Financial Accounting: Ratios, Cash Flow Statement, and Financial Statements

SG1015 FINANCIAL
ACCOUNTING

Table of Contents
INTRODUCTION ..........................................................................................................................3
QUESTION 1...................................................................................................................................3
Financial ratios of Paul and sons Ltd.....................................................................................3
QUESTION 2...................................................................................................................................5
Financial ratios of Brighter Plc and Effi-power Plc...............................................................5
Compare and comment on the overall performance of Brighter Plc and Effi-power plc.......7
QUESTION 3...................................................................................................................................8
Cash flow statement of Roselion PLC's.................................................................................8
QUESTION 4...................................................................................................................................9
Financial statement of Jason at the year ended on 31st December 2020...............................9
QUESTION 5.................................................................................................................................10
Preparation of multi-step profit and loss account at the year ended 31st December 2019. .10
QUESTION 6.................................................................................................................................11
a) Calculation of the payback period for the project............................................................11
b) Statement of rate of return for the project........................................................................12
c) Calculation of the NPV for the firm.................................................................................12
d) Discussion on the results and their potential impact on the company.............................12
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Financial accounting is a backbone of accounting. It includes recording, summarizing and
reporting of business transaction in a specific time period. These transaction helps to preparation
of annual records of the company such as assets and liabilities statement, income statements and
fund flow statement. Bookkeeping can be found in public and private sector. The duties of
financial accounting is different from accountant because it works for the company purpose. The
financial accounting contains various accounting principles that helps to determining the
financial position of the company. It follows the concept of cash and accrual accounting. It
focuses on the five areas such as revenues, expenses, assets, liabilities and equity (Arnold, 2018).
In this report to calculate the financial ratios of Paul and sons ltd, Brighter Plc and Eff-power Plc
and compare the performance of these two businesses. Further in this report preparation of cash
flow statement of Roselion Plc and determine the financial position of Jason. To calculate the
payback period, ARR and NPV of The Happy Family Cereal plc.
QUESTION 1
Financial ratios of Paul and sons Ltd
Ratio analysis is based on the accounting figure that does not provides the accurate
accounting information. It does not compares the figure of balance sheet, profit and loss
accounting and other accounting data, it compares the figure of previous year. Different
accounting ratios define the overall performance of the company (Bensaadi and Asyiah, 2022).
Profitability ratios- These ratio measures the operational efficiency of the business. These
includes:
1. Gross profit Ratio- It defines the relationship between gross profit and sales.
Particulars 2020(£000) 2021(£000)
Gross profit*100/sales revenue 3450*100/4600 = 75% 2590*100/4840= 53.51%
Comment- Gross profit should be always positive number. In year 2021 shows less gross profit
as compare to 2020. Company should focuses on the sale and increases the profit of the
company.

2. Operating profit Ratio- It determines the operating profit after deduct of all operating
expenses except for interest and taxes (Burton and Tanyi, 2019).
Particulars 2020(£000) 2021(£000)
Operating profit*100/sales 2200*100/4600=47.82% 2080*100/4840=42.98%
Comment- In year 2021 shows the less operating profit as compare to year 2020. The company
should decreases the operating expenses such as rent, insurance and other expenses.
3.Investment on capital employed- It is another method of analyse the profit of the company.
Particulars 2020(£000) 2021(£000)
Operating profit*100/ capital
employed
2200*100/4300=51.16% 2080*100/4028=51.63%
Comment- Year 2021 shows the higher return on capital employed as compare to year 2021
because company wants to increase the profit of the company.
Efficiency Ratios-These ratios are also known as activity ratios. These includes:
1. Average inventory turnover ratio- These ratio defines how the inventory manages in the
company.
Particulars 2020(£000) 2021(£000)
Average inventory hold*365/
cost of sales
375*366/1150=119 days 400*365/2250=65 days
Comment- In year 2020 the average inventory hold period is less than the year 2020. In year
2021 company make strategy for the fast inventory sold.
2.Average settlement period of trade receivable- It measures the collection and credit policies of
the company (Dunuwila, Rodrigo and Goto, 2018).
Particulars 2020(£000) 2021(£000)
Average trade
receivable*365/revenue
800*366/4600=64 days 825*365/4840=62 days
Comment- In year 2021 shows that the collection period of customer is less than year2020.