cost reacts to a change in the level of activity makes it easier to create a budget, prepare a forecast, determine how much profit a new product will generate, and determine which of two alternatives should be selected.

2. ## Fractional Reserve Banking

\$400 of commercial bank money is created virtually through loans. Although no new money was physically created in addition to the initial \$100 deposit, new commercial bank money is created through loans.

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