Business Finance: Analysis, Accruals vs Cash Accounting, Profit vs Cash Flows, Budget and Company Finance

Business finance

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
PART 1: BUSINESS PERFORMANCE ANALYSIS....................................................................1
Statement of profit or loss:..........................................................................................................1
Statement of financial position:...................................................................................................2
PART 2: UNDERSTANDING FINANCIAL INFORMATION & MANAGMENT OF CASH...2
Accruals vs cash accounting:.......................................................................................................2
Profit vs cash flows:.....................................................................................................................4
PART 3: BUDGET AND COMPANY FINANCE.........................................................................4
Meaning and purpose of budget:.................................................................................................4
Benefits of forming a limited company and getting it registered on a stock exchange:..............5
REFERENCES................................................................................................................................7

INTRODUCTION
Business finance is refers to reading financial statements such as profit & loss account,
balance sheet and cash flows (Sauer and Wiesemeyer, 2018). It provides information to external
factors of a business such as shareholders to meet its fund or monetary needs. It is a art and
science used for monitoring and managing the firm's money. The company which is selected for
this report is T- shirt Ltd. It is a garment related firm that struggling in the current economic
climate. The topics cover in this report such as analysis of business performance by showing
ratios, evaluation of profit & loss account and balance sheet and concept of accrual accounting
versus cash accounting including their benefits and limitations. Apart from this it also includes
budget techniques and purpose of preparing budget.
PART 1: BUSINESS PERFORMANCE ANALYSIS
Ratio Analysis is calculated to know overall business liquidity, profitability and turnover
within the year and helps to comparison with last years.
Ratios 2018 2019
Gross profit ratio 0.60019 0.45022
Net profit ratio 0.177 (0.366)
Interest courage ratio 6.39 (3.71)
From the above ratio analysis in T-shirt limited it shows decrease in gross profit in 2019
in against to 2018. It further decrease in net profit by (0.366) in 2019 that was 0.177 in 2018,
the result shows less sales in 2019 and increase in expenses rather than 2018 (Nyman,
2016). Apart from this interest coverage ratio also shows negative in 2018 that leads to
higher finance cost in the year.
Statement of profit or loss:
It is a financial statement that tells the summary of revenue, cost and expenses which are
used during the specific period. It records the income statement which tell that company is
able to generate enough profit that it can run their financial performance and increase their
market share by increase their revenue and profit. It is used by public company every
quarter. it begin with the revenue on the top line then cost of goods sold is subtract from
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there including operating expenses and interest expenses and then the result is come is net
profit.
Interpretation of P&L
 Revenue- the revenue is the sales which are done by company in the given period.
The sales figure of T-shirt ltd in 2018 is 2101 and sales in 2019 are 1366. It means
organization revenue is decline year by year which is bad for the entity. They have
to take measure for increase the profit and profit is increasing only when revenue is
increasing (Mian and Sufi, 2018).
 Cost of sales – the cost of sales means cost of goods sold which mean direct cost is
incurred by the company in the production of product. The cost of sales in 2018 is
840 and in 2019 it is 751. Which mean it is good for the organization, they can
reinvest their money into some new business.
 Gross profit- it is the profit come from after deduct cost of goods sold from revenue. Gross
profit of the T-shirt ltd of 2018 is 1261 and profit of 2019 is 615, which mean it is
declining year to year.
Statement of financial position:
Balance sheet means the statement which shows the reports of company assets and liability
and shareholder equity. It is the summary of the financial balances that show the trends which
are running over a longer period. The purpose is to give an idea related to financial position
through this all investors analyze the balance sheet to see that organization is running properly or
not they can invest their money in that entity or not. It is useful for shareholder, investor and
creditor to measure the performance of the entity.
In context to t- shirt limited firm Prepares its balance sheet in the end of every year. This
report shows financial position of T-shirt Ltd. for the year 2018 and 2019 that shows its current
or non current assets and short term and long term liabilities. This firm shows its non current
asset for the 2018 that was 1282$ and in year 2019 it was decrease by 1274$ that shows firm has
sale its plant & machinery or depreciated in 2019 Li, 2019). In 2018 firm's current asset
decreased by 1634 that is increased by 1700 in 2019. This shows firm has less current assets or
lack of liquidity with it. Earning on its equity shows 0 in 2019 that shows lack of capital in
organisation. Firm’s short term and long term liabilities increased over a period of time that is
not positive sign for it because firm has less asset or liquidity to pay its liabilities. Firm should
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