Financial Fundamentals: Profit and Loss Statement, Financial Position, and Ratios

This report provides detailed information about financial statements and profit and loss statement for the company. Along with this various ratios such as return on capital employed, return on equity, Earning per share, net profit margin, asset turnover, stock holding days, current ratio gearing ratio etc. has been mentioned in this report.

Fundamentals

Table of Contents
Introduction......................................................................................................................................2
QUESTION 1..................................................................................................................................2
Profit and Loss statement for the year ended 2020......................................................................2
Statement of Financial Position for the year ended 2020............................................................3
QUESTION 2..................................................................................................................................4
Ratios...........................................................................................................................................4
Financial performance of Chocco PLC.......................................................................................8
Conclusion.......................................................................................................................................9
References......................................................................................................................................10
Introduction
1

The following Report stated about financial fundamentals. This report provides detailed
information about financial statements and profit and loss statement for the company. Along with
this various ratios such as return on capital employed, return on equity, Earning per share, net
profit margin, asset turnover, stock holding days, current ratio gearing ratio etc. has been
mentioned in this report.
QUESTION 1
Profit and Loss statement for the year ended 2020
Particular Amount
Revenue 826650
Cost of sales (578650)
Gross profit 248000
Less : indirect expenses
Distribution cost (28000)
Directors remuneration 5000
Administrative expenses (30000)
Interest paid 4000
EBT 178000
Tax 68000
Net profit 1,10,000
Less : preference dividend 30,000
Earning provided to ordinary shareholders 80,000
Less; equity dividend 20,000
Retained earning 60,000
Statement of Financial Position for the year ended 2020
Particulars Amount
Non- Current assets
Plant and equipment 632730
2

