Financial Statement Analysis for Two Organizations

The assignment involves analyzing the financial statements of two organizations using various financial ratios. It compares their performance and position, highlighting fluctuations in gross profit margin, net profit margin, liquidity position, and interest coverage ratio. The report concludes that managing finance is essential for every organization, and this analysis provides a detailed understanding of growth and sustainability in the near future.

Managing Financial

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
a): Difference among financial account and management account.............................................3
b); Determine and purpose of various financial statements........................................................4
C): Various group of stakeholders and evaluate their various data requirements.......................5
TASK 2............................................................................................................................................7
a): Computation of various ratios................................................................................................7
B): Compare there performance and position of the company ..................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Finance is an essential field that deals with the study of all capital investments. It consists
of dynamics of total assets and debt obligation over the time under a given situation to face risk
and uncertainty. Without having appropriate source of finance a company cannot be able to
manager there everyday business transactions. This project is providing vital information about
various aspects regarding financial position of “Pound land Group Plc”. Some effective
objectives of using financial statements in comparing profit and loss aspects of the company. In
order to get more effective outcomes, some crucial ratio's is being evaluated in more positive
manner (Ostry and et. al., 2012).
TASK 1
a): Difference among financial account and management account
In every business organization, it is vital for the company to making analysis of their
financial situation that are affecting the profitability of an organization. According to the mention
case of Poundland group plc which is operating in nearly 900 stores in the UK. It is crucial for
the company to manager their financial records of the company in more effective manner so that
more valuable results can be generated during an accounting period of time. Both financial and
management accounting is two different side of an organisation (Kane, 2011).
Basis for
comparison
Financial account Management account
Meaning It is an effective accounting system
that entirely focuses on the preparation
of financial data of an organisation.
Under this accounting system which
would provide crucial information to
the managers to make plan and
policies for smooth running of
business.
Significance It is more significantly required to be
prospered in every financial year.
This is one time activity which is not
important to be made in every period
of time.
Objectives The primary motive is to deliver
financial data to external parties.
To aids management in appropriate
planning and decision making
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process.
Format The manager need to follow a well
organise format for making entries of
financial transactions.
The management need not to follow
any of the set format because they are
the only responsible for making
analysis of financial statements.
Time frame Financial statements are formulate at
the closing of an accounting year.
Under this account, reports are
prepared as per the requirements of an
organisation.
User Both internal and external parties are
held responsible for making financial
statements.
Only internal management use to take
vital decision making.
b); Determine and purpose of various financial statements
Illustration 1: Purpose of using financial statement in two organisation
(Source: Surbhi S, 2016)
In any of the business, it has been seen some major myth about non-profit organization,
which is most individual trust as true that it does not work for the purpose of earning profit from
their business activity. Whereas, profit organisation is working with the aim of earning
maximum earning with their available resources. The only thinks which make them separate is
the purpose of their business operations. It has been found that not all organisation are working
for the aim of earning maximum profit, rather than there are some other entity whose aim is to
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serve the society at first priority (Allen, 2012). In accordance with this, there are two major types
of organisation, which are discuss underneath:
Basis for comparison Profit Organization Non-profit Organization
Meaning As a legal business entity which is
operating for the motive of earning
profit for the owners.
Under this type of organisation
which work for the purpose of
serving the society as a whole.
Form of organisation If talk about this company, sole
proprietorship, partnership firm and
others.
In this type of organisation
which is working as Club
member, Trust, Public
Hospital and other society.
Sources of revenue There primary sources of incomes is
collected from selling products and
services to the customers.
For this type of organisation,
they would collect funds from
donation, Subscription and
membership fee etc.
Financial statements These types of company use to
prepared various statements such as
income statements, balance sheet
and cash flow statements.
Most of the non-profit
organisation use to make
prepare receipts and payment,
income and expense and
balance sheet as well.
Money earned over and
above
Profit generated during the time is
being transfer to capital account.
In this organisation, profit
earned as surplus will be
transferred to capital fund.
