Understanding Financial Statements: Assignment

Added on - Nov 2020

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UNDERSTANDINGFINANCIALSTATEMENTS
TABLE OF CONTENTSEXECUTIVE SUMMARY.............................................................................................................4INTRODUCTION...........................................................................................................................4QUESTION 1...................................................................................................................................41.1 Considering above three descriptions...................................................................................41.1 (a) Description related to Statement of profit or loss or financial position...........................41.1 (b) Brief classification of stated three descriptions in profit and loss statement or balancesheet............................................................................................................................................41.2 Considering Exhibit 1 and Exhibit 2.....................................................................................41.2 (a) Determining similar figure in SPL and SOFP.................................................................41.2 (b) Determining similar figure in SOCF and SOFP..............................................................51.2 (c) Determining similar figure in SPL and SOCF.................................................................5QUESTION 2...................................................................................................................................52.1 Considering segment analysis of Exhibit 2...........................................................................52.1 (a) Trend analysis for percentage movement in total revenue of 2016 and 2017.................52.1 (b) Trend analysis for determining percentage movement in revenue of UK, US and rest ofworld...........................................................................................................................................52.1 (c) Interpretation of decrement of revenue of Diamond plc in year 2017............................62.2 Constituents of cost of sales..................................................................................................62.3 Considering segment analysis provided in Exhibit 2............................................................62.3 (a) Gross profit margin of US, UK and rest of world...........................................................62.3 (b) Reason for decrement of gross margin in UK.................................................................72.3 (c) Reason for lower gross profit margin in US market from UK market............................72.4(a) considering breakdown of cost of sales in Exhibit 2........................................................72.4 (b) Reason for analysing above extracted movements..........................................................72.5 Reason for fall of gross profit margin from 8.44% to 7.09%...............................................82.6 Considering Statement of Profit and loss for administration and finance cost.....................82.6 (a) Ratio analysis...................................................................................................................82.6 (b) Justifying reason for above movement............................................................................8QUESTION 3...................................................................................................................................8
3.1 Impact of large investment in US market of joint venture....................................................83.2 Impact of investment on financial condition........................................................................83.2 (a) Assessing its financial solvency on basis of debt equity and interest coverage ratio......83.2 (b) Measurement of risk insolvency in future.......................................................................93.3 Key difference for classification of provision instead of trade payable................................93.4 Legal case described by Felix Redmond...............................................................................9QUESTION 4...................................................................................................................................94.1 Interpretation of Statement of cash flows.............................................................................94.1 (a) Significance of cash inflow from operating activities.....................................................94.1 (b) Reason for adjustment like depreciation.........................................................................94.2 Analysing cash and cash equivalents along with capability for generating cash resources104.2 (a) Reason for decrement for 2016 to 2017 in cash and cash equivalents..........................104.2 (b) Practical implications for increment of cash and cash equivalents...............................10Appendix........................................................................................................................................11REFERENCES..............................................................................................................................12
EXECUTIVE SUMMARYThe present report could be concluded that Diamond plc is operating in efficient manneras it is creating capability for expanding in various places. But on its contrary it should keepappropriate watch on its long term borrowings or debt because it is decreasing profit margin oforganization.INTRODUCTIONFinancial statements are key aspect of every organization whether it is small or big, as ithelps in reflecting financial position along with stability. The present report is giving briefdiscussion about financial statements of Diamond plc along with its proper interpretation.QUESTION 11.1 Considering above three descriptions1.1 (a) Description related to Statement of profit or loss or financial positionDescription 1 is about bank loan which is repaid is related to Statement of profit and loss.Description 2 is accounted in Statement of cash flowDescription 3 will be included in Statement of profit and loss.1.1 (b) Brief classification of stated three descriptions in profit and loss statement or balancesheet.Description 1 would be represented as bank loan in statement of profit and loss. (Minnisand Sutherland, 2017).Description 2 would be indicated as dividend payable to directors in financing activity.Description 3 would be considered as income which would be constituted in operatingincome.1.2 Considering Exhibit 1 and Exhibit 21.2 (a) Determining similar figure in SPL and SOFPRetained earnings constitute of sum of opening balance and profit of specific year andfrom this dividend paid is excluded which gives closing balance in statement of financialposition. On its contrary, Statement of profit and loss extracts the profit for specific period whichis 1386 in 2017 and 3164 in 2016.
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