Current assets
Stock 330600
Debtors 170125
Cash and bank 12900
Total asset 1146355
Current liabilities
Creditors 171355
Tax payable 68000
Interest 2000
Commission 3000
Noncurrent liabilities -
4% debenture 1,00,000
Equity
Ordinary share capital 3,10,000
Preference share 3,00,000
Retained earnings 820000
Total liabilities 1146355
QUESTION 2
Ratios
Return on capital employed
Particular 2019 2020
EBIT 720 846
Total Assets 10,087 9,736
Current liabilities 2,511 3,046
ROCE 11.77% 10.22%
Return on capital employed States about the usage of capital and how much earning is being
generated by capital (Alqam and et.al 2021). Return on capital employed ratio is a very popular
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in financial ratio which used to exist profitability of the company and also it helps the company
to analyse the capital efficiency. In the year2019 return on capital employed of this ratio was
10.22%. But in the year 2020 it has increased to 11.774 %this return on capital employed ratio
states that the company is in profitable situation and generating higher return because the return
on capital employed ratio is continuously increasing.
ROE
Particular 2019 2020
Net profit 366 431
Equity 2912 3088
ROE 12.57% 13.96%
This ratio is used to measure the financial performance of the company and is ratio reduces net
income and shareholders’ equity. This ratio is used to measure profitability of Corporate. Which
company was having 12.57% returns on equity in 2019? But in the year 2020 written on equity is
also getting increase and become one 13.96% which means that company is providing more
return to the equity holders and shareholders. Return on equity ratio is one of the most
satisfactory ratios of any organisation which provides the information about the return which is
generated by the company.
Earnings per share
Particular 2019 2020
Net Income 366 431
Preference dividend - -
Share outstanding 600 600
EPS 0.61 0.72
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Earnings per share are being used by the company to know the overall profitability which is
divided by the outstanding share (Esteves and et.al 2017). Main purpose of using Earning per
share ratio is to indicate the overall profitability of the company this ratio is also an important for
the perspective of investors. If the Earning per share ratio is higher than its shows the greater
value of profit and investors will get good return in the form of dividend. As per this case the
Earning per share ratio of this company was 20.6 to in 2019 which has increased to 21.61 in the
year 2020 which shows a good return of the.
Net profit margin
Particular 2019 2020
Profit 366 431
Revenue 6441 6738
Margin 5.68 6.39
Net profit margin ratio is expressed in the form of percentage and the main objective of
implementing this ratio is to analyse the profit which is generated by the company by sales. Net
profit margin ratio of this company was 5.68 percent in the year 2019 which has increased in
2020 in preachers to 6.40%. This ratio shows that companies in waiting more profit with the help
of sales and therefore they are providing more returns to the investors. Net profit margin states
that this company is financially strong and therefore it is providing good returns to the investor's
and attracting the investor's as well.
Asset turnover
Particular 2019 2020
Revenue 6441 6738
Total assets 10,087 9,736
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Asset turnover 0.63 0.69
Asset turnover ratio is being calculated by dividing net cells to the average Assets of the
company. Asset turnover ratio is used to measure the value of Companies sales and revenue
generated by the company by using their assets is being defined by asset turnover ratio. Asset
turnover ratio was 0.6 % in the year 2019 which has increased 20.6 9% in the year 2020 which
shows that companies properly using their assets to generate revenue.
Stock holding days
Particular 2019 2020
Cogs 3096 3235
Average inventory 659 708
Stock holding days 78 80
Stock holding day’s ratio states that how long company is holding their stocks and how quickly
they are generating revenue from the stocks (Iqbal and et.al 2021). Every company wants that
their stock holding days get reduced because they do not want to carry stock for so long and
therefore they want to generate return from stock and as per the case study this company having
78 days of holding stock in 2019 which has increased to 80 days in the year 2020. As the stock
holding days are continuously increasing this shows that company is not able to generate profit
and revenue by using their inventory on proper time.
Debtors’ collection period
Particular 2019 2020
Debtors 1287 1249
Sales 6441 6738
Debtors’ collection period 73 68
Debtor’s collection period states about the time period which is being taken by the company to
recover their debtors and recovered the amount from the debtors. Every company wants that their
debtor Collection period get decreased so that they may generate revenue at earliest. Debtor’s
collection period of this company 73 days in 2019 which has decreased to 68 days in 2020 this is
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showing a positive result in the favour of the company that company is recovering the entire
remaining amount very quickly and in fewer days so that company can use such money for
further investment.
Current ratio
Particular 2019 2020
Current assets 2355 2503
Current liabilities 3046 2511
Current ratio 0.77 0.92
Current ratio shows that how company is using their current assets to repay all the short term
loans and liabilities. The Ideal current ratio is 2: 1 which represent that on every one liability
company must have two current assets that the company easily repay all the loans. In the year
2019 the current ratio was 0.77 which has increased to 2019 to in the year 2020 which means
that companies using their assets properly and they are easily paying all the debts and liabilities.
Gearing ratio
Particular 2019 2020
Total debt 4129 4137
Equity 2912 3088
Gearing ratio 1.4 1.3
Gearing ratio is calculated by dividing the long-term debts to the shareholders equity. Earring
designs one of the important financial ratios which used to compare the owner’s equity to loans
and liabilities and also all the funds which is being bought by the company. The main purpose of
using during ratios to measure the overall financial leverage which demonstrated all the degree
of operations and funds which is used by the company from debt financing. In the year 2019
during ratio was 1.4 % which has decreased to 1.3% year 2020.
Inventory cover
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Particular 2019 2020
Net sales 6441 6738
Inventory 659 708
Inventory turnover ratio 9.77 9.52
Inventory turnover ratio calculated by dividing cost of goods sold with average stock. This is
also a financial ratio which represents the time taken by the company to sold and to replace their
inventory for a specified time duration. If the inventory turnover is slow then it shows that the
sales and revenue is weak. In the year 2019 inventory turnover ratio was 9.77 which has been
decreased in 2020 and becomes 9.5 to which was that companies not generating quick money
from inventory.
Financial performance of Chocco PLC
After analysing the financial statements and different ratios that has been stated that these
companies not having profitable situation although they are generating good income by revenue
and sales but this company need to work on various ratios so that in future that do not have to
face any loss (Sestan, 2019). This the return on capital employed ratio was decreasing in the
company so that it is important that they must make proper policies and strategies to increase the
return on capital employed so that the company can provide more return to their investors. Along
with this there are more ratios such as earning per share, debtor’s collection period which need to
improve.
Conclusion
After analysing the entire report it has been stated that this report focuses on providing financial
statements and financial position the for the company. Along with this different ratios have been
mentioned in this report which provides the overall performance of the company.
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References
Books and Journal
Alqam, M.A., Ali, H.Y. and Hamshari, Y.M., 2021. The Relative Importance of Financial Ratios
in Making Investment and Credit Decisions in Jordan. International Journal of
Financial Research.12(2). pp.284-293.
Esteves, M., Zorn, A., Baur, I. and Lips, M., 2017, July. Financial ratios as indicators of
economic sustainability: Synergies and trade-offs for Swiss dairy farms. In Proceedings
of the 21st International Farm Management Congress, John McIntyre Conference
Centre, Edinburgh, Scotland, UK (pp. 2-7).
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Iqbal, Z., Rashid, H.A. and Tabassam, A.H., 2021. Analyzing the Financial Performance of
Pakistani Banks By using Inflation, financial ratios and Corporate Governance. Journal
of the Research Society of Pakistan. 58(1). p.36.
Sestanj-Peric, T., Kozjak, S.K. and Kovsca, V., 2019. FINANCIAL RATIOS BENCHMARKS–
AVERAGE OF INDUSTRY OR SOME OTHER MEASURE?. Economic and Social
Development: Book of Proceedings, pp.205-211.
Ullah, N., 2021. Financial Ratios Analysis of 7-Elaven: An Analysis of Five Years Financial
Statement.
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