Financial Accounting: Analysis of ASOS Plc and Giorgio Plc

This report includes the financial performance analysis of ASOS Plc and construction of financial statements of Giorgio Plc. It covers profitability, working capital, liquidity, and long-term financing ratios along with cash and profit budget of Grazyna Ltd.

AC4052QA
FINANCIAL
ACCOUNTING

Contents
INTRODUCTION...........................................................................................................................3
Section A..........................................................................................................................................3
Question No 1..................................................................................................................................3
Computation of ASOS Plc and provide recommendations:........................................................3
Section B..........................................................................................................................................6
Question No B1:..............................................................................................................................6
A) Profit and loss statement of Giorgio Plc:...............................................................................6
B) Statement of Changes in Equity:............................................................................................7
C) Statement of Financial Position:............................................................................................7
Question No B2:..............................................................................................................................8
A) Cash Budget of Grazyna Ltd:................................................................................................8
B) Profit Budget of Grazyna Ltd:................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial accounting refers to the part of accounting process which includes recording,
summarising and report the financial transactions of an business operations for a period of time.
It helps manager to identify problems which occur in the financial activities (Coram and Wang,
2021). In the below report, Financial performance of ASOS Plc is analysed with the help of
calculating financial ratios of the firm. It is an retail firm which operating as investment holding
company. It is basically operate in beauty and fashion products. It is formed in London in year
2000. This report include construction of financial statements of Giorgio Plc to analyse its
financial structure.
Section A
Question No 1
Computation of ASOS Plc and provide recommendations:
Profitability 2021(£m) 2020 (£m)
Return on capital employed EBIT * 100 / Capital Employed
= 190 * 100 /2068
= 19000 / 2068
= 9.18
EBIT * 100 / Capital Employed
= 151 * 100 / 1621
= 15100 / 1621
= 9.31
Net profit margin Net Profit * 100 / Sales
= Net profit = 190 – 13 = 177
= 177 * 100 / 3911
= 17700 / 3911
= 4.53
Net Profit * 100 / Sales
Net profit = 151 – 10 = 141
= 141 * 100 / 3264
= 14100 / 3264
= 4.31
Assets turnover Sales / Total asset
Total Asset = FA+CA
Sale / Total Assets
Total Assets = FA + CA

= 1325 + 1560 = 2885
= 3911 / 2885
= 1.36
= 970 + 1020 = 1990
= 3264 / 1990
= 1.64
Analysis of above computed ratios:
Return on capital employed ratio of year 2021 is more favourable as compare to the year 2020
because company generate more revenue in 2021. Company is using more capital employed in
year 2021.
Net profit margin ratio is most suitable of year 2021 because company generate huge profits
(£m 177) as compare to previous year which is (£m 141). Company is performing well in order
to increase profits for the firm.
Assets turnover ratio shows that firm is not not able to generate profits in year 2021 from year
2020. Company increase its sales but not in proportion of increase in assets.
Working Capital 2021 2020
Inventory days Average Inventory * 365 /
COGS
Average Inventory = (Opening
+ Closing Stock) / 2
(532 + 807) / 2 = 669.5
= 669.5 * 365 / 2134
= 115 days
Average Inventory * 365 /
COGS
Average inventory = (0 + 532) /
2
= 266
= 266 * 366 / 1716
= 57 days
Receivable days Average account receivable *
365 / Average daily credit sales
= 59 * 365 / 3911
= 5.5 days
Average account receivable *
366 / Average daily credit sales
= 60 * 366 / 3264
= 6.71 days that is 7 days
Payable days Average Account payable * 365
/ COGS
= 863 * 365 / 2134
Average Account payable * 366
/ COGS
= 770 * 366 / 1716

= 148 days = 164 Days
Analysis of above computed ratios:
Inventory days refers to the time taken by company to sell its stocks and it shows that company
is not able to maintain its inventory turnover in 2021 because it take much longer time to
convert its inventory into cash from the previous year.
Receivable days refers the time taken by the firm to receive payments to its debtors. From the
above calculation it states that Company taking less time to take payments in year 2021 and
it take 5.5 days to get payments.
Payable Days refers to time taken by the firm to make payments to its creditors. As per above
calculation company take less time to make payments in 2021 which is not in company
favour so payable days of year 2020 is more suitable for the firm.
Liquidity 2021 2020
Current ratio Current Asset / Current
liabilities
= 1560 / 998
= 1.56 Times
Current Asset / Current
liabilities
= 1020 / 818
= 1.24 Times
Acid test (CA – Inventory) / CL
= (1560 – 807) / 998
= .75 Times
(CA – Inventory) / CL
= (1020-532) / 818
= .60 Times
Analysis of above computed ratios:
Current ratio shows the liquidity position of the company. It compare its current assets to the
current liability. As per above calculation company is able to improve their current ratio in
2021. company hold a strong position in short term.
Quick ratio shows the efficiency of the firm to convert its short term assets into cash to meet
current liability. From the above calculation it states that company is not able to manage its
current assets as well as liabilities. Company improve its quick ratio but still not performing
well.

