Financial Analysis of Stratford Yachts Ltd

This assignment requires a detailed financial analysis of Stratford Yachts Ltd. The analysis involves calculating and interpreting key financial ratios such as liquidity, profitability, and efficiency ratios to assess the company's financial health and performance. The report should highlight strengths and weaknesses in the company's financial position and provide recommendations for improvement in areas like profitability margin, debtors collection period, and operating expenses management.

Managing Financial Resources

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
1. Assessing difference between financial and management accounts..................................3
2. Defining purpose of Stratford Yachts Ltd and non-profit making units behind the
preparation of financial statements........................................................................................5
3. Presenting Stratford Yachts Ltd’s stakeholders and evaluating their information need....6
TASK 2......................................................................................................................................7
1. Analyzing financial performance of Stratford Yachts Ltd for the year ended on 2015 and
2016 through ratio analysis....................................................................................................7
CONCLUSION..........................................................................................................................9
REFERENCES.........................................................................................................................10

INTRODUCTION
In the recent times, for gaining and sustaining competitive edge over others business
unit has to perform several activities such as promotional, R&D etc. For this purpose
company requires enough fund so it is the accountability of the manager to develop
prominent financial strategies. To manage financial resources more effectually business unit
needs to prioritize activities as per their importance in the context of growth or success. The
present report is based on case scenario of Stratford Yachts Ltd which is working or traded
from last 30 years. Business unit is highly concerned pertaining to its financial performance
that has changed in the recent times. Moreover, business unit still relies on traditional product
lines which seem unsuitable in the strategic environment. In this, report will provide deeper
insight about the manner in which financial accounts differs from management. It also entails
the purposes of Stratford Yachts Ltd behind the preparation of final accounts and highlights
its financial performance.
TASK 1
1. Assessing difference between financial and management accounts
Now, both financial and management accounting becomes the main part of business
unit. Hence, for attaining success and gaining competitive edge over others company prepares
reports by taking into account both the accounting systems. Thus, it is vital for the manager
of Stratford Yachts Ltd to understand differences that take place between financial and
management accounting which as follows:
Differential aspects Financial accounting Management accounting
Meaning FA places emphasis on
recording monetary records
associated with business unit.
Hence, financial statements
and reports which are
prepared on the basis of such
accounting system assists
manager as well as other
stakeholders in making
Management accounting
system lays focus on
maintaining records
pertaining to internal
operations. This in turn helps
manager in setting goals and
policies for the upcoming
time period.

appropriate decision.
Aim or objective Motive behind financial
accounting practices is to
disclose monetary
information at the end of
accounting year (Warren and
Jones, 2018).
The main objective of
management accounting is
providing managers with
suitable information that can
be used for planning, setting
and evaluating goals.
Regulatory compliance Publicly listed companies are
accountable to prepare and
publish reports by following
accounting standards such as
GAAP and IFRS.
Such accounting is highly
depending on the discretion
of management. Irrespective
of not having mandatory
requirements some
frameworks are followed by
the firm.
Governance principles Accounts are prepared on the
basis of rules contained in
IFRS.
No standardization exists in
the preparation of
management accounts.
Time horizon or period In the context of financial
accounting, time horizon
implies for one year.
Management accounts are
prepared by the management
team as per their
requirements such as
monthly, quarterly, half
yearly.
Beneficiaries of report Reports that are based on
financial accounting provide
both internal and external
stakeholders with valuable
information for decision
making.
Management accounting
reports gives input to the
internal stakeholders such as
managers etc and thereby
helps in developing
competent strategies as well
as policy framework
(Difference between financial
and management accounting,
2018).

