Statement of Profit and Loss and Balance Sheet Analysis

BUSINESS FINANCE

Table of Contents
Table of Contents.............................................................................................................................2
PART 1............................................................................................................................................3
Statement of profit and loss........................................................................................................3
Statement of Balance sheet.........................................................................................................4
PART 2............................................................................................................................................5
Concept of accrual accounting v/s cash accounting....................................................................5
Meaning and difference between profit and cash flow...............................................................6
PART 3............................................................................................................................................7
Meaning and purpose of budget..................................................................................................7
Benefits of forming limited company and registration of it over stock exchange......................8
REFERENCES..............................................................................................................................10
APPENDIX....................................................................................................................................11

PART 1
Statement of profit and loss
The statement of profit and loss account is the statement of the company which outlines the
profit or the loss suffered by the company. For analysing the profitability of the company there
are some ratios which the company need to analyse some of the following ratios-
Ratios 2019 2018
Quick ratio 0.65 1.93
Current ratio 0.91 2.59
Gross profit Margin 45.02% 60.02%
Net profit margin -36.60% 17.71%
 Quick ratio- this is a ratio which outlines the liquidity of the company that is the speed of
company in which they can convert the current asset into cash (Aisy, Mulyono and
Susilowati, 2017). The quick ratio of the company has decreased and this suggests that
company has started to invest more in inventories and because of this the cash of
company has been blocked. This states that company need to improve the quick ratio and
for this they have to invest more in current asset and try to limit their liabilities. Along
with this they also have to convert the inventory into cash.
 Current ratio- this ratio implies that how much current asset is present with the company
in order to pay off all its liabilities. This is very essential for the company to have good
current ratio. In 2019, the current ratio of company has decreased to 0.91 as compared to
2018, which was 2.59 times. This reflects that the company is not in much good and
liquid position and states that for paying of one liability the company is having only 0.91
assets. Hence for this it is essential for T- shirt plc to invest more current asset or they
must focus on limiting their current liabilities.
 Gross profit margin- the gross profit is the profit which is earned after deducting direct
expenses from the income. The gross profit of 2019 was 45.02% which was higher in
2018 that id 60.02%. Thus, this implies that the profitability of the company has
decreased and this resulted in decrease in the gross profit of company. This might be
possible that the direct expense of company may have increased or the production has

decreased. For managing this company need to limit their direct expenses. For this
company has already initiated giving more credit period which will result in increase in
profit.
 Net profit margin- this is defined as the profit which the company has earned after
deducting the indirect expense from the gross profit and the taxes and interest as well.
The net profit has changes drastically from 17.71% to -36.60% which is very high
change. This is very critical situation for the profitability of the company as profits of
company has been converted into losses. For this company need to work hard on limiting
their expenses and try to produce and sell more of the product and services. Further the
company also need to work more on marketing of the goods and services so that more
consumers are attracted towards it.
Statement of Balance sheet
The balance sheet is a statement which reflects the position of company at a point of
time. This simply means that this statement highlights all the liabilities and asset which are there
with company. Hence, for the analysis of the financial position of company some of the ratios are
being evaluated which are as follows-
Ratios 2019 2018
Debt to equity ratio 4.48 1.02
Proprietary ratio 18.24% 49.57%
Asset Turnover ratio 0.82 1.29
Inventory Turnover ratio 1.93 9.44
 Debt to equity ratio- this is the ratio which suggest the ratio of borrowed fund as
compared to the owners fund. In the current year the DE ratio is 4.48 and has been
increased from 1.02 and this suggests that the debt fund has increased. This clearly
reflects that the company has shifted more towards the debt financing as compared to the
equity financing. This means that company has to pay more of the interest and this is not
good for company.
 Proprietary ratio- this is a ratio which suggest the estimation about the money which is
capitalized for meeting the requirement of the business. As compared to the last year the
the proprietary ratio has decreased from 49.57 % to 18.24 % which is not good for