Financial Statement Analysis

This document provides an analysis of the profit and loss account and balance sheet of a company. It discusses the factors affecting profitability and liquidity, such as expenses, fixed costs, selling price, and gross profit. The document also highlights the company's cash balance, capital base, current ratio, and inventory management. It concludes with insights into the company's financial health and investment potential.

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FINANCIAL STATEMENT ANALYSIS

Contents
Brief Description:.........................................................................................................................................3
Profit and Loss.............................................................................................................................................4
ANALYSIS OF PROFIT & LOSS ACCOUNT:.....................................................................................................4
Balance Sheet..............................................................................................................................................5
ANALYSIS OF BALANCE SHEET:....................................................................................................................6
CONCLUSION:..............................................................................................................................................6
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Brief Description:
The company on which we worked deals in study mate notebooks. It deals in sale and purchase of the
same .The above company is registered in Australia. The products in which company deals named as
below:
a) Study mate Premium A4 Exercise Book 96 page
b) Study mate Premium A4 Exercise Book 128 page
c) Study mate Premium A4 Exercise Book 192 page
d) Study mate Premium A4 Exercise Book 240 page
e) Study mate Premium A4 Hardcover Exercise Book 96 page
f) Study mate Premium A4 Hardcover Exercise Book 128 page
g) Study mate Premium A4 Hardcover Exercise Book 192 page
h) Study mate Premium A4 Hardcover Exercise Book 240 page
The prices of above varieties of product depends upon the quality and the number of pages in the book.
As the company is a newly established company, so it has introduced capital of $ 500000. No doubt the
company under consideration is not able to earn good profits but the industry in which company is
operating is having good capacity to earn profits. For more information, we will have more look on the
figures.
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Profit and Loss
18536600 Caroline, Nyo
Nyo Aye
For the month ended 31
May 2019
Account May 2019
Trading Income
Interest Income 3,750.00
Sales 29,841.10
Total Trading Income 33,591.10
Cost of Sales
Cost of Goods Sold 27,618.66
Total Cost of Sales 27,618.66
Gross Profit 5,972.44
Operating Expenses
Advertising 1,000.00
Depreciation 4052.36
Doubtful debt 190.00
Freight & Courier 200.00
Fuel Expense 900.00
General Expenses 474.00
Insurance 200.00
Interest Expense 1,750.00
Office Expenses 300.00
Rent 10,000.00
Wages and Salaries 8,000.00
Total Operating Expenses 27,066.36
Net Profit (21,093.92
)
ANALYSIS OF PROFIT & LOSS ACCOUNT:
As we can see from above that the company is running in losses. Company is not able to earn profit in
the first month of incorporation. There can be many reason for the above. Let’s discuss some of the
them below:
a) Higher expenses: As it is the first month after incorporation, so expenses would be higher.
b) Fixed cost : In the initial months fixed costs remain higher because of cost of incorporation.
Slowly and slowly this cost reduces with economies of scale. Economies of scale defines as when
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the sales increases, as fixed cost remains same, so it gives higher profit. In other words, even if
we don’t make any sales, fixed costs remains there.
c) Lower selling price: There might be situation that to capture the market, company kept its
selling price lower which might gives lower profit initially.
d) Lower Gross Profit: The above company’s gross profit percentage not that much low that it lead
to Net Loss. It means that the company’s indirect expenses are very high that soaked good Gross
Profit of the company.
Analysis: If we see more deeper into the expenses, the company’s rental cost, depreciation is very high.
In the near future company should plan to buy its owned space for office.
Balance Sheet
18536600 Caroline, Nyo Nyo Aye
As at 31 May 2019
Account 31 May
2019
Assets
Bank
Cash at bank 125,933.56
Total Bank 125,933.56
Current Assets
Accounts Receivable 1,900.25
Interest receivable 3,750.00
Inventory 262,354.07
Office supplies 250.00
Prepaid Rent 99,090.91
Prepayments 3,981.82
Total Current Assets 371,327.05
Fixed Assets
Delivery Van 23,181.82
Les Acc dep Delivery van (3,636.36)
Less Accumulated Depreciation on Office
Equipment (416.00)
Office Equipment 50,000.00
Total Fixed Assets 69,129.46
Non-current Assets
Investment 250,000.00
Total Non-current Assets 250,000.00
Total Assets 816,390.07
Liabilities
Current Liabilities
Accounts Payable 71,830.00
GST (44,616.01)
Interest Payable 1,750.00
Wages Payable - Payroll 8,000.00
Total Current Liabilities 36,963.99
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Non-current Liabilities
fuel expense payable 330.00
Loan 300,000.00
Prov for doubtful debt 190.00
Total Non-current Liabilities 300,520.00
Total
Liabilities 337,483.99
Net Assets 478,906.08
Equity
Current Year Earnings (21,093.92)
Owner A Share Capital 500,000.00
Total Equity 478,906.08
ANALYSIS OF BALANCE SHEET:
The cash balance of the company is good. In other words the company is a cash rich company which is a
good sign of financially strong company. The capital base of the company is very good. The company is
not having loan which means that company does not have to bear the interest pressure every month.
Current ratio of the company is very good. It is 10.05:1. In other words, company’s current assets are 10
times approx. than its current liabilities. Company does not have to think more to repay its current
liabilities. Company can very easily raise loan from bank because its current ratio is very good.
High inventory is standing in the books. This can be justified from the fact that high debit of GST is
standing in the books. Purchase is high and sales are less. In other words, the funds of the Company are
blocked in the inventory. Company should make plan to liquidate the funds. From banking point of view
it is not good.
Company has also transferred $2,50,000 to investment account which is also as the funds were lying
free in the company. Company should repay the loan instead of transferring the fund to investments
because cost of loan is higher than what we are earning from investments.
CONCLUSION:
As this is the first month after incorporation, it will take some time to settle down and make market.
Once it get build up, then definitely it will earn good profits because company’s financials are good and
strong. It is a cash rich company. Company is having very good capital base. Company is having good
recovery period from debtors which is also good sign of doing business. Company is good to invest.
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