Financial Performance Analysis of KUONI Company: A Ratio Analysis Approach

This report analyses the financial performance of KUONI Company using ratio analysis for the period starting from 2018 to 2020. The report highlights the main components of the annual report and explains the significance of financial statements. It also provides recommendations for the company to improve its liquidity and profitability.

INCOME
STATEMENTS
BALANCE SHEETS
FINANCIAL
PERFORMANCE

Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Explanation of term financial statements and its significance being part of financial
statements:..............................................................................................................................3
Main Components of Annual Report that are being highlighted in KUONI Company:........4
Evaluation of Finance Performance of KUONI using Ratio analysis:...................................5
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

EXECUTIVE SUMMARY
In this document the monetary overall performance of KUONI Company has been analysed
throughout 3 consisting 2018,2019 and 2020. This evaluation has been done with the assist of
ratio evaluation of all of the above 3 years in order that their overall performance may be judged
thinking about the market, competition and enterprise respectively. Further on this document the
dialogue has been accomplished concerning the tendencies and predominant regions of problem
that has been located withinside the annual document of KUONI Company. In this
announcement main attention has been made at the overall performance of the entity and advice
has been for the reason that how the entity will must pass ahead withinside the close to destiny
on the idea of beyond overall performance. The annual document on the idea of which overall
performance is being evaluated is the record that has been disseminated to the shareholders that
exhibit the corporation’s monetary situation and operation over the preceding year. The
significance of those statements is such that they enable in figuring out the modern popularity of
the enterprise, what are the main supply of investment for the enterprise operations and the
growth, and the way properly the company is being positioned in being profitable for his or her
investors, stakeholders etc.

INTRODUCTION
Financial statement is considered to be the significant part of any organisation as it includes
the books of accounts regarding the transaction that has been entered by the organisation
throughout the financial year. These statements are being further divided into statement of
financial position, profit and loss statement, statement of cash flows and notes to accounts. In
this report the financial performance of KUONI Company has been analysed for the period of
three consisting 2018,2019 and 2020. This analysis has been carried out with the help of ratio
analysis of all the above three years so that their performance can be judged considering the
market, competitors and industry respectively. Further in this report the discussion has been done
regarding the trends and main areas of concern that has been observed in the annual report of
KUONI Company. In this statement major focus has been made on the performance of the entity
and recommendation has been given that how the entity will have to move forward in the near
future on the basis of past performance. The annual report on the basis of which performance is
being evaluated is the document that has been disseminated to the shareholders that showcase the
corporation’s financial condition and operation over the previous year. The importance of these
statements are such that they helps in determining the current status of the business, what are the
major source of funding for the business operations and the growth, and how well the corporate
is being placed in earning money for their investors, stakeholders etc. The financial statements
are being considered the most significant part of annual report as it allows the current and future
investors, shareholders, employees and other business stakeholders to determine that how well
the entity is performing in their past, whether they have the ability to repay the debts or not, and
what are their futures plans in order to expand the business in various aspect (Alfraih, 2018).
TASK
Explanation of term financial statements and its significance being part of financial statements:
Financial statement are the written records that are used to convey the business activities and
financial performance of the entity. This statement is being audited on annual basis by the
government agencies, chartered accountant firms etc in order to make sure that accuracy of these
is to be maintained. They are useful in filling of the tax returns, investment purpose or financing
of loan from bank or public financial institutions also. Financial statements include the following
such as:

 Balance Sheet: It provides the overview of assets, liabilities and equity hold by the
business at one point of time.
 Income Statement: They focuses towards the operational revenue and expenses of the
corporation for the particular period. Company’s profit figure will be arrived when
expenses are being deducted from the revenue (Barmuta, Ponkratov, and Ivleva, 2019).
 Cash Flow statement: These statements shows that how well the business will generate
cash in order to meet out their debt obligation, fund their regular expenses, and support
their future investments.
These statements play the very significant role being part of the annual report as it reflects the
financial performance of the business throughout the year. On the basis of these statement only
the future policies and plans for the development of the entity are being prepared. These
statement helps the management to set the budgeted figures that are being achieved in the future
runs as well.
Main Components of Annual Report that are being highlighted in KUONI Company:
The major components of the Annual Report are being mentioned below:
 Financial Statements:
These statements consist of four statements that are being prepared by the corporate
which is considered as medium in order to make communication to their shareholders and
other groups of users that are associated with companies. These includes balance sheet,
income statement, cash flow statement and statement showing changes in equity
(Dimitropoulos and Scafarto, 2021).
 Chairpersons Report:
This report is being addressed by Chairperson of the company to their shareholders at
annual general meeting of the corporation. It mainly consists of summary regarding the
financial affairs, board of directors’ composition etc. The chairperson also thanks the
board, employees and shareholders of the company for their corporation and support to
corporate.
 Management Discussion and Analysis:
In this section the simplification of the financial statements is being conducted so that
financial review could be carried out in an effective manner. This section also laid down
the crucial information towards the company business plan or strategy.

