Financial Statement 2018-2019

Financial statement 2018-2019
Content
1. Title
2. Introduction
3. Discussion

3.1 Profitability
3.2 Efficiency
3.3 Liquidity
3.4Gearing Capital
4. Conclusion
5. Recommendation
6. Financial Statement 2018 and 2019
7. Appendix 1
Appendix 2
Appendix 3
Appendix 4
Mastermind Financial statement analysis
Introduction
The report examines Mastermind Limited with an aim to analyse its financial statements of
2018 and 2019. The financial analysis is an audit with an aim and objective to create a
source of information for banks, clients, shareholders and generate more confidence with the

AB37_4004_1904_7056 MASTERMIND LIMITED REPORT
company (Ageras,2020). In addition, financial analysis creates transparency in the financial
statements.
The report has used ratio formula analysis for the examination of the company
performance in all the criteria. The ratio analysis examines the annual report based on four
assessment such as liquidity, profitability, capital structure, and efficiency.
A conclusion will be dawn, in addition with recommendation for the provision of
Mastermind LTD future.
DISCUSSION
Profitability
The profitable ratio with its formula has been calculated and outline in appendix1.
Profitability Ratios defines and measure the overall performance of the company in terms of
the total revenue generated from operations. In addition, the ratios that measure the ability
of the organization to generate profits out of the expenses and the other cost sustain over a
period are called the profitability ratios. The profit margin acts as the most important ratio as
it reflects the financial performance of the company and it reflects the amount of profits
generated by the firm on its sales and after meeting or paying off all its expenses (Tracey,
2012). To prove the situation of profitability, mastermind limited uses net profit ratio, gross
profit ratio, return on equity, return on capital employed, and return on assets. The ideal ratio
for net profits ratio margin is 15-20 percent (Campbell, Adduzio, Downes, and Utke,
2019). This is outline in the gross and net profit margins calculations.
2018 and the net profit in 2019 is 8 % this shows that the company have an increase in 2019
and show losses in 2019 In addition, this shows that the non -operation profit happened
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during this period. Gross profits ratio of the company is showing a declining trend that is from
85% in the year 2018 to 78% in 2019 due to a decrease in sales income and increase in cost
of sales. Return on equity can be stipulate as the amount of profit made off investor’s
money. In 2019 there was an increase of 2.5% when compare to 2018 which allows
shareholders profit to increase. Return on capital employed shows that the liabilities of the
firm have been decreased with a greater value and resulted a better ratio. Return on asset
ratio is a profitable on a company asset, in 2018 the company generate assets by 4%
however in 2019 there was a decrease in the company assets by 1%. The findings show that
over all the profitability ratios has displayed a good ratio analysis for 2018 due to the
increase in profit and less liabilities and borrowing. Liabilities place responsibilities on the
company resources (Carter 2017).
Efficiency
Measuring efficiency can gives some important clue to how a business is performing
( Ryan 2004). Most importantly the efficiency of a company relates to controlling its cost.
The asset turnover ratio of Mastermind is decreasing from 53.80 to 21.87 which means that
company is not using its assets effectively in order to generate higher sales. The working
capital ratio is seen as increasing from over 2 years from 34.65 in 2018 to 87.5 in 2019
which clearly states that Mastermind is making an effective use of its current assets for
achieving higher sales and is paying off its liabilities on time. This in turn reflects that
company is efficiently managing its business operations. Other ratio for analysis outline fixed
asset turns over 5% of fix assets turn over in 2018 and 3.78 %in 2019. This determine that
the company shows inadequate using fixed assets while generating net profits, 2018 show a
better fixed asset turnover. This depicts that overall company’s efficiency position is not
good.
Liquidity

AB37_4004_1904_7056 MASTERMIND LIMITED REPORT
A liquidity ratio is a financial ratio that indicates whether a company' current assets will
be sufficient to meet the company's obligations when they become due (Coach 2020). In
addition, it decides to pay off its current liabilities. The current ratio for 2018 is 1.76 and the
current ratio in 2019 is 1.28. This shows that the current ratio of Mastermind is better in both
the years and is increasing that means it has sufficient amount of assets to meet its current
liabilities.
A liquidity crisis is a financial situation characterized by a lack of cash or easily-convertible
to-cash assets on hand across several businesses or financial institutions simultaneously
(Crisis 2020)
Gearing
The gearing ratio is financial ratio that contrast some form of owner's capital to
debt, or funds that the company take for itself. Gearing is a measurement of the entity’s
financial leverage which prove that all to which a firm's activities are funded by shareholders'
funds. In addition, this ratio brings out relationship between two types of capitals: The
caries of a fix rate of dividend or interest that does carry a fix rate or dividends or interest
(KUPPAPALLY, 2008).
Mastermind manage to maintain capital gearing of 34.1% in 2018 and in
2019 there is an increase in Capital gearing of 61.8 % because its long term debts are
increasing as it has taken bank loan against its owned funds and this leads to high financial
burden on the firm. A gearing ratio higher than 50% highly leverage or geared. A gearing
ratio lower than 25% consider a lower risk by lenders and inverters a gearing between 25%
and 50% is typically considered to be normal (Kenton, 2018). In addition, high level leverage
company show insolvent. (Appendix 1) outline the ratio calculation that complement the
discussion in this report.
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Conclusion
From the above report it has been summarised that ratio analysis acts the most
useful tool as it helps in analysing the financial performance and position of the company
and also facilitates comparison between past and current year figures in adequate manner.
The analysis shows that due to higher tax and interest expenses, net profit margin of the
company is declining. However, the other profitability ratio shows an increasing trend which
reflects that Mastermind Limited has performed better in 2019 by keeping control over its
expenses in comparison to 2018. Conclusively, efficiency position of corporation does
seems as improving because the assets are not being used optimally. Overall CR of an
enterprise is decreasing but is counted as better because it is close to ideal ratio that is 2:1.
This means that the liquidity position of Mastermind is better and has adequate level of short
term assets to pay off its current obligations. Further, the leverage position of the firm is
getting poor as its ratio is increasing which indicates that company has more of borrowed
funds over its own funds and bearing high financial risk.
Recommendation
We are in an era where financial statement is paramount and they need to be use for
legitimate reason such as bank loans, Government authorities and shareholders
transparency. There is a great need to improve profitability for financial statement 2019. Net
Profit Margin: When doing a simple profitability ratio analysis, the net profit margin is the
most often margin ratio used (Balance, 2020),The net profit margin shows how much of each