Financial Analysis of Grenco Plc: Income Statement, Cash Flow, and Balance Sheet

This report provides a detailed analysis of Grenco Plc's financial performance through income statement, cash flow, and balance sheet. It explains the three financial statements and their linkage with one another. The report includes a calculation of profit and loss, comparative analysis of the balance sheet, and commentary on financial aspects. The study concludes that Grenco Plc has a good financial position and profitability.

Introduction to Accounting
LDT3106

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Explaining 3 financial statements like balance sheet, income statement and cash flow along
with their linkage with one another........................................................................................1
Calculating the profit and loss of Grenco Plc.........................................................................2
Commenting on the financial aspects of Grenco Plc..............................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7
APPENDIX .....................................................................................................................................8

INTRODUCTION
Accounting is concerned with the procedure of recording the financial transaction
pertaining to a business. In the current era, having effectual accounting procedure is important
in order to give emphasis about the prevailing transaction so that reliable understanding about
the financial aspects can be derived. The current report is based on Grenco Plc which operates in
retail & general merchandising sector and possess the large market share. The present report will
pay attention on assessing the information provided by balance sheet, income statement and
cash flow along with linkage with one another. It will involve calculation of profit & loss of the
organization so that depth understanding can be derived. Current study will give emphasis on
assessing the financial aspects of the company via conducting comparative analysis.
MAIN BODY
Explaining 3 financial statements like balance sheet, income statement and cash flow along with
their linkage with one another
Financial statements are concerned with recording the monetary transactions conducted
by organization in formal and precise manner so that receiving accurate & reliable information
for making sound decision can become possible (What are the Three Financial Statements?
2022.). There are three main financial statements such as income, cash flow statements and
balance sheet. These statements provide number of information that helps in gaining appropriate
ability to make sound decision.
Income statement is associated with having the information regrading the expenditure
incurred and income obtained for the particular period (Putra, 2019). There is involvement of
both direct and indirect expenses incurred and income earned throughout the particular period.
This specific statement comprises revenue obtained from sales, cost of the goods old, gains and
expenses in terms of both operating and non operating so that overall picture can be covered.
These all provides the ability to user to analyze that firm is generating profitability through
conducting such course of the action. In addition to this, it as well help in ascertaining the reason
behind prevailing profitability & loss so that accurate judgment of financial performance can be
done.
Cash flow statement provides the aggregate data regarding all cash in and out flows
obtaining from different kinds of activities exerted by organization. There are various form of
data that is provided by this particular statement which aids in making sound decision. This
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comprises information regarding cash flows from operation, investing and financing. Users with
help of the cash flow statement can get the different kinds of information in turn such as
verifying profitability & liquidity position, capital cash balance, management, planning &
coordination of cash to achieve the objective of meeting requirements of business (Rosenthal,
2018). This aids in understanding how effectively particular enterprise is receiving cash in & out
flow so that evaluating its financial position can become possible. Ability to ascertain the
liquidity position of particular company can be assessed by this statement.
Financial position is related with getting the summary about the ingratiation's monetary
performance. The current balances of recorded assets, liabilities and equity is involved in the
balance sheet. Financial position of the organization is basically formulated by having
accounting equation which indicate total assets equals to liabilities plus equity. This provides
assistance in gaining the understanding about its efficiency to overcome short term debt with aid
of current assets. Operational efficiency and liquidity can be analyzed by using balance sheet
which helps in making appropriate decision. Asset includes inventory, trade receivable,
property, vehicle, etc. Liabilities include trade payable, creditors, loans, etc. that includes both
short term and longer run debts of enterprise. Equity part of the balance sheet comprises capital,
retained earning, etc. These assist in receiving the reliable information in turn effective
evaluation can be done.
