Financial Statement Analysis of Grenco Plc for Investment Decision Making

The report provides an analysis of Grenco Plc's financial statements including income statement, balance sheet and cash flow statement. It evaluates the company's financial performance and provides recommendations for investment decision making. The report also explains the three financial statements and their importance. It calculates the profit or loss of the company and comments on the financial aspects of the company. The conclusion recommends the use of inventory management system to decrease stock outs. Subject: Accounting, Course Code: ACC101, College/University: Not mentioned

Individual report
component 2

EXECUTIVE SUMMARY
Financial statement is important to maintain because it can provide detailed
information about financial performance of the company. There are total 3 financial
statement: cash flow statement, income statement and balance sheet which will provide
performance of the firm. The present study will be based on Grenco Plc a British
grocery retail company situated in Manchester. By referring to the financial statement of
the Grenco Plc, financial investment group Durwent & Co Financial Services Ltd. Can
make important decision like whether to invest or not.

TABLE OF CONTENT
INTRODUCTION ..............................................................................................................4
Explaining 3 financial statements and what kind of information they provide. .............4
Calculating the profit or loss of the company.................................................................7
Commenting on the financial aspects of the company..................................................8
CONCLUSION ................................................................................................................10
REFERENCES................................................................................................................11

INTRODUCTION
Accounting is a systematic process of recording and measuring financial
activities and transactions pertaining to a company. Nowadays, the company use this to
summarize, report and analyse these business transactions in order to oversight tax
collection entities and agencies. The present study will be based on Grenco Plc which is
popular brand of retail industry founded in the year 1998. The company provides
grocery items to its customers and has a large market share in the UK. The firm also
has expanded its business into various types of areas such as clothing, electronics,
toys, petrol, financial services, internet services and telecoms etc. due to this, the firm
holds good market position in the competitive world of grocery retail industry. In addition
to this, Grenco repositioned itself from being a downmarket high volume low cost
retailer in order to attract more customers with the help of Grenco value which was
launched in the year 2005. The report will provide detailed information to Financial
investment group named as Durwent & Co Financial Services Ltd who wants to buy
shares and invest in the cited company. Furthermore, By referring to this report they can
easily make a better decision.
Explaining 3 financial statements and what kind of information they provide.
Financial statements- A collection of summary level reports about a company's
financial position and financial health is known as financial statements (Jeenas, 2019).
With the help of financial statements, company can easily understand the cash inflows
and outflows.
The Balance sheet
This statement is maintained by the company to have detailed information about
assets, shareholders equity and liabilities. Financial condition of firm can be known by
maintaining this statement. It is important for the company to prepare this report in such
a way that the total of all assets must match the combined total of all liabilities and
equity (Abernathy and et.al., 2019). On the asset side, long term assets and current
assets should be mentioned properly. In the same way, on the liabilities side current
and long term liabilities should be maintained. By doing this, the firm can determine the
business liquidity easily. Maintaining this properly will be beneficial for the firm to know

about whether they have sufficient assets to pay off its current obligations or not. Firm
can also compare debt levels to the amount of equity invested in the business.
Income statement
This report shows how much revenue a firm earned over a specific period. In
other words, it shows the expenses and costs associated with earning that revenue. It
shows business profitability over a time period. This is the most important statement
which must be prepared by company to know the financial activities for the reporting
period (Kumhof and Noone, 2018). Basically, this statement is prepared for comparison
purposes in which company compare with past data and understand its earning or loss.
By calculating earnings per share, how much money shareholders would receive if the
firm decided to distribute all the earnings for specific time period. It has been noted that
firms usually reinvest their earnings instead of distribute them.
Cash flow statement
Every business wants to know about cash inflows and outflows, this statement is
very important because by maintaining this report firm can easily understand whether
they have enough cash on hand to pay its expenses or not. They can also make
decisions whether firm should purchase assets in the future or to reduce it. This will
provide detailed information about cash generated by the firm (Robinson, 2020). Here,
the cash flows are classified into cash flow from investing, operating and financial
activities. In the operating activities section, all the cash flows are listed in proper
manner which includes basic business operations such as inventory, receivables and
balance of payment. In addition to this, Financial activities of the company must include
stock sales, dividend issuances and debt. On the investing activities side, the company
should involve sale or purchase of investment instruments and assets.
How they linked with one another
All the statements are linked with one another in order to determine the ability of
a business to generate cash flows. By having this statements company can track
financial results and make important decisions (Nindito, 2018). Owner of the firm can
spot any looming profitability issues and solve it. These statements are used as the
basis for an annual report and shared with investors and other community. Net income

