Accounting Fundamentals: Financial Performance and Position of Chocco plc

This document analyzes the financial performance and position of Chocco plc based on profitability, liquidity, efficiency, and investment ratios. It discusses the company's performance in terms of profitability, liquidity, efficiency, and investment, comparing the ratios for the years 2018 and 2019.

ACCOUNTING FUNDAMENTALS

Question 1
(a) Income statement and balance sheet:
Income statement:
Balance sheet
Assets:
Current assets 513625
Stock 330600
Debtors 170125
Cash and bank 12900
Particulars
Amoun
t
Sales (Less: return £980) 825670
Less: cost of goods sold 578650
Gross profit 247020
Less: Operational expenses
Ordinary dividend paid 20000
Preference dividend paid 30000
Administrative expenses 30000
Sales man commission 3000
Directors remuneration 5000
Distribution costs 28000
4% debenture 4000
Profit before interest and tax 127020
Less: Interest 2000
Profit after interest before tax 125020
Less: Tax 68000
Net profit 57020

Fixed assets
Plant and equipment 632730
Total assets
114635
5
Equity and liabilities
£1 ordinary shares 310000
10% £1 preference shares 300000
4% Debentures 100000
Retained profits 132000
Net profit 57020
Current liabilities
Trade creditors 171355
O/s expense 3000
Deferred tax 68000
O/S interest 4000
O/S payment 980
Total equity and liabilities 1146355
(b) Explain why the statement of financial position balances.
The assets mostly on balance sheet comprise about the corporation owns or will earn in
the potential time that are easy to measure. Liabilities, like taxes, accounts payable, wages, as
well as loans, are how a corporation owes. The equity portion of the investors shows the cash
reserves of the corporation and the money that stakeholders invested. Net assets must be
proportional to the combined of shareholders’ equity also for accounting records to manage.

The financial accounting with double entries is the primary reason why an accounting
equation balance is from at least three variables accounts, this accounting method documents
all expenses and hence also serves as a review to ensure the transactions are accurate. It
indicates that there are three parties to each contract. One earns advantages that are thereby
debited but the other party presents the gain for which this is attributed. This should be
recalled that all parties must be paid with much the same amount, thus the Dual Entering
Process description. So since both of all transactions are paid with much the same amount or
calculation for either debit balances as well as the credit side of the balance sheet, that is a
declaration of benefit, obligation and capital of shareholders, must balance or add up the two
aspects.
Question 2:
(a) Ratios
Profitability
Gross profit ratio GP/Sales*100
2019 2018
Gross profit. 3503 3345
sales 6738 6441
Gross profit ratio 52.0 % 51.9%
Net profit ratio NP/sales*100
2019 2018
Net profit 431 366
sales 6738 6441
Net profit ratio 6.40 % 5.68 %
Operating profit ratio OP/sales*100
2019 2018
Operating profit 805 699
sales 6738 6441
Operating profit ratio 11.95 % 10.85 %

Liquidity
Current ratio
Current assets/current
liabilities
2019 2018
Current assets 2303 2355
current liabilities 2511 3046
Current ratio 0.92 times 0.77 times
Quick ratio
Quick assets/current
liabilities
2019 2018
Quick assets 1595 1696
Current liabilities 2511 3046
Quick ratio 0.64 times 0.56 times
Efficiency ratios
Stock turnover Cost of goods sold/stock
2019 2018
Cost of goods sold 3235 3096
Stock. 708 659
Stock turnover 4.57 times 4.70 times
Receivable turnover
Net sales/accounts
receivables
2019 2018
sales 6738 6441
Receivables 1259 1287
Receivable turnover 5.35 times 5.00 times

Payable turnover Net sales/accounts payables
2019 2018
sales 6738 6441
Payables 583 655
Payable turnover 11.56 times 9.83 times
Assets turnover ratio Net sales/total assets
2019 2018
sales 6738 6441
Total assets 9736 10087
Assets turnover ratio 0.69 times 0.64 times
Investment ratios
Return on equity ratio Net income/equity
2019 2018
Net income 431 366
equity 3088 2912
Return on equity ratio 0.14 0.13
Return on capital
employed EBIT/capital employed
2019 2018
EBIT 805 699
Capital employed 7225 7041
Return on capital
employed 0.11 0.10
(b) Comment on the financial performance and position of Chocco plc.

Profitability ratio: In terms of profitability company’s performance is better in year 2019
compared to 2018. This is so because each ratio is showing higher value including gross
profit, net profit ratio etc.
Liquidity ratio: The above calculated ratio shows that the liquidity of company in 2018
was far better than the recent year in 2019. The main reasons of this lower liquidity is due
to increased operating expenses throughout the year due to uncertain activities.
Efficiency ratio: The calculation of different efficiency ratio defines that company is able
to maintain a good position of account receivable and inventory level is good in 2019
which is much better than of year 2018.
Investment ratio: In the above calculation, it has been identified that overall company
investing return are higher in year 2019 which are very much lower in 2019. It is clear
that more investing in the higher return assets will he beneficial for the company in
upcoming future.