Long term financing 2021 2020
Gearing Equity / Debt
= 1034 / 1034
= 1 Times
Equity / Debt
= 810 / 810
= 1 Times
Analysis of above computed ratio:
Gearing ratio shows the contribution of the debt and equity in the firm. As per above calculation
it states that company using both debt and equity in equal proportion. It increase their debt
and equity in equal manner which does not change the ratio.
Section B
Question No B1:
A) Profit and loss statement of Giorgio Plc:
GIORGIO F PLC
STATEMENT OF
PROFIT OR LOSS
ACCOUNT FOR THE
YEAR ENDED 31
MARCH 2020
£ £
Revenue 940000
Cost of Sales (W1
) 370000
Gross Profit 570000
Operating expenses (W2
) 177500
Profit from operations 392500
Finance costs 10000
Profit for the year
382500
WORKINGS £ £
(W1) COST OF
SALES

Opening
inventory 125000
Purchases (+) 372000
Closing
inventory (-) 127000
624000
(W2) OPERATING
EXPENSES
Heat and light 25000
Audit fee 3000
Add:
Outstanding
Audit Fees
500 3500
Communication
expenses 20000
Salaries &
wages 54000
Directors'
remuneration 10000
Provision for
depreciation:
Buildings 50000
Fixtures
&Fitting 15000 65000
177500
B) Statement of Changes in Equity:
STATEMENT
OF CHANGES
IN EQUITY
FOR THE
YEAR ENDED
31-Mar-20
Ordinary share
capital Share premium Retained
earnings
General
reserves Total
Bal as of 01 April 2019 800000 150000 145000 22000 1117000
Profit for the year 382500
Dividends paid 120000
Transfer to general
reserves 20000
Total 1302500 150000 145000 42000 1117000

C) Statement of Financial Position:
GORGIO F LIMITED
STATEMENT OF
FINANCIAL POSITION
AS AT 31 MARCH 2020
£ £ £
Non-current assets
Property, Plant & Machinery (W3) 530000
Long-term investments 571000
Total 1101000
Current assets
Prepaid Debenture Interest 10000
Inventory 127000
Trade Receivables 120000
Bank 267000
524000
Total assets 1625000
Equity and Liabilities
Ordinary Share Capital 1302500
Share premium 150000
Retained Earnings 145000
General Reserves 42000
1639500
Non-current liabilities
10% Debentures - 2020 90000
90000
Current liabilities
Trade Payables 80000
Accrued audit fees 500
80500
Equity and total liabilities 1810000
(W3
)
Non-current
assets
Property, Plant
& Machinery

Cost Accumulated
Depreciation NBV
£ £ £
Buildings 500000 50000 450000
Fixtures &
Fittings 100000 20000 80000
Total 600000 70000 530000
Question No B2:
A) Cash Budget of Grazyna Ltd:
Grazyna
Ltd
Cash
Budget
for 6
Months
to
30/6/21
Month
Januar
y Feb.
Marc
h April May June Total
£ £ £ £ £ £ £
Sales 15000
1500
0 15000
1500
0
2000
0
2000
0
10000
0
Purchases 0
1800
0 9000 9000
1200
0
1200
0 60000
Wages 1000 1000 1000 1000 1000 1000 6000
Rent 6000 0 0 6000 0 0 12000
Overheads 1000 1000 1000 1000 1000 1000 6000
Monthly net cash flow 7000 -5000 4000 -2000 6000 6000 16000
Balance @ beginning of the
month 0 7000 2000 6000 4000
1000
0
Balance @ the end of the
month 7000 2000 6000 4000
1000
0
1600
0
B) Profit Budget of Grazyna Ltd:
Grazyna Ltd Profit
Budget for 6
Months to 30/6/21
£ £
Sales 100000
Less Cost of sales:

Inventory purchases 60000
Gross Profit 40000
Less expenses:
Rent 12000
Wages 6000
Overheads 6000 24000
Net profit 16000
CONCLUSION
From the above it states that financial accounting plays crucial role in the process of
accounting. Financial accounting help in storing financial data which help in decision making
process of the firm. Financial ratios are helpful to analyse the financial performance of the
company and also provide comparison of the financial performance of two different years.
Financial statements are the written documents of the company which are include all financial
activities of the firm.

REFERENCES
Books and Journals
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