There is significant linkage between the three mentioned financial statements that
comprises income, cash flow and balance sheet. For instance- financial transaction regarding the
debt affect three mentioned statements such as interest expenses. This appears on income
statement, principal amount on balance sheet and in financing section of the cash flow. The
profitability derived from the income statement and cash balance of cash flow statement is
recorded in the balance sheet statement (Aini, Anoesyirwan and Ana, 2020). Purchase and sale
of assets is recorded in both financial position and income statement by specifying its reduction
and h gain or loss if any. On the basis of this example it can be interpreted that there is
significant linkage between these mentioned financial statement. This helps in interpreting
proper evaluation of information that can help in taking relevant decision in turn higher
effectiveness can be obtained.
Calculating the profit and loss of Grenco Plc
Income statement
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It is one of the crucial statement that provides information regarding the profitability
and loss obtained for the particular period (Bekhradinasab, 2020). This helps in gaining the
proper understanding about the expenses incurred in order to achieve profitability in turn
ascertaining ability to check its efficiency to generate profits can be assessed. It helps in
identifying the lacking areas so that proper course of action to gain positive outcome can be
exerted. The main objective of formulating income statement is to attain ability to distinct
income and expenses earned & incurred for the particular period.
Particulars Amount £m Amount £m
Sales Revenue 395000
Less: COGS
Cost of Sales 323800
Wages 35000 358800
Gross profitability 36200
Less: Indirect expenses
Rent 5500
Telephone expense 1220
Van running costs 200
motor expense 180
Lightening and Heating
expense 4000
General Expense 6000 17100
Net profitability 19100
On the basis of the above prepared income statement it can be recognized that there are
various expenses that exerted by Grenco Plc which is enabling firm to receive higher
profitability and substantiality. This comprises wages, rent, telephone expenses, van running
cost, lighting & heating and general expenses which is permitting receiving net profitability of
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£m 19100 that is positive indicator of success. Gross profitability of the particular firm is
obtained by reducing the cost of goods sold which comprises swages that is offering 36200.
with respect to the provide information it can be articulated that business can properly
coordinate with the prevailing circumstances through maintaining the relevant ability to
coordinate with changing requirements of business.
There are different kinds of stakeholders who pay attention on gaining the effective
information from income statement. (Bekhradinasab, 2020) It offers the ability to investors to
assess that company is possessing efficiency to provide good return so that taking decision in
favour of business can become possible. This can be referred as the tool for forecasting the
performance of business so that taking relevant action can become possible. This can allow to
ensure that proper accomplishing of expenses to deliver quality performance in sector is
become possible. Taking decision by having insights about firms ability to generate profitability
is beneficial so having relevant understanding about it becomes important. On the basis of this, it
can be articulated that profitability generating capacity of specified firm good which can help in
receiving positive outcome in longer rurn.
Commenting on the financial aspects of Grenco Plc
Financial aspect of Grenco Plc can be properly identified by paying attention on
comparative analysis of the balance sheet. Comparative balance sheet is related with procedure
of g having ability to comparing the outcomes of the two different financial periods (Dinh and
Schultze, 2022). It is one of the simplest and reliable method that provides assistance in gaining
the accurate understanding about prevailing financial performance of specified organization. It
aids in attaining insights in form of percentage by classifying them into favorable and
unfavorable outcomes. If the results are derived in positive which shows that items of balance
sheet is increased as compared to base year. On the other side, if the change in percentage is
obtained in negative which states that there is decrease in outcome as compared to the previous
year. Comparative analysis is helpful in gaining the clear picture of solvency of business. This
can provide assistance in getting the proper understanding about prevailing circumstances so that
taking effective decision can become possible.
Balance sheet 2016 2015 Change in
absolute
change in
percentage
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value
Net Fixed Assets 25800 23000 2800 12.17%
Current assets
Stock 7900 5100 2800 54.90%
debtor 5400 5900 -500 -8.47%
bank 3500 -3500 -100.00%
Current Liabilities
Trade creditors 5200 5000 200 4.00%
Represented by:
Capital Account balance at 1
may 29400 25000 4400 17.60%
Net profit 19100 16000 3100 19.38%
Additional capital introduced 5000 5000 100.00%
Less drawings -19600 -8500 11100 -130.59%
On the basis of provided information about comparative analysis, it can be interpreted
that balance sheet of the business possess fixed and current assets & liabilities and capital of
firm. Net fixed assets for the tow year such as 2015 and 2016 is 23000 & 25800 respectively. On
the basis of the comparative analysis it can be interpreted that 12.17% is inclination of net fixed
assets due to enhancement of fixed assets by 2800. This is one of the positive sign of increasing
financial efficiency to meet objectives.