 Management responsibility for the financial reporting:
In this statement the clear note has been mentioned that management of the company is
responsible for finalization and preparation of books of accounts. The duty of the auditor
to express an opinion on the books that whether they reflect true and fair view or not
(Ghosh and Ansari, 2018).
 Notes to financial statements:
In this section the detailed explanation has been given regarding the accounting policies
and procedure that has been adopted by the business, various employees benefit schemes
provides, basis for taxation. Contractual commitment and contingencies for the business
etc.
 Report to independent auditor:
Before the final submission of the books of accounts to the shareholders and government
agencies, they are subject to audit by the independent auditor whose report has been
annexed with the final accounts in the annual report.
Evaluation of Finance Performance of KUONI using Ratio analysis:
Net Profit Ratio:
It is also known as net profit margin ratio which is helpful in measurement of profits of the
company that has been earned by them out of the total amount funds that are being invested in
the business.
Period Year 2018 Year 2019 Year 2020
Net Profit Reported (1539470) (1605398) (210221)
Sales Amount Reported 1235228 1397230 833354
Net Profit Margin (%) = NP / Sales (80.24%) (114.98%) (25.23%)
Gross Profit Ratio:
This ratio indicates the amount that has been left with corporate after deduction of cost of goods
sold from the revenue generated throughout the year (Lin, Martinez, and Yang, 2018).

Period Year 2018 Year 2019 Year 2020
Gross Profit Reported 6905246 4151293 191721
Sales Reported 1235228 1397230 833354
Gross Profit Margin (%) = Gross
Profit / Sales
55.90% 29.71% 23.01%
Current Ratio:
This ration shows the relationship between current assets and liabilities that are being hold by the
business. The ideal ratio for different types of industry that has been set is 2:1 which reflects the
repayment capacity of the business (Lugovskу and Kuter, 2019).
Period Year 2018 Year 2019 Year 2020
Current Assets 18470655 1066487 1383898
Current Liabilities 27972332 11971355 12498987
Current Ratio = Current Assets /
Current Liabilities
.66 Times .09 Times .11 Times
Debt Equity Ratio:
This ratio shows the relationship of capital structure comprises of debt and equity. It has been the
general suggestion that to keep this ratio as minimum as possible as higher ratio indicates more
debt in the business which makes them risky to work upon.
Period Year 2018 Year 2019 Year 2020
Debt NIL 123601 260055
Equity 9299470 10904868 11115089
Debt-to-Equity = Debt / Equity Nil .01 Times .02 Times
Asset Turnover Ratio:

This ratio shows that how well the business is utilising their corporate assets in order to generate
the revenue throughout the year. The higher this ratio, higher the efficiency of assets being
reflected in company (Przychodzen, Gómez-Bezares, and Przychodzen, 2018).
Period Year 2018 Year 2019 Year 2020
Net Sales 1235228 139723 833354
Average Total Assets 18672862 1066487 1383898
Asset Turnover Ratio = Net sales /
Average Total Asset
6.62 % 13.10 % 60.22 %
Quick Ratio:
This will indicate the ability of the business to meet out their short-term obligations with the
usage of most liquid assets.
Period Year 2018 Year 2019 Year 2020
Current Assets less Stock 18470655 1066487 1383898
Current Liability 27972332 11847754 12238932
Quick Ratio = Quick Assets /
Current Liability
.66 Times .01 Times .11 Times
Proprietary Ratio:
This ratio is the type of solvency ratio which shows the amount of contribution that has been
made by the proprietor in the operating assets of the company (Rusdiyanto and Narsa, 2019).
Period Year 2018 Year 2019 Year 2020
Shareholders’ Equity 9299470 10904868 11115089
Total Assets 18672862 10664870 13838980
Proprietary Ratio = Shareholders
Equity / Total Assets
49.80 % 102.25 % 80.31 %

CONCLUSION
In this report the financial performance of KUONI Company has been evaluated by carrying
out ratio analysis for the period starting from 2018 to 2020 using their annual reports. While
performing ratio analysis profitability ratio, solvency ratio and liquidity ratio are being
considered. In term of their performance the observation is such that their net profit margins in
all the above three years are negative which states that the KUONI in not generating sufficient
revenue in order to meet out their operational expenses on regular course of interval. It can also
be concluded that their operational expenses involved those expenses also which are not
contributing to the profits of the KUONI which needs to be eliminated by them as soon as
possible. The gross profit margins in all the respective years are being positive that is 55 %, 29 5
and 23 % approx. respectively which indicates that cost of the product is being recovered but
there is some deficiency in their operational cost. Further the margins are in decreasing order
from 2018 which needs to be given special attention as it shows that entity performance is
regularly degrading over the past two years. The current is very poor in all the three years which
is .66, .09, .11 times which indicates that they are facing liquidity problem in short term period
and the business does not have sufficient cash to repay their current liability as and when they
become due. After evaluating debt equity ratio, it has been observed that the company majorly
financed through equity only and does not have any debt in their capital structure which indicates
that Outsider risk is negligible for them which is a good sign in business. There is an
improvement with respect to asset turnover ratio during the year 2020 which is significantly
higher as compare to 2018 and 2019. The assets are contributing more in the year 2020 due to
change in their policy also. The overall three recommendation that the company needs to focus is
that they need to improve their liquidity as their profitability ratio is very poor and they are not
up to the mark. Secondly the company needs to gear some risk their capital structure in the form
of loan or issue of debentures so that the funds raise could be invested in the capital assets of the
business and that would be helpful for them in the near future. At last, the recommendation could
be that they need to focus more on their operational expensed and product diversification so that
their revenue or other income source could get increased and if their operational cost could gets
reduced to an acceptable level then their profits margins could be doubled accordingly.

REFERENCES
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