Financial Analysis and Performance of Jill

The assignment provides a comprehensive analysis of Jill's financial performance using various ratio analysis tools. It calculates the gross profit margin, net profit margin, current ratio, quick ratio, accounts receivable period, and payable period for Jill, comparing them to competitor averages. The report concludes that Jill needs to control indirect expenses and improve efficiency to enhance net profit margins.

Finance

Table of Contents
INTRODUCTION......................................................................................................................3
PART A......................................................................................................................................3
a. Writing double entry and recording transactions in T accounts.........................................3
b. Ledgers a/c.........................................................................................................................4
c. Preparing trial balance........................................................................................................8
d. Income statement...............................................................................................................9
e. Drafting statement of financial position...........................................................................10
PART B....................................................................................................................................11
1. Computation of ratio analysis..........................................................................................11
2. Commenting on the financial performance and position of Jill.......................................12
CONCLUSION........................................................................................................................13
REFERENCES.........................................................................................................................14

INTRODUCTION
Financial accounting field of finance lays emphasis on recording transaction
associated with the concerned period. The main behind recording monetary information is to
get idea about overall performance and position. In this regard, profitability statement is
highly significant which furnishes information about income generated over expenses.
Further, balance sheet provides deeper insight about assets, liabilities and shareholder’s
equity. The present report is based on the case scenario of Jill which presents company’s
transaction for the month ended on September.
PART A
a. Writing double entry and recording transactions in T accounts
Journal entries in the book of Jill for the month ended on 30th September 2018
Date Particulars Debit (in £) Credit (in £)
1 / 09 Cash a/c Dr.
Bank a/c Dr.
To capital a/c
800
3000
3800
2 /09 Purchases a/c Dr
To Ron or creditors a/c
900
900
3 /09 Computer a/c Dr
To bank a/c
800
800
5 /09 Bank a/c Dr
To sales a/c
500
500
6 /09 Purchases a/c Dr
To cash a/c
400
400
10 /09 Rent a/c Dr
To bank a/c
300
300
12 /09 Stationery a/c Dr
To cash a/c
100
100
18 /09 Creditors or Ron a/c Dr
To purchase return a/c
100
100
21 /09 Bank a/c Dr 100

To rent received a/c 100
23 / 09 Debtors or Bill a/c Dr
To sales a/c
400
400
23 / 09 Cash a/c Dr
To sales a/c
1500
1500
24 / 09 Car a/c Dr
To bank a/c
900
900
30 / 09 Wages a/c Dr
To cash a/c
400
400
30 / 09 Drawing a/c Dr
To cash a/c
550
550
b. Ledgers a/c
Cash a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
1 / 09 To capital a/c 800 6 /09 By Purchases
a/c
400
12 /09 Stationery a/c 100
23 / 09 To sales a/c 1500 30 / 09 By Wages a/c 400
30 / 09 By Drawing
a/c
550
30 / 09 By balance c/d 950
Total 2300 2400
Bank a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
1 / 09 To capital a/c 3000 3 /09 By Computer
a/c
800

5 / 09 To sales a/c 500 10 /09 By Rent a/c 300
21 /09 To rent
received a/c
100 24 / 09 By Car a/c 900
30 / 09 By balance c/d 1600
Total 3600 3600
Capital a/6
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
1 / 09 By Cash a/c 800
1 / 09 By Bank a/c 3000
30 / 09 By balance c/d 3800
Total 3800 3800
Purchases a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
2 /09 To Ron or
creditors a/c
900
6 /09 To cash a/c 400 30 / 09 By balance c/d 1300
Total 1300 1300
Sales a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)

5 /09 By Bank a/c 500
23 /09 By Bank a/c 1500
30 / 09 By balance c/d 900 23 / 09 By Debtors or
Bill a/c
400
Total 2300 2300
Computer a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
3 /09 To bank a/c 800 30 / 09 By balance c/d 800
Total 800 800
Rent a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
10 /09 To bank a/c 300 30 / 09 By balance c/d 300
Total 300 300
Stationery a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
12 /09 To cash a/c 100 30 / 09 By balance c/d 100

Total 100 100
Creditors or Ron a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
18 /09 To purchase
return a/c
100 2 /09 By Purchases
a/c
900
30 / 09 By balance c/d 800
Total 900 900
Purchase return a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
30 / 09 By balance c/d 100 18 /09 By Creditors
or Ron a/c
100
Total 100 100
Rent received a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
30 / 09 By balance c/d 100 21 /09 By Cash a/c 100
Total 100 100
Debtor’s a/c
Debit side Credit side