Current assets of the company includes the different kinds of the assets which are
possessed by the Grenco Plc. This includes stock, debtor and bank which is reflecting good
position of liquidity that can be helpful in overcoming the short term liabilities (El Madani
2018). Stock is increasing in the year 2016 by 2800 as compared to period 2015. This is
presenting 54.9% of inclining trend which shows increase in ability to met market forces such as
demand & supply. Debtor position in the year 2016 has decreased by -500 as compared to the
earlier period balance sheet. On the basis of the comparative evaluation, change in percentage is
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-8.47 % that is negative reflection of reducing debtor. In longer run its presenting that payment
from debtor has been collected which is strengthening its liquidity position. Bank position of
Grenco Plc in the current duration is absent which is showing 100% of reduction as presented in
negative manner.
In the current liability head of balance of the two consecutive years such as 2015 and
2016 it can be articulated that outcomes are 5000 and 5200 respectively. With help of the
comparative statement evaluation it can be specified that change in absolute value is 200. In
addition to this, change in percentage is showing 4% that is presetting upward moment of value
in current year for trade creditors. It is unfavorable sign as showing increase in current liability
which can hamper its efficiency. It is presenting that organization need to make significant
improvement in its current year practices for managing & controlling overall functioning in turn
better performance can be derived.
Capital account balance in the year 2016 is higher than 2015 due to increase in its
amount by 17.60 percentage. This is reflecting that good position in sector in turn higher
efficiency to manage the overall practices can become possible. The main reason behind the
increase in the capital balance is due to net additional amount of 4400 that is basically boosting
the overall solvency position of enterprise. Net profitability in the 2016 period as improved by h
19.38% as compared to the earlier performance. Drawing is enhanced by 11100 that is required
to be reduced in respect to have good solvency & profitability position. This is persisting that
good financial condition is possessed by Grenco Plc that ensure sustainability in industry. On the
basis of the presented information it can be interpreted that overall position of business is having
good performance which is indicating strong financial health.
CONCLUSION
From the above report it can be concluded that accounting is one of the significant
aspect that allows the firm to record monetary transactions in relevant manner so that gaining
financial information to take decision in sound pattern can become possible. The current study
has involved significant of income, cash flow statement and financial position. There is linkage
among the three statements that aids in gaining reliable information so that proper steps to
enhance productivity can become possible. From the formulation of income statement it can be
interpreted that net profitability is obtained. Comparative analysis is showing that financial
position of enterprise is good.
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REFERENCES
Books and Journals
Aini, Q., Anoesyirwan, A. and Ana, Y., 2020. Effect of Cloud Accounting as income statement
on Accountant Performance. Aptisi Transactions On Management (ATM).4(1). pp.13-21.
Bekhradinasab, V., 2020. The role of strategic management in capital markets in relation to
income statement Vahid Bekhradinasab. Scientific Journal of Budget and Finance
Strategic Research. 1(2). pp.132-166.
Dinh, T. and Schultze, W., 2022. Accounting for R&D on the income statement? Evidence on
non-discretionary vs. discretionary R&D capitalization under IFRS in Germany. Journal
of International Accounting, Auditing and Taxation. p.100446.
El Madani, A., 2018. SME policy: Comparative analysis of SME definitions. International
Journal of Academic Research in Business and Social Sciences. 8(8). pp.103-14.
Putra, Y.M., 2019. Analysis of factors affecting the interests of SMEs using accounting
applications. Journal of Economics and Business. 2(3). pp.818-826.
Rosenthal, C., 2018. Accounting for slavery. Harvard University Press.
Online
What are the Three Financial Statements? 2022. [Online]. Availble through:
<https://corporatefinanceinstitute.com/resources/knowledge/accounting/three-financial-
statements/>
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APPENDIX
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