Business Report Analysis and Advice

Business report analysis and
business advice

TABLE OF CONTENTS
PART 1: BUSINESS PERFORMANCE ANALYSIS..............................................................3
1.1 Statement of Profit or Loss..............................................................................................3
1.2 Statement of Financial Position.......................................................................................5
PART 2: UNDERSTANDING FINANCIAL INFORMATION & MANAGEMENT OF
CASH.........................................................................................................................................6
2.1 Understanding the concept of accrual accounting vs cash accounting............................6
2.2 Meaning and differences between the profit and cash flow.............................................7
PART3: BUDGET TECHNIQUES AND COMPANY FINANCE..........................................8
3.1 Budget and purpose of preparing it..................................................................................8
3.2 Benefits of forming a limited company and listing it on a stock exchange.....................8
REFERENCES.........................................................................................................................10
APPENDIX..............................................................................................................................11

PART 1: BUSINESS PERFORMANCE ANALYSIS
1.1 Statement of Profit or Loss
Statement of profit or loss statement is one among the three financial statements prepared
by the organisations. It is also known as income statement that provided about the incomes
and expenses to be carried out by the business during the year. It enables the management
and investors to identify the profits earned during the year by company. The statement
reflects incomes and expenditures of the business.
In the present case, T-shits ltd’s income statement provides that the company is having
revenues of 1366000 which had declined significantly as compared with the previous years. It
is essential for the business to ensure that revenues are growing every year. The cost of sales
as against the revenues have not decreased and this has lead to further decrease in the gross
profits of company. It requires the business to adapt cost efficient strategies that enables the
company to control the costs and expenditures (Abernathy and et.al., 2017). The increase is
seen due to rise in prices of raw materials and labour rates. However the revenues have not
increased. Company is required to adopt significant steps and restructuring for increasing the
revenues. The gross profit reflects the amount left with company after meeting the direct
trading and manufacturing expenses of company, It has decreased from 1261 in 2018 to 615
in 2019 which is very low.
The other expenses of company have increased from 820 to 1009 in current year. The
other expenses reflect the cost of running the operations of business. It includes
administration, selling, distribution and other cost of business. There has been rise in the
other expenses where the revenues have been decreased. It could be assessed that the
business is not able to manage the operations of business.
The finance cost of company has also increased due to new loans acquired by the
company. The increase in finance cost will also lead to decrease in profits as it is fixed
obligations. The company has turned to loss making from the profitable state last year. It had
incurred losses of 500000 in current year. The loss is mainly seen due to decrease in the
revenues and increase in costs. The mismanagement of the financial incomes and expense has
caused company to suffer losses.
Ratio analysis
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%
Return on assets -29.41% 22.77%
Current ratio:
The current ratio of T-shirts Ltd has shown a decline from 2.59 times to 0.91 times
in 2019. This means that there is an increase in the current obligations of the company as
against the current assets. Therefore, the liquidity position of the company is not good and
requires to take actions for minimizing its current obligations in order to avoid the situation
of cash crunch.
Quick ratio:
This ratio has also reduced which means that most of current assets of the company
involves inventory which has resulted into major reduction (Campisi and et.al., 2019). Along
with that, T-shirts Ltd requires to minimize its cash blocked in inventory and reduce its
current liabilities as well.
GP margin:
This is the profitability ratio which highlights that the GP margin of T-shirts Ltd has
declined and the main reason behind this is that of fall in the net sales of the company. This
has consequently led to reduction in the gross profit of the company. In the year 2018, it was
60.02% which has declined to 45.02% in the year 2019. Therefore, the company is required
to take immediate action for rising its revenue for which it has implemented the strategy of
providing credit to its debtors to 60 days from 30 days in order to grab more customers.
NP margin:
This proportion of T-shirts Ltd has demonstrated a descending pattern as the ratio
has diminished from 17.71% to the negative 36.60%. The primary purpose for this reduction
in ratio is the decrease in income and the increment in different costs of the organization
(Rodrigues and Rodrigues, 2018). Likewise, there was a rise in the interest burden too
influencing the profits of the organization. Consequently, organization needs to decrease its
operating costs and financial interest burden.
Return on assets:
It tends to be seen that the organization can't successfully utilize its resources in
producing higher benefits since the proportion has become negative which demonstrates that
the T-shirts Ltd isn't powerful enough in making appropriate and ideal use of its resources.