Date Particulars Amount (in £) Date Particulars Amount (in £)
23 / 09 To sales a/c 400 30 / 09 By balance c/d 400
Total 400 400
Wages a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
30 / 09 To cash a/c 400 30 / 09 By balance c/d 400
`
Total 400 400
Drawing a/c
Debit side Credit side
Date Particulars Amount (in £) Date Particulars Amount (in £)
30 / 09 To cash a/c 550 30 / 09 By balance c/d 550
Total 550 550
c. Preparing trial balance
Particulars Debit Amount (in £) Credit Amount (in £)
Cash 850
Bank 1600
Capital 3800
Purchases 1300
Sales 2400

Computer 800
Rent 300
Stationery 100
Creditors or Ron a/c 800
Purchase return a/c 100
Rent received a/c 100
Debtors a/c 400
Wages a/c 400
Drawing a/c 550
Car 900
Total 7200 7200
d. Income statement
Profitability statement of Jill for the month ended on 30th September 2018 is enumerated
below:
Particulars Amount (in £) Amount (in £)
Sales 2400
Less: COGS 900
Gross profit (GP) 1500
Rent received a/c 100
1600
Less: operating expenses
Rent 300
Stationery 100
Wages a/c 400
Total operating expenses 800
Operating or net profit 800

Computation of COGS
Cost of goods sold (COGS) = Opening stock + purchases - closing stock
Particulars Amount (in £) Amount (in £)
Opening stock 0
Add: Purchases 1300
Less: Purchase return 100 1200
Less: Closing stock 300
COGS 900
e. Drafting statement of financial position
Accounting equation: Assets = liabilities + shareholders equity
Balance sheet of Jill Ltd at the end of September 2018 is as follows:
Particulars Amount (in £) Amount (in £)
Current assets
Cash 850
Bank 1600
Debtors a/c 400
Closing stock 300
Total current assets 3150
Fixed assets
Computer 800
Car 900
Total fixed assets 1700
Total assets 4850
Liabilities & shareholders’
equity
Current liabilities
Creditors or Ron a/c 800

Total Current liabilities 800
Non-current liabilities -
Capital 3800
Less: Drawing 550
Add: net profit 800 4050
Total liabilities and
shareholders’ equity
4850
PART B
1. Computation of ratio analysis
Ratio analysis may be served as a quantitative tool which helps in measuring
company’s performance from several perspectives such as profitability, liquidity, solvency
and efficiency (Ratio analysis, 2018).
Ratio analysis of Jill for the month ended on 30th September 2018 is as follows:
Gross profit margin or ratio
Particulars Formula 2018
Gross profit 1500
Sales 2400
GP ratio GP / Net sales * 100 62.50%
Net profit margin or ratio
Particulars Formula 2018
Net profit 800
Sales 2400
NP ratio NP / Net sales * 100 33.33%
Current ratio
Particulars Formula 2018
Current assets (CA) 3150

Current liabilities (CL) 800
Current ratio CA / CL 3.94:1
Quick or acid test ratio
Particulars Formula 2018
Current assets (CA) 3150
Closing stock 300
Current liabilities (CL) 800
Current ratio (CA – stock) / CL 3.56:1
Accounts receivables period
Particulars Formula 2018
Sales 2400
Accounts receivable 400
Receivable period Accounts receivable / sales *
365
61 days
Payable period
Particulars Formula 2018
Bills payable 800
Credit purchases 1200
Payable turnover ratio Net credit purchases / Accounts
payable
1200 / 800 = 1.5 times
Accounts payable period 365 / Payable turnover ratio 365 / 1.5 = 243 days
2. Commenting on the financial performance and position of Jill
Particulars Jill’s performance Competitors average
GP ratio 62.50% 30%
NP ratio 33.33% 58%
Current ratio 3.94:1 3.70:1
Quick ratio 3.56:1 3.50:1
Accounts receivable period 61 days 57 days

Accounts payable period 243 days 85 days
The above depicted table shows that gross margin generated by Jill is higher in
comparison to the competitor’s average. At the month of September, gross margin generated
by Jill accounted for 62.50%. On the other side, competitor’s average implies for 30%
respectively. This in turn shows that company has generated high gross margin over the
expenditure. However, NP margin of Jill was lower during the concerned period as compared
to the rival firm. Hence, focus needs to be placed on adopting budgetary control tool and
techniques which helps in enhancing profit margin significantly. Tabular presentation
exhibits that Jill has maintained high liquidity as compared to ideal ratio and rival’s
performance. Hence, Jill is advised to maintain liquidity as per ideal ratio such as 2:1 which
in turn provides assistance in increasing the level of profit margin to a great extent. On the
other sides, Jill is required to revise credit policies because it places direct impact on working
capital aspects or management.
CONCLUSION
By summing up this report, it can be concluded that Jill needs to maintain control on
indirect expense level. This in turn contributes in the net profit margin of company to a great
extent. It can be seen in the report that Jill is highly capable in relation to meeting current
obligations from assets. However, competent strategies need to be formulated for making
improvement in performance from the perspective of efficiency.