Financial Analysis of Kedison PLC: Accounting Fundamentals

This report analyses the financial position of Kedison PLC with the help of financial statements and ratio analysis. It includes a balance sheet, profit and loss statement, and evaluation of different ratios. The report concludes that the overall performance of the company has improved as compared to the previous financial year.

ACCOUNTING
FUNDAMENTALS

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
QUESTION- 1.................................................................................................................................3
a) Financial statements of Kedison PLC.....................................................................................3
Statement of financial position balance......................................................................................6
Question 2........................................................................................................................................6
Ratio analysis .............................................................................................................................6
Comment on financial position...................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................8

INTRODUCTION
Financial analysis is all about analysing and evaluating about the financial position of the
business entity. This report will discuss the analysis of the financial position or situation of the
company. Henceforth, report will emphasis over the financial position of the organisation with
support of financial statements such as profit and loss account and balance sheet of the company.
Furthermore, this report will also discuss the overall performance of the business entity with
support of projection of all different ratios regarding liquidity, profitability, liquidity and such
like practices.
MAIN BODY
QUESTION- 1
a) Financial statements of Kedison PLC
Profit and loss statement for the year ended 31st December 2020
Particulars Amount
Sales 826650
Less: Cost of Sales -578650
Gross Profit 248000
(-) Administrative expenses -30000
(-) Interest paid -4000
(-) Directors remuneration -5000
(-) Distribution costs -28000
(-) Sales commission -3000
(-) Corporation tax -68000
Net Profit 110000
(-) Preference dividend -30000
Earnings available to equity shareholders 80000
(-) Ordinary dividend -20000

Retained earnings 60000
Statement of financial position as on 31st December 2020
Particulars Amount Amount
ASSETS
Fixed assets
Plant and equipment 632730
Current assets
Stock 329620
Debtors 171105
Cash and Bank 12900
Total assets 1146355
LIABILITIES
Long term liabilities
4% Debentures 100000
Current liabilities
Creditors 171355
Outstanding commission 3000
Outstanding interest 2000
Tax payable 68000
Shareholders equity 802000
Ordinary shares 310000
10% preference shares 300000
Profit for the period 110000

Retained earnings 82000
Total liabilities 1146355
Working Note:-
1) Interest expense over the 4% Debentures = 100000 * 4%
= 4000
Statement mentioned already stated that this expense is paid only of 2000 and the rest of
the balance of 2000 is outstanding for the company. Interest expense will denote under P&L
shall be 4000 and the balance outstanding that is 2000 would denote as the outstanding interest
balance in the current liability of balance sheet.
2) Sales commission is to be paid in the month of January would record as an expense in the
current month as it belongs to the sales made in the current financial year. The treatment has
been entertained based on the matching concept of accounting (Patel, 2018).
3) The payment of dividend pertaining to the shareholders will be made post the assessment of
the company as it is not the expense of the organisation which do not allow the company to
record in the profit and loss account and treat it against the profit of the respective financial year.
4) The stock at the end of the financial year will be reduced by 980 as this has been delivered to
the customer on 31st December 2020 and the treatment is done over the respective transaction.
5) The debtor account balance will also be increased by 980 as the customer is not making any
payment against the purchase done with the organisation so it would record as a debtor for the
organisation of the respective financial year (Shahnia and Endri, 2020).
6) The outstanding interest, tax and the salesman commission will be recorded as a current
liabilities of the company. All these expenses belong to the current financial year but not been
treated accordingly.
7) Profit made in the respective financial statements 110000 shall be recorded in the balance
sheet by adding to the shareholder's equity segment.
8) The retained earnings in the balance sheet of last year shall be utilized in the payment of the
current year's dividend which are 30000 to the preference shareholders and 20000 to the equity
shareholders in the company. So the total balance of 50000 shall be reduced from the last year's
balance of 132000 in retained earnings. So the part of the retained earnings that are to be
currently recorded in the balance sheet are 82000.