C): Various group of stakeholders and evaluate their various data requirements
In every business organisation, it is vital for them to create value to their stakeholders so
that they would take active interest in decision making of an organisation. It has been found that
stakeholders are directly or indirectly associated with the company's decision making process.
They happens to be more powerful and valuable person in the business operation of an
organisation (Swee-Hock, 2011).
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Stakeholders: It refers to be a person which is something to gain or loss by the outcomes
of a strategic process, programme or project. They are essentially responsible for public
participation becomes increasingly responsible for national and international level of their
business operations. The beginning of any stakeholders associated with an organization is related
with stakeholders mapping. It identifies the targets segment and pull together as much data as
possible regarding them. Their are having valuable stake in total earning of share of the
company. They consists of those people which is having positive interest in the effort for various
reasons (Cotton, 2013). There are various ways by which stakeholders can be categorised. Some
of them are discussed underneath:
Primary stakeholders: They are known as people or team that stand to directly affected,
either positively or negatively or efforts the actions of an agency and departments. There are
primary stakeholders on either side of the equation which consists of certain rule and regulation
that would provide maximum benefits to an organization.
Secondary stakeholders: Such kind of people are indirectly affect their actions of a
financial institution or agency. A well organise plan is being made to reduce their overall
domestic violence to get positive outcomes in near future (Epstein, Buhovac and Yuthas, 2015).
Internal stakeholders: These are those participates which is related with co-ordination,
funding and resourcing of organisation policies from a local business concern. Some of them are:
 Employee: These are those parties which is associated with performing the best to
increase productivity of an organisation.
 Board members: There are responsible for conducting an internal investigation and that
require data about total team and employee participation.
External stakeholders: These types of parties are indirectly related with the business
from outside of the operations. Some of the crucial member of this operations are:
 Customers: The are the one who directly make impact to the business operations.
Because they use to focus on real needs and wants that will helpful in order to satisfy
demands of them.
 Competitors: They are mostly make huge impacts on there operations. The company
need to make products more attractive so that competitive advantages can be attain.
 Suppliers: They are the one who are responsible for supply various raw material to the
company. They have certain percentage in profit sharing.
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TASK 2
a): Computation of various ratios
I): Gross profit margin: It is an effective financial metric which is being used to assess a
Poundland group plc financial health position. It is the total business model which revealing the
proportion of funds left over from total earning after an accounting period of time (McElroy and
Van Engelen, 2012).
Ratio Formula 2016 2015
Gross profit margin Gross profit / Total
revenue *100
490453/1325996*100
= 36.98%
414592/1116946*100
=37.11%
II): Net profit margin: It is known as total percentage of earning held after all meeting expenses
have been deducted out of total sales of the company.
Ratio Formula 2016 2015
Net profit margin Net profit / Total
revenue *100
1585/1325996*100
=0.119%
28397/1116946*100
= 2.54%
III): Return on capital employed: It is said to be financial ratio which is use to measure a
companies profitability and efficiency position in terms of capital employed.
Ratio Formula 2016 2015
ROCE Operating profit/ Capital
employed *100
6757/613986-24185
=1.81%
37205/398664-226673
=21.63%
IV): Inventory turnover: It is a ratio which is indicting about how many time a company's total
stock is being sold and replaced over a period of time.
Ratio Formula 2016 2015
Inventory
Turnover ratio
Cost of good sold /
Average Inventory
835543/154724
=5.4 times
702354/113314
=6.19 times
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V): Accounts receivables collection period: It is use to measure total number of days it takes
the company to gather its receivable. These are similarly related with those days sales which is
outstanding during the time (Cascio, 2018).
Ratio Formula 2016 2015
Account receivable collection
period
Account receivable/ Average
daily sales
365/5.4
=67.5 days
365/6.19
=58.9 days
VI): Accounts payable settlement period: It is known as total time it will takes either for a
business to pay off its credit amounts. It is simply said to be the total number of days that a
company takes to pay their suppliers.
