Understanding Business Finance: Statement of Profit and Loss, Statement of Financial Position, Accruals vs. Cash Accounting, Profit vs. Cash Flows

Business Finance

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
PART 1....................................................................................................................................................3
1 Statement of profit and loss..................................................................................................................3
2 Statement of financial position.............................................................................................................6
PART 2....................................................................................................................................................9
1. Accruals vs. cash accounting...............................................................................................................9
2. Profit vs. Cash flows..........................................................................................................................11
PART 3..................................................................................................................................................11
1. Meaning and Purposes of budget.......................................................................................................11
2. Benefits of forming a limited company and getting it registered on a stock exchange......................12
CONLCUSION.........................................................................................................................................13
REFERENCES..........................................................................................................................................14

INTRODUCTION
Business entities are expected to effectively conduct their business activities by controlling their
financial capital. Finance is the cash influx from which the net operations of the organization
have grown. It's the nature of a business (Connolly and Bank, 2020). T-shirt Ltd has taken into
consideration the extent of brand funding. This report offers an overview of the practices of the
organization by analyzing the financial ratio and evaluating it. This also describes the use of cash
and reliable. Apart from this, each ratios are measured in terms of various kinds of aspects
including balance sheet, income statement etc.
MAIN BODY
PART 1
1 Statement of profit and loss.
A statement of sales or a P&L report is a detailed report of the firm’s information which is
essentially a report for a given time frame of income and costs. It shows the manner in which
earnings are turned into corporation revenues and expenses (Lewis and Liu, 2020). In the context
of T-shirt limited, it is assessed that in 2019 the firm faced a loss of 500 million and on the
contrary, in the past period of 2018 it also had a net profit of 372 million. The following figures
are helpful for the estimation of net profits in order to create a reliable and fair view of the
company's financial position:
Gross profit ratio: It is essentially a measure of the excess of revenue over gross receipt by the
company. It takes into account the specific expenses and not the indirect ones. By deducting
COGS from total business receipts, total revenue is received. Gross margin, sometimes referred
to as the gross revenue ratio and sales are also measured.
2018 2019
Gross profit ratio 60.02% 45.02%

Gros
s
pro
fit
rati
o
On the grounds of the table above, it can be noted that the firm's gross profit rate fell in 2019
compared to 2018. The ratio dropped by 60.2 percent in 2018 and hit 45.2 percent. This is due to
declining sales and higher product costs sold in the year 2019. If it states, during the year 2019,
the company is not in a position to manage its costs, which contributes to a smaller gross profit.
Net profit ratio: This is a description of the larger volume of productivity. After deducting all
indirect expenses along with tax expenses, the term' net benefit' is the total income. That is the
monetary benefit remaining or postponed after all expenditure relating to processing,
management and financing has been deducted from total revenue (Popescu and Popescu, 2019).
This is in fact, the true and fair view of the organization's objectives. This is the indicator of
coordination over how well and how coordinated the monetary support of the business is. The
variable is commonly stated in the pattern tables in order to determine success over time. It is
also used to compare a company's success with its rivals.
2018 2019
Net profit ratio 17.71% -36.60