Focus By making focus on past
records reports are prepared
under financial accounting.
Unlike financial, under
management accounting
considering current
performance strategies are
prepared for the near future
regarding growth and
improvement.
2. Defining purpose of Stratford Yachts Ltd and non-profit making units behind the
preparation of financial statements
Financial statements contain record about business activities that can be measured in
quantitative terms. In order to assess monetary performance and meeting the need of
stakeholders Stratford Yachts Ltd focuses on preparing mainly three financial statements
which are as follows:
Income statement: Company prepares such statement to indentify how much income
is generated during the year in against to the expenses incurred. This statement renders
information about sales revenue, gross and net profit, direct as well as indirect expenses etc.
Hence, using such statement manager can develop strategies for the enhancement of sales
revenue and margin.
Balance sheet: Statement of financial position includes information about assets and
liabilities. The aim of company behind the preparation of balance is to evaluate liquidity,
solvency and efficiency aspects. Such statement helps company in determining source that
needs to be considered for raising fund in the near future (Kavussanos, Visvikis and
Alexopoulos, 2017). Besides this, balance sheet also gives indication about the extent to
which current assets need to be maintained for fulfilling obligations.
Statement of cash flows: Stratford Yachts Ltd prepares such statement for analyzing
operating, investing and financing activities that has contributed in both cash inflow as well
as outflow. Hence, by undertaking cash flow statement business unit can easily identify
activities that place negative influence on monetary position. Thus, by evaluating such
statement company can develop strategies for cash control (Merianos and Gotsis, 2018). By
doing this, firm would become able to employ excess cash in the other productive activities
or investments and thereby attain high margin.

Unlike, profit making firm such as Stratford Yachts Ltd, NPO’s focuses on preparing
income and expenditure account. Objective of non-profit making units behind the preparation
of such account is to maintain proper record regarding receipts and payment. Hence, by
preparing such account non-profit can provide information about the source from where
receipts are generated and payment made during the specified time frame.
3. Presenting Stratford Yachts Ltd’s stakeholders and evaluating their information need
All the business units have some stakeholders, in terms of internal and external, who
have an interest in their operations. Hence, Stratford Yachts Ltd prepares financial statements
at the end of financial year and publishes the same. This in turn significantly aid in the
decision making aspect of both internal and external stakeholders.
Internal stakeholders
 Management: Owners undertake final accounts to determine profitability of their
investments. Along with this, such statements also help owners in doing comparison
of current performance in against to past years and rival units (Davies, 2017). Thus,
referring such information managers of Stratford Yachts Ltd can determine future
course of action.
 Employees: Stratford Yachts Ltd’s employees are highly interested in making
assessment of company’s profitability statement. This in turn helps them in
identifying or assessing the impact of company’s profit on their remuneration and job
security.
External stakeholders
 Owners or investors: Financial statements are undertaken by both existing and
potential investors for the purpose of decision making regarding investment. Through
evaluating final accounts via ratio analysis investors can determine whether company
and its stocks will grow in the near future or not.
 Trade creditors or suppliers: Usually, suppliers prefer to give credit to the customers
who make payment within the suitable time frame. Thus, for generating information
regarding such aspect both income statement and balance sheet is evaluated by the
suppliers (Introduction to accounting, 2018). Level of profit margin, assets and
liabilities help in determining the creditworthiness of suppliers in relation to making
payment on due date.

 Lenders of financial institution: Banks assess credit worthiness of the company
before granting loan to it. Thus, statement of financial position is evaluated by the
institutions to ascertain the level of current debt level, assets and liabilities. It helps in
determining whether company is capable to pay interest and loan amount on time or
not.
 Government or tax authorities: Regulatory and tax authorities are highly interested in
the financial statements of firm (Titman, Keown and Martin, 2017). Hence, for
determining and confirming tax obligations such authorities lay focus on the
evaluation of income statement.
TASK 2
1. Analyzing financial performance of Stratford Yachts Ltd for the year ended on 2015 and
2016 through ratio analysis
Ratio analysis: It is the most effectual form of financial statement analysis that
investors undertake for evaluating and monitoring performance of the company in several key
areas. This technique facilitates comparison of monetary aspects over the years and in against
to the industry average (Barr, 2018). By taking into account such tool Stratford Yachts Ltd
itself and its stakeholders can measure performance under several key areas such as
profitability, liquidity, solvency and efficiency.
Stratford Yachts Ltd. Industry Average
Profitability ratios 2015 2016
% Return on capital
employed
27.9 22.5 26%
Net profit margin
(%)
16.4 11.8 14.5%
In the accounting year 2016, profitability of Stratford Yachts Ltd was decreased and
lower as compared to industry benchmark. Both ROCE and NP margin of the business unit
was declined over the years. The rationale behind lower level of NP margin was high indirect
expenditures. Further, due to the failure in relation to undertaking competent strategies
Stratford Yachts Ltd was unable to generate high operating margin from the capital employed
or invested in the venture. Hence, company needs to undertake strategic measure that
maximizes organization’s profitability.