Ratio Formula 2016 2015
Accounts payable settlement
period
Trade payable / COGS *365 221761/835543
*365
=96.87 days
144140/7023
54*365
=74.90 days
VII): Quick Ratio: The particular ratios is used to measure the company's ability to meet their
short term financial liabilities. The other name of this ratio is acid test ratio. These are related
with quickly converted to cash at the closing of an accounting period.
Ratio Formula 2016 2015
Quick ratio Current assets – (Stock +
Prepaid expenses) / Current
liabilities
238094-154724/241856
=0.344
167413-113314/148492
= 0.36
VIII): Current Ratio: These ratio is mostly used to provide an idea of a companies capabilities
to pay back their outstanding debts obligation with its total assets. It is used to make rough
estimation of a company financial position during the year.
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Ratio Formula 2016 2015
Current ratio Current assets/ Current
Liabilities
238094/241856
=0.98
167413/148492
=1.12
IX): Interest Cover Ratio: Such kind of ratio is used to evaluate how easily a company cover
their interest expenditure on total outstanding liabilities. It is financial ratio which also aims to
make interest payment on their debts (Maskell, Baggaley and Grasso, 2011).
Ratio Formula 2015 2016
Interest coverage ratio Profit before tax (PBIT) / interest
expenses
N/A N/A
X): Dividend Cover Ratio: This ratio is more commonly known as ratio of company's earnings
over the paid dividend to their shareholder. It state that total number of times an organisation is
being able to meet their dividends to their internal and external parties out of their total profits.
Ratio Formula 2015 2016
Dividend coverage
ratio
Profit after tax / Divided =1585 / 11934 =
0.13 times
= 3750 / 28397 =
0.13 times
B): Compare there performance and position of the company
From the above ratio's analysis, it has been found that there is various fluctuation the
performance of an organisation. Such as in case of gross profit margin it has been seen that from
last year it has come down to 0.13. likewise, net profit margin is also get decrease from 2015.
This means that company is not having sufficient amount of capital to manage their profitability
position. In case of liquidity position, the company is having low liquidity in terms of quick
assets. It is below ideal ratio which is 1:1. whereas, current ratio is also come down from last
year with only 0.98 in 2016. The overall performance of the company is not having sufficient
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position. The interest amount is not mentioned under the income statements of the company
because of which interest coverage ratio is not evaluated in the project.
CONCLUSION
From the above project report, it has been concluded that managing finance is an
essential part of every managers. It consists of various detail information about financial and
management accounting. Further, this report is providing ratio analysis from the mentioned
financial statements. The overall analysis is done out of calculated financial ratios to determine
growth and sustainability in near future.
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REFERENCES
Books and Journals:
Allen, S., 2012. Financial risk management: a practitioner's guide to managing market and
credit risk (Vol. 721). John Wiley & Sons.
Cascio, W., 2018. Managing human resources. McGraw-Hill Education.
Cotton, J. S., Autoalert Inc, 2013. System and method for assessing and managing financial
transactions. U.S. Patent Application 13/789,510.
Epstein, M. J., Buhovac, A. R. and Yuthas, K., 2015. Managing social, environmental and
financial performance simultaneously. Long range planning. 48(1). pp.35-45.
Kane, E.J., 2011. Unmet duties in managing financial safety nets. Business Ethics Quarterly.
21(1). pp.1-22.
Maskell, B. H., Baggaley, B. and Grasso, L., 2011. Practical lean accounting: a proven system
for measuring and managing the lean enterprise. CRC Press.
McElroy, M. W. and Van Engelen, J. M., 2012. Corporate sustainability management: The art
and science of managing non-financial performance. Routledge.
Ostry, J. D and et. al., 2012. Tools for managing financial-stability risks from capital inflows.
Journal of International Economics. 88(2). pp.407-421.
Swee-Hock, S. ed., 2011. Managing economic crisis in Southeast Asia. Institute of Southeast
Asian Studies.
Online
Surbhi S, 2016.[Online]. Available through: <https://keydifferences.com/difference-between-
profit-and-non-profit-organisation.html>.
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