Financial Auditing Report: Biotechnology Ltd's Performance Analysis

This report provides an in-depth analysis of Biotechnology Ltd's financial performance through an auditing lens. It begins with an analytical review of the company's financial data from 2016, 2017, and forecasted data for 2018, utilizing ratio analysis to assess profitability, liquidity, solvency, and market prospects. The analysis reveals trends in gross margin, net profit margin, return on assets, and equity, highlighting areas of concern such as negative profit margins and declining market share. The report then assesses the company's ability to continue as a going concern, considering its current financial position and future prospects. It identifies challenges such as high expenses and a limited customer base and suggests strategic improvements like budgetary control, expense reduction, and innovative product development to enhance the company's financial health and ensure its long-term viability. The report uses several financial ratios and concludes by assessing the company's ability to continue as a going concern.

Auditing

TABLE OF CONTENTS
a. Performing an analytical review of the company’s performance using historical information
(2017 & 2016) and forecast information (2018)..........................................................................3
b. In accordance with the results of the analytical review assessing the ability company in
relation to continuing a going concern in the future....................................................................5
REFERENCES................................................................................................................................6

a. Performing an analytical review of the company’s performance using historical information
(2017 & 2016) and forecast information (2018)
Ratio analysis tool provides assistance in evaluating financial performance of the
company from several aspects such as profitability, liquidity, solvency and efficiency. By taking
into account such tool firm can assess whether performance is improved or deteriorated over the
time frame. Case scenario presents that demand for the products which are offering by
Biotechnology Limited increasing continually. However, currently financial position of
Biotechnology Ltd is not good. Thus, to assess the performance in relation to the near future ratio
analysis tool has been applied.
Ratio analysis of Biotechnology ltd for the period of 2016, 2017 and 2018
Ratio Formula 2018
(forecasted
)
2017 2016
Profitability Ratios
Gross margin Gross Profit
Sales * 100
51.5% 50.6% 49.9%
Net Profit margin Net Profit After Tax
Sales * 100 (Sofat and
Hiro, 2015)
-285% -386% -493%
Return on Assets Net Profit After Tax
Total assets * 100
-24.5% -64.7% -53.7%
Cash Flow margin Net Operating Cash Flow
Sales * 100
-119.5% -246.6% 0.0%
Return on Equity Net profit attributable ¿ shareholders ¿
Equity investment
* 100
-10.6% -11.7% -11.5%

Liquidity Ratios
Current Ratio Current Assets
Current Laibilities
1.92 0.12 0.26
Quick Ratio Current Assets−inventories
Current Laibilities
1.91 0.11 0.25
Inventory turnover
ratio
Cost of Goods sold
Average Inventory
24.25 14.36 8.8
Accounts
receivable
turnover (in days)
Average accounts receivable
Credit sales *365
239 344 534
Accounts payable
turnover (in days)
Average accounts payable
Credit purchases *365
872 811 1007
Solvency Ratios
Debt to Equity
ratio
Total Liabilities
Equity Capital
-3.31 -2.78 13.1
Market prospect ratios
Earnings per
Share (EPS)
Profit available for shareholders
Number of shares outstanding
at the end of the year
-3E-05 -3E-05
Cash EPS Operating cash flow
Number of shares outstanding
at the end of the year
-1E-05 -2E-05
 Profitability ratio analysis: Outcome of ratio analysis shows that GP margin of
Biotechnology Ltd has increased over the time frame from 49.9% to 51.5%. On the other
side, during the concerned accounting year’s business unit has failed to attain positive net
margin, returns on equity and assets. Demand for the company’s products or services are

good but due to the increasing expenses company was failed to attain positive results.
From evaluation, it has found that now Biotechnology ltd is offering its products or
services to only one customer such as Delux. Thus, it is also another main reason behind
lower growth in revenue and high expenses. Moreover, company gets high economies of
scale when it produces or services at large level.
 Liquidity ratio analysis: Referring current as well as quick ratio pertaining to the year
2016 and 2017 it can be presented that company was not highly capable in relation
meeting obligations. Financial statement of the forecasted period shows that current and
quick ratio accounts for 1.92 & 1.91 respectively. This clearly presents that liquidity
position of Biotechnology Ltd will be good in the forecasted period. Case scenario clearly
presents that in 2018 business unit will meet its financial needs through issuing equity
shares. This is the reason due to which liquidity position of Biotechnology Ltd will be
higher in the year of 2018.
By doing assessment of case situation and financial statements, it has assessed in the
accounting year 2016 and 2017 company had financed all of its operations through equity
sources rather than debt. Moreover, capital structure can said to be optimal when it maintains
ideal ratio such as .5:1. On the basis of this, firm should take resort of 1 debt instrument or
source in against to 2 equities. Moreover, high equities make the company insolvent so it should
consider both the sources while raising funds. In addition to this, debt sources also offer benefits
to Biotechnology ltd under tax brackets. Thus, such aspect is considered as negative aspect from
the perspective of undesirable solvency position.
In addition to this, results of ratio analysis show that inventory of the company is selling and
replacing its stock more frequently. However, receivable period of the company decreased over
the time frame. Further, as per the payment period now company needs to make payment earlier
as compared to the prior times. Thus, it can be presented that a working capital management
strategy undertaken by Biotechnology ltd is not highly good.
 Market prospects ratio: Referring the outcome of ratio analysis, it can be depicted that
due to the generation of loss business unit failed to provide stakeholders with suitable
returns. Given case scenario clearly exhibits that share prices of Biotechnology ltd has

been declined from $2 to $0.20 at the end of 2017. This is one of the main aspects which
in turn place negative impact on the brand image and market share of firm.
In this category, positive aspect is that Biotechnology Ltd has built and maintained investor’s
confidence to a great extent. This can be seen be supported with the recent market capitalization
aspect such as $20 million’s at the end of 2017. Thus, business unit has opportunity to make
improvement in the market prospect aspects by undertaking sound strategic framework.
b. In accordance with the results of the analytical review assessing the ability company in
relation to continuing a going concern in the future
Going concern concept entails that, business entity will continue its operations in the near
future. In other words, such concept presents that owner of the firm will not liquidate or to be
forced in relation to discontinuing operations due to any reason (The Going Concept, 2018). By
doing ratio analysis, it has found that financial position of Biotechnology Ltd under different
categories such profitability, solvency etc is not good. As per the current and forecasted position
company is less able to carry out its operations in the near future. However, by making changes
in the current strategic and policy framework Biotechnology can make improvement in the
financial position. Due to the high level of indirect expense level business unit failed to generate
high profit margin during the 2016, 2017 and forecasted period 2018. Hence, by employing the
technique of budgetary control Biotechnology ltd would become able to monitor expense level
and thereby exerts control on unnecessary spending. In addition to this, by laying emphasis on
finding suitable and alternative ways of doing activities firm can reduce the level of expenses
and thereby enhances profit margin. Further, for making improvement in negative profitability
aspect emphasis need to be placed by the company on offering innovative products or services to
the customers. Moreover, now Biotechnology Ltd is facing issue in enhancing customer base due
to the new product development by the competitors. Hence, it can be depicted that without
making changes in the current expense level and policies firm would not able to continue its
operations.

REFERENCES
Book
Sofat, R. and Hiro, P., 2015. Strategic Financial Management. PHI Learning Pvt. Ltd.
Online
The Going Concept. 2018. [Online]. Available through:
<https://www.accountingtools.com/articles/2017/5/14/the-going-concern-principle>.