Business Finance: Statement of Profit and Loss, Statement of Financial Position, Accrual Accounting vs Cash Accounting, Profit vs Cash Flow, Budget and Benefits of Forming a Limited Company

Business Finance

Contents
MAIN BODY..................................................................................................................................3
Part 1............................................................................................................................................3
Part 2............................................................................................................................................8
References......................................................................................................................................13
Appendix:......................................................................................................................................14

MAIN BODY
Part 1
1.1 Statement of profit and loss.
An income statement or profit and loss report is one of the company’s financial and indicates the
firm's sales versus expenditures for a given time (Connolly and Bank, 2020). It shows how the
profits are converted into the company's profits and losses. In the aspect of T-shirt limited this
can be find out that company is facing net loss of 500 million in year 2019 while they gained net
profit in last year 2018 of 372 million. This is so because of higher number of expenses in year
2019 as compared to year 2019. In order to do proper analysis of income statement, below some
key ratios are mentioned which are as follows:
Gross profit ratio: Gross profit margin is the percentage used by economists to determine the
financial performance of the business by measuring the volume of cash available over after
deducting the costs of goods sold (COGS) from merchandise revenue. Gross margin, also
referred to as the revenue growth ratio, and is often measured in terms of revenue.
2018 2019
Gross profit ratio 60.02% 45.02%
Gros
s
pro
fit
rati
o
On the basis of above table this can be find out that company’s gross profit ratio has been
reduced in year 2019 compared to year 2018. In year 2018 the ratio was of 60.2% that reduced
and became of 45.2%. This is so because of lower sales and higher cost of goods sold in year
2019. As well as it states that company is not able to manage their expense in an effective in year
2019 that is leading as lower gross margin.

Net profit ratio: The ratio of after-tax gains to net revenue is the net profit figure. It indicates the
residual benefit after all output, management, and finance expenditures have been removed from
revenue and accepted income taxes. Even so, this is one of the better metrics of an organization's
business performance, especially in combination with an estimation of how well it manages its
capital expenditure. In order to judge success over time, the metric is generally recorded on a
pattern chart. It is often used to contrast a company's outcomes with its rivals.
2018 2019
Net profit ratio 17.71% -36.60
Net
pro
fit
rati
o
On the basis of above table this can be find out that company’s net profit ratio has been reduced
in year 2019 compared to year 2018. In year 2018 the ratio was of 17.71% that reduced and
became of net loss percentage of -36.6%. The rationale behind this is because of higher volume
of operational and finance expenses in year 2019. This shows that company is not effective to
manage their overall expenses and not able to allocate their funds in an appropriate manner.
Operating profit ratio: Operating Profit Margin is a productivity or efficiency ratio that, before
possible to mitigate and interest costs, represents the amount of profit a corporation earns from
its activities (Lewis and Liu, 2020). By splitting the operating profit by overall sales, it is
estimated. Income does not inherently indicate earned cash.