Financial Assessment of Alina Ltd: Trial Balance, P&L Account, Ratios, and Interpretation

This report provides a financial assessment of Alina Ltd, including trial balance, P&L account, ratios, and interpretation. The report evaluates the company's financial position and performance using different financial metrics such as gross profit margin, net profit margin, current ratio, acid test ratio, and return on capital employed.

Assessment

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
ASESSMENT 1...............................................................................................................................1
TASK 1............................................................................................................................................1
Trial balance for Alina Ltd as at 31st December 2021 ..............................................................1
TASK 2............................................................................................................................................1
Formulating P&L account...........................................................................................................1
ASESSMENT 2...............................................................................................................................3
TASK ..............................................................................................................................................3
Calculating ratios........................................................................................................................3
Interpreting the financial performance........................................................................................5
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Financial information plays significant role in offering the understanding of the
prevailing circumstances of business. In the current era, it is important for the organization to
give emphasis on having relevant ability to gather financial information so that proper decision-
making can become possible. The current report will pay attention on formulating trial balance.,
income statement and financial position. It will give emphasis on calculating & interpreting
ratios in the present study.
ASESSMENT 1
TASK 1
Trial balance for Alina Ltd as at 31st December 2021
Particulars Debit £ Credit £
Capital 200
Sales 100
Stocks 20
Cash and cash equivalent 110
Bank loan 70
Furniture and Fittings 180
Trade Receivables 30
Trade Payable 20
Wages 50
Total 390 390
TASK 2
Formulating P&L account
Particulars Amount £ Amount £
Sales 1000000
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COGS
Add; Opening Stock 800000
less: Closing Stock 200000 600000
Gross profitability 400000
Depreciation 80000
Advertising expenses 60000
Rent 15000
Salaries 56000
Commission 5000
Other expenses 7000 223000
Net profitability 177000
From the evaluation of the above prepared income statement it can be interpreted that
net profitability of the business is 177000 which has been derived by reducing direct & indirect
expenses from sales revenue. This is indicating good profitability generating capacity of
organization and reflecting healthy financial position.
Particulars Amount £ Amount £
Current assets
Inventory 15000
Cash and cash 100000
Accounts receivable 20000
Total current assets 135000
Fixed assets
Land 24300
Equipment 45000
Building and Improvements 250000
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Investments 14000
Total Fixed assets 333300
Intangible asset 3700
Total assets 472000
Current liabilities
Accounts Payable 30000
Notes Payable 10000
Account Expenses 7000
Total current liabilities 47000
Long term Liabilities 200000
Owner's equity
Additional Paid in capital - 20000
Common Stock 10000
Retained Earnings 195000
Total owner's equity 225000
Total liabilities and equity 247000
On the basis of the above prepared balance sheet it can be identified that company is
possessing good financial position. The particular balance sheet has been prepared by following
the accounting equation such as total assets equals to current liabilities plus equities (Sinervo
and Haapala, 2019). From the assessment it can be interpreted that firm is having good ability to
overcome the short term liabilities and have good amount of liquidity which is indicating good
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credibility in market. The present performance of firm is positive which is helpful in
understanding that good position in sector is achieved by business.
ASESSMENT 2
TASK
Calculating ratios
Gross Profit margin
Particulars Formula Results
Gross Profit 400000
Sales revenue 1000000
GP ratio
Gross
profit /
sales 0.4
Gross Profit Percentage margin
Particulars Formula Results
Gross Profit 400000
Sales
revenue 1000000
GP ratio
Gross
profit /
sales * 100 40.00%
Net Profit margin
Particulars Formula Results
Net profit 177000
Sales
revenue 1000000
NP ratio
Net profit /
sales 0.177
Net Profit Percentage margin
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Particulars Formula Results
Net profit 177000
Sales
revenue 1000000
NP ratio
Net profit /
sales * 100 17.70%
Current Ratio
Particulars Formula Results
Current
assets 135000
Current
liabilities 47000
Current
ratio
Current
assets /
current
liabilities 2.87
Acid Test
Particulars Formula Results
Current
assets 135000
Inventory 15000
Current
liabilities 47000
Acid Test
ratio
Current
assets -
(stock
)/Current
liabilities 2.55
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ROCE
Particulars Formula Results
EBIT 177000
Capital employed
Total assets-
current
liabilities 425000
Return on capital
employed
EBIT/
Capital
employed 0.42
Interpreting the financial performance
Gross profit ratio is one of the significant metrics that helps in understanding the ability
of organization to decline the cots of goods sold in order to incline its profitability margin. There
are different types of the stakeholders who pays attention on assessing the gross profit margin so
that proper decision-making can become possible. This involves investors, suppliers,
competitors, customers, management, etc so that proper evaluation of operational practice
exerted by firm can be evaluated.
From the assessment of the gross profit margin it can be interpreted that business is
having 0.4 margin. This is reflecting that firm has 0.6 margin of cots of good sold which is
reflecting that firm is operating successfully via reducing its expenses in turn better performance
can be derived. Gross profit margin ratio is indicating that it is performing effectively as
receiving higher than ideal ratio which is 20%. it aids in understanding that gross profitability of
firm is good.
Net profitability is associated with capability of firm to generate higher revenue so that
profitability can be inclined (Ortiz-Martínez and Marín-Hernández, 2022). There are number of
stakeholders such as investors, suppliers, lenders, etc who highly concentrate on ability of firm
to generate profit so that its efficiency of maintaining liquidity can be identified. The particular
organization is possessing net profit margin of 0.177 and in 17.70% which is showing good
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performance of the business. On the basis of this, it can be articulated that firm is possessing
effectual efficiency in generating revenue.
Current ratio is related with evaluating the efficiency of enterprise to use current assets to
overcome short term liabilities. On the basis of computed figure it can be stated that particular
firm is having good level of efficiency as 2.87 times assets are more than current liabilities. This
can aid the firm to attract different stakeholders and retain them form longer duration in turn
achieving success can become possible.
Acid test ratio is related with evaluating how effectively particular firm is using cash &
equivalent assets to overcome current liabilities (Mancini and et.al., 2022). The computed result
is presenting 2.55 times cash & equivalent assets are greater than short term liabilities which
presents good liquidity position.
Return on capital employed is basically evaluated by investors, lenders, etc so that
information regarding how effectively particular business is using employed capital to offer
return to stakeholders. On the basis of evaluation it can be evaluated that firm offers 0.42 which
can aid ins satisfying current and potentials shareholders.
CONCLUSION
From the above report it can be concluded that having financial information is important
to make decision. The current report has involved financial statement like income and balance
sheet that is presenting goo monetary position. Ratio has been computed and that is indicating
that there is good ability to meet objectives of business.
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REFERENCES
Books and Journals
Mancini, D and et.al., 2022. Theories in Integrated Reporting and Non-financial Information
Research. In Non-financial Disclosure and Integrated Reporting (pp. 233-252). Springer,
Cham.
Ortiz-Martínez, E. and Marín-Hernández, S., 2022. European SMEs and non-financial
information on sustainability. International Journal of Sustainable Development & World
Ecology. 29(2). pp.112-124.
Sinervo, L.M. and Haapala, P., 2019. Presence of financial information in local politicians’
speech. Journal of Public Budgeting, Accounting & Financial Management.
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