Financial Accounting Assessment 2

This report analyses the financial position of Zip Co Ltd and evaluates its balance sheet and financial statement with calculations. It provides recommendations to improve performance.

Financial Accounting
Assessment 2

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
PART A...........................................................................................................................................3
Overview.....................................................................................................................................3
Balance sheet analysis.................................................................................................................4
Part B...............................................................................................................................................6
Financial statement analysis........................................................................................................6
Overall recommendation.............................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial accounting is defined as the overall study of financial transactions related to a
business. It is the process of preparing financial statement like balance sheet, cash flow statement
and income data to analysis performance of the company. This present study is based on Zip Co
Ltd and presentation on strength of financial position of the company. This report will provide
purpose and outline the information required by the users. Further, it will analyse balance sheet
and financial statement with calculations. At last, this report will provide justification and
interpretation on ability of firm to achieve targets.
PART A
Overview
The financial accounting is prepared to evaluate the financial performance of the
company. It is maintained to prepare financial reports that gives overall information about
business stability to parties like creditors, investors, managers, tax authorities. It is helpful to
keep track on financial transactions with the company (Easton and et.al., 2018). It is prepared to
provide information to the users for rational decision-making.
 Management team- It is designed to help managers for decision-making process within
the firm.
 Employees-This is useful for employees to control budgets in the firm (Albanese and
et.al., 2021). It provides accurate data about company's assets and liabilities, profit and
loss.
 Government authorities- This report will be used by tax authorities to determine how
much the company is liable to pay for taxes.
 Creditors- Creditors will require the details whether to extend credit to the business or
not.
 Investors- This report will assist Investors to determine about their investment decision,
whether the investment is profitable or not.
 General public- This report is also maintained by public who have a specific interest in
the business activities.

 Analysts- Investment analysts require detailed financial information to analyse the
competitive performance of business in every sector.
 Debtors- this report is important for debtors to collect information about the ability of the
company to survive and prosper.
Balance sheet analysis
Assets 2020 2019 Changes in percentages
Cash and cash equivalents 32712 12611 159.39
Other receivables 6876 10920 -37.03
Term deposit 1507 1179 27.82
Customer receivables 1116618 647544 72.44
Investment 82930
Investment in associate 1184
Property, plant and equipment 3512 2547 37.89
Right- of- use assets 8160
Intangible assets 25093 5813 331.67
Goodwill 53441 4548 1075.04
Total Assets 1332033 685162 94.41
Liabilities
Trade and other payables 19533 19657 -0.63
Employee provisions 2753 1368 101.24
Deferred R&D tax incentives 392
Deferred contingent consideration 13979
Lease liability 8414
Borrowings 1081954 587445 84.18
Total Liabilities 1126633 608862 85.04
Net Assets 205400 76300 169.20

Equity
Issued capital 274151 141211 94.14
Reserves 19621 3520 457.41
Accumulated losses -88372 -68431 29.14
Total Equity 205400 76300 169.20
From the above mentioned table it is analysed about comparative balance sheet of Zip Co
Ltd for the year 2020 and 2019.
 The company's receivables has been increased by 46,9074, i.e., by 72%, thus it shows a
company has sold his stock to customers, and the amount is yet to receive. So, the firm
needs to focus on collecting its payment on time to avoid any uncertainty in the near
future.
 The total equity has been increased by 169%, it indicates a company's better long-term
solvency position. When a company issues new shares of stock, total equity may increase
which is beneficial for company's retained earnings.
 However, their an increasing trend in capital which means company can easily give
competition to the market and makes labour more productive. In addition to that, there is
decreasing trend in other receivable which shows the company's productivity.
 The company's cash and cash equivalents has been increased by 20101, i.e., 159% which
is good for the business. A firm with high liquidity ratios is considered healthier and
poses low risk (Firdaus and Endri, 2020). Therefore, it will increase profitability and
receives low interest rate which is beneficial for the business transactions.
 By analysing the report, it has been identified that the fixed assets have been increased by
37%, which means the entity purchased additional new equipment which is good for
further production. Moreover, the firm needs to focus on avoiding unnecessary purchases
in order to reduce more expenditure and maintain budget for healthy financial
performance. Along with that, it is evaluated that the trade and other payable has been
decreased which shows the firm has reduced its liabilities.
 By investigating reserves it has been identified that company has earned profit and added
it into reserves and surplus. Additionally, it has been examined that the goodwill of the