which is profit before tax less tax expense is connected on all the mentioned above
statements. Net income of the firm links to both cash flow and balance sheet statement.
In terms of the cash flow statements, with the help of net income company can calculate
cash flows from operations. In addition to this, any non cash expenditure or income from
the income statement flow into the cash flow statement.
With respect to balance sheet statement, the company's net income flows into equity
stakeholder through the retained earnings. From which the firm can understand the
portion of profits in business operations that are not distributed as dividends. Working
capital, PP&E, financing are items of balance sheet have a cash impact, they are linked
to the cash flow statement.

Calculating the profit or loss of the company
INCOME STATEMENT
particulars £m £m
Sales revenue 395000
Cost of sales 323800
Gross profit 71200
expenses
wages 35000
rent 5500
Telephone expense 1220
Van running costs 200
Motor expense 180
Lightening and heating expense 4000
General expense 6000
Total expense 52100
Net profit 19100
The major purpose of an income statement is to show financial performance of
the firm over a period. Total revenue of the firm is the sum of non-operating and
operating revenues (Financial statement, 2022). While on the other side, the company's
total expenses involve all the secondary and primary business activities. With the above
mentioned table, it has been evaluated that business activities of the Grenco Plc is
running smooth.
Gross profit- It is the profit a business makes after deducting all the costs that
are related to manufacturing and selling its goods or services. Here, in the current case
study, to find gross profit it is essential to minus sales revenue and cost of sales.
=395000-323800
= 71200
Expenses- the amount of money a Grenco Plc spends during a reporting period
is known as expenses. In the above table, expenses such as rent, wages, van running
costs, telephone expense, motor expense etc. the company spent various amounts as
listed above that total 52100.

Net profit is the amount of money any business earns over a time period after
deducting expenses, interest and operating. In the current study, the company's
financial performance is stable: the net profit of the company is 19100.
Net profit= (revenue+gains)- (expenses+losses)
71200-52100=19100.
The above mentioned table is the simplest forms of the income statement that
any standard company like Grenco Plc can generate. It is also known as single step
income statement as it is totally based on the simple calculation of revenue and
expenses to find out net income.
It has been recommended to company to focus on increasing their net margin by
increasing revenues consistently. This can be done through selling more services or
products and also firm can increase prices (Thuy and et.al., 2021). The best way to
increase net margin the owner of the firm needs to reduce costs, increase sales
revenue and reduce extra or unnecessary expenditure in order to avoid any uncertainty
in the future.
Commenting on the financial aspects of the company
The Balance sheet of the firm highlights detailed information about resources and
its sources of capital. It includes equity, assets and debt of the firm which helps an
analyst assess ability of the firm to pay for its near term operating needs. By maintaining
balance sheet in a proper manner one can easily know whether the firm is able to pay
for its liabilities/debt or not. They can also understand whether the business will be able
to meet future debt obligations and attract more shareholders to company (Thuy and
et.al., 2021). With the help of above mentioned income statement the firm will be able to
assess how efficiently Grenco Plc uses its assets. Also, they can compare debt to total
capital and debt to equity to assessing leverage on the balance sheet of the firm.