Stratford Yachts Ltd. Industry Average
Liquidity ratios 2015 2016
Current ratio 1.22:1 1.3:1 1.5:1
Acid test ratio 0.87:1 0.99:1 1.03:1
Ratio analysis presents that liquidity position of Stratford Yachts Ltd was good in
both the concerned years such as 2015 and 2016. In the accounting year 2016, both current
and quick ratio of the company was increased over the years. Further, liquidity ratios
outcome are also in line with the industry average or benchmark. Considering such results, it
can be presented that Stratford Yachts Ltd was highly capable in relation to meeting
obligations from current and quick assets.
Stratford Yachts Ltd. Industry Average
Solvency ratio 2015 2016
Gearing ratio (%) 70.8% 63.7% 32%
Gearing ratio of Stratford Yachts Ltd declined from 70.8% to 63.7% respectively.
Industry average presents that, gearing ratio should be 32% which in turn ensures solvency
position. Hence, by keeping in mind both benchmark and over the year performance it can be
depicted that solvency position of the company was not good. Thus, at the times of raising
funds firm should ensure proper integration between debt and equity.
Stratford Yachts Ltd. Industry Average
Efficiency ratios 2015 2016
Asset turnover
(times)
1.70 1.90 1.79 times
Debtors collection
period (days)
91 102 83 days
By doing assessment, it has found that assets turnover ratio of the company had
increased and accounted for 1.90 times. This aspect presents that enough use of assets were
made by Stratford Yachts while performing business activities and functions. Further, debtors
receivable period shows that credit policy of the company was liberal in 2015 & 2016 over
the benchmark. Table depicted above presents that company was receiving money from
debtors within 102 days. Thus, to manage and improve working capital more effectually
business unit should focus on offering credit to the customers for less time period.

Stratford Yachts Ltd. Industry Average
Ratios related to
company’s expenses
2015 2016
Operating costs as %
of sales
83.6 88.2 85.5%
Distribution costs as
% of sales
9.24 9.24 9.5%
Administration costs
as % of sales
4.15 4.09 4.5%
Outcome of ratio analysis entails that operating cost of the company increased from
83.6% to 88.2% respectively. On the other side, distribution and administration cost as % of
sales was lower in against to the benchmark. Further, in the year of 2016, such costs or
expenses were highly lower irrespective of increasing trend in sales. Thus, for the
enhancement of profit margin business unit needs to make control on operating expenses
through the means of budgeting and variance analysis technique.
CONCLUSION
In conclusion to this report, it can be presented that financial accounts provide both
internal and external stakeholders with suitable information for decision making. On the
contrary to this, management accounts only help managers or internal teams in decision
making. Besides this, it can be inferred that Stratford Yachts Ltd prepares financial
statements with the motive to get information regarding profit, assets and liabilities. It can be
seen in the report that users of financial statements highly vary in terms of their informational
need. However, financial statements prepared by Stratford Yachts Ltd meet information need
of their stakeholders to a great extent. It can be summarized from ratio analysis results that
liquidity position of the company is good in both the concerned years. However, firm needs
to take measure for making improvement in the profitability ratio and debtors collection
period.

REFERENCES
Books and Journals
Barr, M. J., 2018. Budgets and financial management in higher education. John Wiley &
Sons.
Davies, D., 2017. Managing financial information. Kogan Page Publishers.
Kavussanos, M. G., Visvikis, I. D. and Alexopoulos, I., 2017. Managing Financial Resources
in Shipping. In Shipping Operations Management (pp. 153-175). Springer, Cham.
Merianos, G. and Gotsis, G., 2018. Managing Financial Resources in Late Antiquity: Greek
Fathers' Views on Hoarding and Saving. Springer.
Titman, S., Keown, A. J. and Martin, J. D., 2017. Financial management: Principles and
applications. Pearson.
Warren, C. S. and Jones, J., 2018. Corporate financial accounting. Cengage Learning.
Online
Difference between financial and management accounting. 2018. [Online]. Available
through:
<https://www.diffen.com/difference/Financial_Accounting_vs_Management_Accounting
>.
Introduction to accounting. 2018. [Online]. Available through: <http://accounting-
simplified.com/financial/users-of-accounting-information.html>.