CVP and Financial Statement Analysis

CVP AND FINANCIAL STATEMENT
ANALYSIS

Table of Contents
TASK 1.................................................................................................................................................3
Statement of profit and loss.............................................................................................................3
Statement of financial position........................................................................................................4
TASK 2.................................................................................................................................................5
Accrual Accounting & Cash Accounting.........................................................................................5
Difference Between Profit & Cash Flow.........................................................................................6
Difference Between Profit & Cash Flow.........................................................................................7
TASK 3.................................................................................................................................................7
Define Budget and explain purposes of preparing a budget............................................................7
Benefit of forming limited company and getting it registered on stock exchange..........................8
REFERENCES...................................................................................................................................10
APPENDIX.........................................................................................................................................11
Ratio analysis calculation..............................................................................................................11

TASK 1
Statement of profit and loss
Ratio 2019 2018
Current ratio 0.91 2.59
Quick ratio 0.65 1.93
Gross profit ratio 45% 60%
Net profit ratio -37% 18%
Return on asset ratio -29.41 22.77
Liquidity Ratio
After going through the liquidity ratio of company it has been identified find that current
liquidity of the company is not that good. As it has been identified that in the Year 2018 company
was having 2.59% of current ratio but in the year 2019 it has fallen simultaneously to 0.91 percent.
This is not that good sign for the company (Canales, 2016). This is really an alarming sign for the
company as this ratio analysis shows that company is not having sufficient current asset to
overcome current liabilities of the company.
Quick ratio analysis of the company provide evidence to the above analysis, as Quick ratio
analysis also shows that Quick ratio of company has also fallen from 1.93% to 0.65% in the year
2019. This ultimately means that proportion of current assets and current liabilities is not that great.
For the same reason it has been recommended to the organization that they generally reduce the
amount of investment in the capital expenditure (Connolly, and Bank, 2020). As number of capital
expenditure are funded by the current assets of company only.
Profitability Ratio
Gross Profit ratio of the company clearly helps in interpreting that gross profit for the
company has fallen to a great extent. In the year 2018 Gross profit percentage of the company was
60% which has fallen to 45% in the year 2019. One of the main reason behind the same is identified
that number of sales is not that up to the mark in recently passed year. Net Profit ratio of the
company also passes on the same type of the answer. Net profit ratio of T-shirt limited was 18% in
the year 2018 but in the year 2019 it has fallen to -37%. This ultimately passed on the information
that company is not able to earn the profit out of the business. Hence, it is another alarming sign for
the company, company has to make sure that they have to improve the quality of product and its
marketing as well, so that large number of the customer are having idea about the company product,
and they are purchasing the same as well.
Return on Asset ratio provide evidence to the above analysis, it has been identified that

average assets for the company in the year 2018 and 19 is very much same. In the year 2018 it was
1634 and in 2019 it was 1637 but as sales of the company has fallen very drastically, due to same
Return on Asset ration has also fallen very drastically (Klopotan, Zoroja and Meško, 2016). Sales of
company had fallen to 1366 which was 2101 one year ago. Hence, it is very much clear that
organization has to make variety of the step to improve the sales of the company in the long run.
Statement of financial position
Ratio 2019 2018
Asset turnover ratio 0.82 1.29
Inventory turnover ratio 1.93 9.44
Debt to equity ratio 4.48 1.02
Proprietary ratio 18% 50%
Efficiency Ratio
Asset turnover ratio of the company help the company in getting idea about the way
company can improve the sales of the company in the coming future (Laktionova, Tereshchenko
and Desyatskii, 2017). Asset turnover ratio shows that company is not using their resources in a
way that it help them in maximizing sales for the company. Analysis shows that Asset turnover ratio
has seen a negative growth in one year. As in the year 2018 Assets turnover ratio was 1.29 and in
the year 2019 it was just 0.82. Hence, it has been recommended to the company that they properly
use different resources, so that sales of the company can be enhanced.
Inventory Turnover ratio also passes on the same type of information, inventory turnover
ratio help in highlighting that company is just able to move their inventory 1.93 times in recently
passed by year. At the same time in the year 2018 company was able to circulates the inventory 9.44
times in a year (Lewis, and Liu, 2020). Hence, analysis shows that organization has to bring the
variety of the different type of the steps to improve the sales of the company in the long run of the
business.
Solvency ratio
Looking at the Solvency ratio it can be easily interpreted that debt of the company has
increased very rapidly. It has been identified that last year debt to equity ratio for the company was
1.02 and in the year 2019 it has increased to 4.48. This is not that good news for the company as
company has to pay better amount of the interest on the increased debt. Hence, it has been
recommended to the company that they used to take variety of the step to reduce the debt of the
company in the coming year or so.
Proprietor Ratio passes on the evidence to the debt equity ratio, Proprietor Ratio shows that
in the year 2018 proprietor ratio was 50% which means that company used to use both creditor and