fixed assets- It is the long term assets that a firm has purchased and is using for
the production of its services and products. In the present balance sheet of Grenco plc
fixed asset is 25500 in the year 2015. However, there is an increasing trend of 3000 in
the year 2016 which is 28500. It means the fixed asset of the firm is increased by 3000
represents a cash outflow. With the help of this statement, it has been evaluated that
company is over investing in the property, equipment and plant in the year 2016.
Depreciation- It represents how much of the asset's value has been used by the
firm (Ali, Razzaque and Ahmed, 2018). This method is used by firm to allocate the cost

of physical asset or tangible asset over its useful life. There is an increasing trend
shown in the depreciation, which is more in the year 2016 as compared to 2015. It
increases by 200 which shows that the firm needs to control on increasing expenses in
order to have stable net income. However, it doesn't affect the company's performance
in the upcoming years.
Current assets- current assets of the firm are essential to businesses because
they can be utilized to fund daily business operations or activities. The company can
also pay for the ongoing expenses such as operating expenses. All the asset of a
Grenco Plc that are expected to be used or sold as a result of standard business
transactions over the next year is known as current assets. In the present balance
sheet, current assets includes bank loans, debtor and stock. There is an increasing
trend of stock in the year 2016 which is 7900. The stock is increased by 2800 in this
year which means the firm has purchased more products or services than it has sold in
the year 2016 as compared to 2015. However, it doesn't affect the firm's profitability at
the end of the year.
Current liabilities- It shows the debt of the company which needs to be paid
within a year. The firm's current liabilities is increased by 5000 to 5200 in the year 2016.
Trade creditors are recorded as an operating cash inflow on the financial statement
called cash flow (Wang, Yu and Gao, 2021). The major reason behind increasing trend
in trade creditors is because of the heavy purchase of inventory or stock. It has been
noted that when the company purchase more inventory, there are majorly two ways to
purchase. The very first way is to make payment through cash. The second way which
is majorly adopted by companies is to pay on short term credit via method of accounts
payable. On the contrary note, it doesn't affect the performance of the firm.
Net profit- Net profit is the amount of money any business earns over a time
period after deducting expenses, interest and operating. It has been evaluated that, the
net profit of Grenco Plc is more in the year 2016 as compared to 2015 which is 19100.
It is increased by 3100, which is a good sign for a profitability of the firm. To maintain
consistency the firm can reduce unnecessary expenditure and keep proper record of
inventory and stock by using inventory management method.

By evaluating the balance sheet, it has been recommended to Durwent & Co
Financial Services Ltd, they can make decision to buy shares and invest in Grenco plc
as the firm is maintaining good position in the market.
CONCLUSION
To conclude, the major purpose of accounting is to report on financial information
about the health of firm, performance and cash flows of a business. By evaluating the
report, it has been concluded that Grenco plc is holding good position in the market and
other companies like Durwent & Co Financial Services Ltd can make investment and
buy shares. Moreover, in order to avoid any uncertainty in the future, firm can use
inventory management system to decrease stock outs which is beneficial for inventory
turnover.

REFERENCES
Books and Journals
Abernathy, J. L. and et.al., 2019. Financial statement footnote readability and corporate
audit outcomes. Auditing: A Journal of Practice & Theory. 38(2). pp.1-26.
Ali, M. J., Razzaque, R. M. and Ahmed, K., 2018. Real earnings management and
financial statement fraud: evidence from Malaysia. International Journal of
Accounting & Information Management.
Jeenas, P., 2019. Firm balance sheet liquidity, monetary policy shocks, and investment
dynamics. Work in progress.
Kumhof, M. and Noone, C., 2018. Central bank digital currencies-design principles and
balance sheet implications.
Nindito, M., 2018. Financial statement fraud: Perspective of the Pentagon Fraud model
in Indonesia. Academy of Accounting and Financial Studies Journal. 22(3). pp.1-
9.
Robinson, T. R., 2020. International financial statement analysis. John Wiley & Sons.
Thuy, C. T. M. and et.al., 2021. Corporate Social Responsibility Disclosure and
Financial Performance: The Mediating Role of Financial Statement
Comparability. Sustainability. 13(18). p.10077.
Wang, Y., Yu, M. and Gao, S., 2021. Gender diversity and financial statement
fraud. Journal of Accounting and Public Policy, p.106903.
Online
Financial statement. 2022. [online]. Available through.
<https://www.patriotsoftware.com/blog/accounting/what-is-a-financial-statement/>

Appendix