Accounting Financial Analysis Report: Thomas T Enterprise Performance

This report presents a financial analysis of Thomas T Enterprise, a wholesale electrical appliance store, based on financial data from two comparative years. The analysis utilizes ratio analysis to evaluate the company's performance, focusing on profitability, liquidity, efficiency, and gearing ratios. The report includes a comparison of the company's performance against industry benchmarks to assess its financial health and identify areas for improvement. The findings reveal the company's strengths and weaknesses in managing its assets, generating profits, and meeting its financial obligations. The report concludes with recommendations for enhancing the company's financial performance, such as monitoring liquidity ratios, controlling expenses, and improving debt collection. The analysis is based on the provided trial balances, income statements, and balance sheets, and it aims to provide insights for stakeholders and guide future business decisions.

Running head: ACCOUNTING FINANCIAL ANALYSIS REPORT
Accounting financial analysis report
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ACCOUNTING FINANCIAL ANALYSIS REPORT
Table of Contents
1. Introduction:.............................................................................................................................2
2. Analysis and interpretation..........................................................................................................2
2.1 Profitability ratio........................................................................................................................2
2.2 Liquidity ratio............................................................................................................................5
2.3 Efficiency ratio..........................................................................................................................7
2.4 Gearing ratio..............................................................................................................................8
3. Conclusion:..................................................................................................................................9
4. Recommendation:......................................................................................................................10
References list:...............................................................................................................................11

ACCOUNTING FINANCIAL ANALYSIS REPORT
1. Introduction:
The report is prepared to evaluate the financial performance of Thomas T enterprise
using the tool of ratio analysis using the figure of two years. In order to provide the better
assessment of the performance of the company, the results obtained on the efficiency,
profitability and gearing position has been compared with the industry benchmark. Investors rely
on the figures to make investment decision by judging the efficiency of the company in terms of
operations and utilization of the assets and comparing the trends over a period. The ability of
company to generate earnings and the profitability position along with the ability to utilize the
money of shareholders can be evaluated with the help of ratio analysis (Legenzova, 2016). In
addition to this, business risk can be assessed using the ratio. Therefore, it is said that ratio
analysis is an important tool for investors as well as management in their decision making
process.
2. Analysis and interpretation
2.1 Profitability ratio
The profitability position of Thomas T enterprise has been evaluated by computing gross
profit, net profit, return on equity and return on total assets.
2.1.1Gross profit

ACCOUNTING FINANCIAL ANALYSIS REPORT
Gross profit of Thomas T enterprise has reduced in the current year and it is higher than
the industry standard. This fall in gross profit is attributable to fall in the sales value. However,
the percentage of gross profit is considerably beyond the industry average at 22%.
1
48.00% 50.00% 52.00% 54.00% 56.00% 58.00% 60.00% 62.00%
Gross Profit
Series2 Series1
2.1.2 Net profit
Net profit has fallen from 40% to 20% in the current year, which implies that the affairs
of the business is not being managed efficiently. However, when comparing the figure with
industry average at 3%, it is observed that the profits generated is beyond the industry standard
(Nielsen & Roslender, 2015).

ACCOUNTING FINANCIAL ANALYSIS REPORT
1
2
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00%
Net Profit
2.1.3 Return on equity
Return on equity has reduced significantly from 0.62 to 0.16 in the current year that is
AB and a fall in value in not regarded favorable. It is so because this implies that the ability of
the firms to generate profits has reduced using the shareholder money has reduced. The industry
average of return on equity is 11%, which is less than the company’s return on equity implying
that the performance of Thomas is better than industry.
1
2
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00%
Return on Equity

ACCOUNTING FINANCIAL ANALYSIS REPORT
2.1.4 Return on total assets
Return on total assets by Thomas T enterprise has fallen from 22% to 12% in the current
year implying that the assets are not efficiently utilized to generate sales or income. However, for
the industry average, return on total assets is at 10% and therefore, the performance of company
in terms of utilization of assets is better than the industry.
1
0.00% 5.00% 10.00% 15.00% 20.00% 25.00%
Rate of Return on Total Assets
Series2 Series1
2.2 Liquidity ratio
2.2.1 Current ratio
Current ratio has increased in the current year from 1.63 to 0.58 in the current year of
analysis and this decline is attributable to fall in the value of current assets. This implies that the
current assets are not sufficient to meet the current obligations of the company (Tassadaq and
Malik, 2015). The industry average for current ratio is 2:1 which means that the industry tends to
have higher level of current assets.