firm has been increased in the year 2020, so, it can provide benefit in order to achieve
profit. By analysing the report it has been verified that company must control its
borrowing to avoid more liabilities otherwise the firm need to pay more interest on the
goods and services.
After analysing the above balance sheet interpretation, some justification is as below:
It is suggested to improve billing efficiency and customer relationship to manage
receivables in the company. Always send reminders to avoid late payment and make clear
payment terms upfront. It is advisable to organize financial affairs and save money for future
requirements. Along with that company must reduce its excess credit limits and debts to avoid
high interest rate (Sun, 2021). Trimming the unnecessary expenditure will increase your
borrowing power and limit down the burden. It is further recommended to increase income
effectively in order to increase business capacity. It is suggested to pay down debt quickly to
avoid burden in the future.
Part B
Financial statement analysis
Particular Formula 2020 2019
Return on Capital employed
Earnings before interest and
tax/Capital employed -0.02 -0.02
Earnings before interest and
taxes -20589 -11133
Capital employed 1312500 665505
Capital employed Total Asset-Current Liabilities 1312500 665505
Total assets 1332033 685162
Current liabilities 19533 19657
Net profit margin Net Profit/Net Sales *100 -12.70 -13.55
Net profit -19941 -11133

Net sales 156993 82181
Current Ratio Current Asset/Current Liabilities 59.27 34.20
Current assets 1157713 672254
Current liabilities 19533 19657
Average Receivable days
Average Accounts
Receivable/Sales*365 2612.06 2924.51
Receivable 1123494 658464
sales 156993 82181
Gross profit ratio Gross profit/net sales*100 32.91 37.41
Gross profit 51659 30743
Net sales 156993 82181
Fixed asset ratio Net sales/average fixed assets 44.70 32.27
Net sales 156993 82181
Average fixed assets 3512 2547
The above Table shows the financial analysis of Zip Ltd. which includes turnover ratios,
profitability ratios, liquidity ratio. With the help of ratio analysis, a company's financial
statements is prepared for decision-making purposes. To evaluate financial performance and
business value management team of company maintains financial statement.
Net profit- The net profit of company is -12.70 and -13.55 in the year 2020 and 2019
which shows that the total expenses is more than total revenue. Due to this many factors may get
affected like strong competition, market demand, weak strategies. It is advisable to increase
revenues by selling more goods or services and find cheaper sources for raw materials while
production (Benrqya and Jabbouri, 2021). Operating expenses can be reduced to maintain net
margin. It is suggested to remove unnecessary product and services. Increasing conversion rate is
the fastest method to improve company's profit. It is advisable to reduce overall direct costs by
eliminating unnecessary purchases.

Return on capital employed- By analysing balance sheet it has been noted that the
ROCE of a firm is -0.02 in both years it indicates the low net profit. Moreover, the first step to
improve any ratio is by reducing costs or increasing sales (Harjito and Wiratama, 2017). It is
advisable to reduce liabilities and work on capital employed. Company must work on
profitability and working capital to achieve success. It is suggested to evaluate the shareholders'
equity to accumulate other loss.
Fixed asset ratio- The ratio analysis indicates in the year 2020 company's fixed asset
ratio is 44.70 which is higher than 32.27. It is said that the higher the asset ratio, the better the
company is performing. It means company is efficiently using its assets and indicated that there
is proper utilization of assets. This evaluation is helpful to make critical decisions on investment
opportunities in the firm. It is advisable to analyse the company growth by calculating this ratio
eventually.
Gross profit ratio- The balance sheet analysis shows there is decreasing trends in
company in the year 2020 as compared to previous year. It is advisable to improve gross profit
margin by increasing prices of goods or services. It is also suggested reducing waste and
unnecessary expenses which includes direct costs will increase profit margin (Mettenheim,
2021). By reviewing all prices company can boost its profit margins. Management must work on
cash discounts from suppliers to ignore bad performance.
Current ratio- The study interpreted about current ratio for both years which shows
there is an increasing trends in year 2020 which is more than previous year. It is said the higher
the current ratio, the more capable a company is of paying its debt. The ratio analysis indicates
this company works on current ratio effectively. It is advisable to always work on current ratio
analysis to maintain stability in the market. Company must reduce the personal draw on the
business and improve cash payments.
Overall recommendation
From the above mentioned balance sheet and ratio analysis it is determined that Zip Ltd.
must adopt few important tips to improve performance.