Statement of financial position balance
In the current financial year the organisation has contained a good profitability in against
to deliver the business transactions. Shareholder;der equity has also increased for the respective
financial year of the company (Chen, 2020). The profit earned by the company is 110000 that
has also supported the organisation to boost up its financial position and make it more stable in
nature. The profitability has also strengthened the shareholder's equity position in the balance
sheet (Palamalai and Britto, 2017). Even after the sacrifice in some value of retained earning the
probability of the respective financial year allowed the organisation to boost up equity value of
company. All the aspects related to performance of company could improve the balance in
financial position of company.
Question 2
Ratio analysis
Ratio Formula 2020 2019
ROCE Earning before interest
and tax / Capital
employed
846 / 7225 (9736 –
2511)
= .114
720 / 7041 (10087 –
3046)
= .102
ROE Net income / average
shareholders equity
431 / 3500(3088 +
2912 / 2)
= .12
366 / 2856(2912 +
2800 / 2)
= .13
Earning per share Net income for equity
share holder / Total
number of equity
shares
431 / 59 (300 / 5.12)
= 7.31
366 / 75 (300 / 4)
= 4.88
Net profit margin Net profit / sales *
100
431 / 6738 * 100
= 6.4%
366 / 6441 * 100
= 5.68%
Asset turnover ratio Net sale / average total
asset
6738 / 9912 (9736 +
10087 / 2)
= .68
6441 / 10669(10087 +
11250 / 2)
= .6
Stock holding days Average stock / cost of 684 (708 + 659 / 2) / 640(659 + 621 / 2) /

sale * 365 3235 * 365
= 77 days
3096 * 365
= 75 days
Debtor collection
period
Debtor / sales * 365 1249 / 6738 * 365
= 68 days
1287 / 6441 * 365
= 73 days
Current ratio Current asset / current
liability
= 2303 / 2511
= .92
2355 / 3046
= .77
Gearing ratio Total debt / Total asset 4137 / 9736
= .42
4129 / 10087
= .41
Interest cover ratio EBIT / Total interest 846 / 226
= 3.74
720 / 181
= 4
Comment on financial position
The above projected calculation about different ratios clearly indicate that the
organisation is performing better as compare to the earlier financial year. Return on capital
employed denote better results as it has increased in the respective financial year. Return on
equity could slow down at a marginal level. Earning per share has been significantly increased
from 4.88 to 7.31. Net profit margin on the other side has also increased in the respective
financial year. Asset turnover ratio is also increased (Dhanya and Aravindh, 2021). Stock
holding days has increased that certainly indicate that the company is holding its stock for more
number of days as compare to the earlier financial year which is not a positive sign. The liqudity
of company is also increased as the debtor collection period has been reduced. The total days
fequire to collect the value from debtor has decreased that could certainly improve the liquidity
situation of the business entity (Golovkova and et.al., 2019). Current ratio on the other hand has
also increased which denote that the current assets of company could become more aggressive as
compare to the current liability of the business. On the basis of the above evaluation of the
financial position of company the overall performance of the Chocco Plc has been improved.
This is a positive sign or indicator about the organisation that majority of ratios are showing
better results for the company. Only at some areas compare need some modifications in its

policies and practices. The overall performance of company is showing the positive results in
favour of the business enterprises.
CONCLUSION
Financial position of the organisation is strategically analysed with support of the balance
sheet and the profit and loss account of the business organisation. The profit and loss account
and the balance sheet of the organisation strategically indicate about the overall position of the
business entity. Ratio analysis is among the key technique that support the company to project
and assess about the overall financial position of the business entity. The Chocco Plc financial
statements like profit and loss account and the balance sheet project the favourable results in
respect to the organisation to reflect its financial position. The balance sheet on the other side
denote the right balance in between the assets and liabilities of the organisation. Chocco Plc
financial position are evaluated with support of the ratios that clearly indicate that the
organisation is performing better as compare to the earlier financial year.
REFERENCES
Books and Journal
Chen, X., 2020. Exploring the sources of financial performance in Chinese banks: A comparative
analysis of different types of banks. The North American Journal of Economics and
Finance. 51. p.101076.
Dhanya, P. and Aravindh, V., 2021. A STUDY ON FINANCIAL PERFORMANCE OF
HINDUSTAN UNILEVER LIMITED. EPRA International Journal of
Multidisciplinary Research. 7(7). pp.265-267.
Golovkova, A. and et.al., 2019. Customer satisfaction index and financial performance: a
European cross country study. International Journal of Bank Marketing.
Palamalai, S. and Britto, J., 2017. Analysis of financial performance of selected commercial
banks in India. Srinivasan, Palamalai and Britto, John (2017),“Analysis of Financial
Performance of Selected Commercial Banks in India”, Theoretical Economics Letters.
7(7). pp.2134-2151.

Patel, R., 2018. Pre & post-merger financial performance: An Indian perspective. Journal of
Central Banking Theory and Practice. 7(3). pp.181-200.
Shahnia, C. and Endri, E., 2020. Dupont Analysis for the financial performance of trading,
service & investment companies in Indonesia. International Journal of Innovative
Science and Research Technology. 5(4). pp.193-211.