ACCOUNTING FINANCIAL ANALYSIS REPORT
1 2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
Current ratio
2.2.2 Quick ratio
Quick ratio on other hand has reduced from 1.10 to 0.37 in the current year and this
implies that the operating cycle of the company has become short. That is enough quick assets
are not available for pay off its current obligations. The industry average for this ratio is 1:1
indicating that the ratio for company has fallen below the standard.
1 2
0
0.2
0.4
0.6
0.8
1
1.2
Quick ratio

ACCOUNTING FINANCIAL ANALYSIS REPORT
2.3 Efficiency ratio
2.3.1 Return on turnover for inventories
Rate of inventories turnover has reduced from 2.06 to 1.63 that is the number of days of
inventory turnover has increased from 177 days to 223 days. Total number of days for converting
inventory into sales has increased. The industry average for the day’s inventory turnover is 87.20
days implying that the total number of days as per industry standard for converting inventory
into sales for company is higher which is not good (Henderson et al., 2015).
1 2
0
50
100
150
200
250
Return on turnover for inventories
2.3.2 Return on accounts receivables
Return on accounts receivables has reduced from 3.01 to 2.43 in the current year
implying that the number of times customers are making the payment has reduced. The industry
average for rate of turnover for inventories is recorded at 84.11 days as against 150.15 days for
the company. This implies that customers are making late payments, which might be due to
inefficiency of management (Dichev, 2017).

ACCOUNTING FINANCIAL ANALYSIS REPORT
1 2
0
20
40
60
80
100
120
140
160
Return on accounts receivable
2.4 Gearing ratio
2.4.1 Equity ratio
Equity ratio of the company has fallen from 62% to 38% in the current year indicating
that the amount of assets financed by owner capital has reduced. Industry average is at 40% and
this implies that the company’s performance in this regard is below the industry level.
40.37%
67.14%
Equity ratio
1 2

ACCOUNTING FINANCIAL ANALYSIS REPORT
2.4.2 Debt ratio
The pie chart below depicts the proportion of equity and debt in the total capital for the
current year indicating that the total amount of debt has increased. This indicate that the financial
leverage of Thomas enterprise has increased as they are increasingly dependent upon debt for
financing.
59.63%
32.86%
Debt rati o
1 2
The chart depicts the proportion of debt to total capital in the previous year, which stood
at lower level. Hence, the proportion of debt in the capital structure was less as against previous
year. Industry average for debt ratio is 60% and that of company is at 60% in the current year.
This implies that increase in the financial leverage is within the standard set by the industry.
2. Conclusion:
From the analysis of the financial figures, it is observed that the profitability position of
Thomas T enterprise is above the industry standard despite the fall in the profit in the current
year. The liquidity position of the company and the efficiency in managing the assets is below

ACCOUNTING FINANCIAL ANALYSIS REPORT
the industry average. This implies that they do not have sufficient current and quick assets to
meet off their short term obligations. Furthermore, it is also implied by the efficiency ratio that
the assets of the co many and shareholder money are not efficiently utilized in generating
income. The overall analysis of the ratios implied that in the current year, all the financial
components have deteriorated in terms of inventory, profit, return generated by assets and
shareholder money (Crowther, 2018).
3. Recommendation:
Some of the recommendations to Thomas T enterprises for improvement in their overall
financial health are listed below:
 Monitoring of liquidity ratio such as current and quick ratio should be done carefully so
that it do not fall below the industry average. Reduction of such ratio would help in
meeting the present obligations using current assets.
 Another factor of concern is profit generated by the company as it fell considerably in the
current year. Reduction in the total expenses incurred should be done by adopting the
appropriate strategies.
 It is of utmost importance for Thomas enterprise to monitor the collection of debts and
implement some strategies and measures so that the receivables can be collected faster.
Viewing the current collection rate, it is not favorable for company to continue with the
existing measures, as this would hamper the efficiency of the company and ultimately the
overall performance of the company.

ACCOUNTING FINANCIAL ANALYSIS REPORT
References list:
Crowther, D. (2018). A Social Critique of Corporate Reporting: A Semiotic Analysis of
Corporate Financial and Environmental Reporting: A Semiotic Analysis of Corporate
Financial and Environmental Reporting. Routledge.
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Business Research, 47(6), 617-632.
Gaynor, L. M., Kelton, A. S., Mercer, M., & Yohn, T. L. (2016). Understanding the relation
between financial reporting quality and audit quality. Auditing: A Journal of Practice &
Theory, 35(4), 1-22.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B. (2015). Issues in financial accounting.
Pearson Higher Education AU.
Hussan, S. M., & Sulaiman, M. (2016). Between International Financial Reporting Standards
(IFRSS) and Financial Accounting Standards (FASS): The debate
continues. International Journal of Economics, Management and Accounting, 24(1), 107-
123.
Legenzova, R. (2016). A concept of accounting quality from accounting harmonisation
perspective. Economics and Business, 28(1), 33-37.
Macve, R. (2015). A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Nielsen, C., & Roslender, R. (2015). Enhancing financial reporting: the contribution of business
models. The British Accounting Review, 47(3), 262-274.

ACCOUNTING FINANCIAL ANALYSIS REPORT
Phillips, F., Libby, R., & Libby, P. (2015). Fundamentals of Financial Accounting. McGraw-Hill
Education.
Schaltegger, S., Etxeberria, I. Á., & Ortas, E. (2017). Innovating corporate accounting and
reporting for sustainability–attributes and challenges. Sustainable Development, 25(2),
113-122.
Tassadaq, F. and Malik, Q.A., 2015. Creative Accounting & Financial Reporting: Model
Development & Empirical Testing. International Journal of Economics and Financial
Issues, 5(2), pp.544-551.