 It is recommended to focus on corporate efficiency, liquidity, solvency to achieve targets.
The most important recommendation for company is to improve accounting norms. The
management team must display financial items in a very specific way to determine data.
 It is suggested to maintain shareholder's equity reports and profit and loss to evaluate the
condition of firm. It is also suggested company must use vertical, horizontal and ratio
analysis to compare financial statement with others.
 To evaluate an organization financial standing company must work on cash inflows and
outflows. Investment analysts and managers must keep a detailed information about
accounting report to make allocation decision (dos Santos Maciel and Stephanie, 2021).
The company is advised to use performance tools to determine whether operating
strategies are working or not.
 By comparing previous data with current data, management can detect errors and take
efficient steps to avoid uncertainty. It is recommended to control on budget and
overheads cost to improve financial condition.
 Company must use safety ratio like debt equity ratio to evaluate the risk, this will further
improve debt management. It is advisable to create a picture of the organization current
performance related to market trends.
 The firm must monitor various areas of company to achieve business efficiency. It is also
advisable to track overall financial statements on a regular basis to increase productivity.
 The company needs to develop a growth strategy and good business strategy. In this case
study business growth leads to revenue loss because company has not taken any step to
cover market research. The company is suggested to take a brief note on solvency
position by preparing balance sheet. It is advisable to take areas of improvement like
confidence, knowledge and communication into consideration.
 Return on capital employed is one of the best profitability ratio to consider deciding
about company's profit ratio (Eng, Tian and Robert Yu, 2018). The firm must adopt
diversification method to expand profit in the market. It is important to increase sales of
existing products on new markets. Thus, it will help to increase market growth and
economic stability.

CONCLUSION
The report shows an overview of Zip co Ltd and gives information about potential users
of the report. Along with that report outline the information required by the users to evaluate the
performance of business. This report is prepared to analyse the financial position of the company
and shows whether it is strong enough to support the future growth ambitions or not. Further, the
report evaluates the balance sheet analysis with the help of annual report. The case study
provides brief justification about position of company with the most relevant ratios. By using
annual reports, the study determines various ratio analysis to find out company's stability. At last,
the case study provides few recommendations to undertake future growth ambitions. At last, it is
also recommended investing time in proper optimization of conversion rate analysis. In this way,
company can evaluate the ideas and technique for the improvement of marketing operations.

REFERENCES
Books and Journals
Albanese, C., Crépey, S., Hoskinson, R. and Saadeddine, B. (2021). XVA analysis from the
balance sheet. Quantitative Finance. 21(1). 99-123.
Benrqya, Y. and Jabbouri, I. (2021). Performance evaluation of European grocery retailers: a
financial statement analysis. International Journal of Logistics Economics and
Globalisation. 9(1). 24-39.
dos Santos Maciel, F. and Stephanie, C. (2021). Law on Access to Information in the Federal
Government: A Balance Sheet of Its Eight Years of Effectiveness. Law J. Pub. Admin. 21.
Easton, P. D., McAnally, M. L., Sommers, G. A. and Zhang, X. J. (2018). Financial statement
analysis & valuation. Boston, MA: Cambridge Business Publishers.
Eng, L. L., Tian, X. and Robert Yu, T. (2018). Financial statement analysis: evidence from
Chinese firms. Review of Pacific Basin Financial Markets and Policies. 21(04). 1850027.
Firdaus, F. and Endri, E. (2020). Financial Statement Analysis: Evidence from Indonesian Bank
BUKU IV. International Journal of Innovative Science and Research Technology. 5(4).
455-461.
Harjito, D. A. and Wiratama, M. H. (2017). The Balance Sheet Network Analysis for Measuring
Systemic Risk of Islamic Commercial Banks in Indonesia. Journal of Islamic Finance. 6.
100-113.
Mettenheim, K. (2021). Political Economy of Financialization in the United States: A
Historical-institutional Balance-sheet Approach. Routledge.
Sun, L. (2021). Systemic risk and macro-financial contagion in China: financial balance sheet-
based network analysis. Journal of the Asia Pacific Economy. 1-34.
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