BUS0002 Using Information: Financial Statement Analysis of a Firm

This assignment provides a detailed financial analysis of Arden Lighting Manufacturing Ltd, focusing on the financial years 2016 and 2017. It assesses the company's assets, liabilities, and working capital, revealing a negative working capital situation indicative of liquidity issues. The analysis identifies business expansion through increased investment in plant and machinery, stock, and trade creditors. The report recommends implementing liquidity risk management tools and optimizing working capital to address financial challenges. Desklib offers a wide range of solved assignments and study materials for students.

Running head: MATHS INFORMATION
Math’s information
Name of the Student
Name of the University
Author Note

MATHS INFORMATION
Assessment part 1:
Requirement 1:
a) A record of monies owed from customers
Accounts receivable
b) A record of sales which indicates who the customers is and whether or not they have paid
Sales account
c) A record of all purchase and expenses which indicates who the seller is and whether or not
they have paid
Purchase account
d) A record of monies entering and leaving bank account
Cash book
e) A financial statement of the assets, liabilities and capital of organization at a specific point
in time
Balance sheet
f) A record of all debts owed to suppliers
Purchase day book
g) A final statement of sales and expenses of an organization over a period of time
Income statement
Requirement 2:
a)

MATHS INFORMATION
The total amount of assets for financial year 2016 and 2017 stood at 1108170 and
1492629. Amount of trade creditors stood at 755170 and 1033179 which are indicative of the
fact that value of trade creditors is less than the total amount of assets. Amount of total assets
less current liabilities stood at 353000 and 458910 for year 2016 and 2017 respectively. The
value of profit and loss account stood at 73910. Therefore, the amount of total creditors is
more than total assets which indicates that short term obligations is difficult to met using
current assets.
b)
It can be seen that the working capital or net current assets of Arden Lighting
manufacturing Ltd for both the years is negative. The amount of working capital for year
ending 2016 is recorded at -54170 as against -52054 is recorded at 2017 respectively. This
negative value of net current assets implies that company does not have sufficient current
assets for paying off its current obligations. It is indicative of the fact that Arden lighting
manufacturing Limited is having financial difficulties. The company is having liquidity issue
because the value of current assets is less than the amount of current liabilities. It can be seen
that value of creditors for both the years that is 2016 and 2017 stood at 755170 and 1033719
respectively. On other hand, the amount of current assets stood at 701000 and 981665 for
both the years. This indicates that current assets are not sufficient to clear off the short term
obligations of company. The shortage of liquidity in an organization might make it difficult
for business to expand and make payment its employees and suppliers (Brigham et al. 2016).
Not only the day to day operations of business are impacted due to shortage of liquid assets
but also create problems in development of finance leading to issues in operations.
Arden Lighting manufacturing limited should implement the tool of liquidity risk
management for addressing the risks that arises from unavailability of sufficient liquid assets.

MATHS INFORMATION
Such tools will help in ensuing that business has sufficient funds so that the financial
commitments are met in timely manner. It is required to manufacturing business such as
Arden to maintain adequate liquidity so that they do not run the risk of being unable to meet
their financial obligations. The enhanced terms with financiers and suppliers should be
negotiated in terms of improved profitability through increased interest income and reducing
interest income (Eccles et al. 2015). Moreover, it can be seen that the working capital of
Arden has recorded negative value and in light of these negative working capital, there is a
need to optimize the same. Business is required to communicate the importance of cash flow
in their policy statement and a consciousness of cash among the staffs should be promoted. In
addition to this, it is required by have person with adequate knowledge for managing the
needs of cash so that they have sound understanding of the operations of business. The key
areas where the improvement to the working capital should be implemented can be identified
by the use of management financial ratios and a good forecast of cash flow. Ways in which
working capital of organization is affected and how the profitability is impacted should be
reported and monitored by the person responsible entrusted to manage the cash flow (Armour
et al. 2016).
c)
From the balance sheet of Arden lighting manufacturing Ltd, it is evident that
company has underwent significant expansion. This is indicated by values of trade creditors,
plant and machineries and additional investment in stock. There is a considerable amount of
increase in investment in plant and machinery, stock and trade creditors in year 2017 as
against year 2016. Value of plant and machineries has increased significantly from 300000 to
412000 indicating that company has made investment in purchasing fixed assets because of
expansion of business. This additional purchasing is due to increase in sales resulting from

MATHS INFORMATION
increased demand of product. In addition to this, the value of stock has increased from 57800
in year 2016 to 96500 in year 2017.
Stock is the total amount of stocks comprising of both preferred and common stock
which the company is authorized to issue. Initially, issuance of additional stock negatively
impacts the investors as it has the consequence of dilution. However, such increase in stock
benefits the investors ultimately. The additional growth of company can be financed by
increase in capital in the form of selling additional shares. Investment in stock has increased
from 57800 in year 2016 compared to 96500.
Furthermore, the total amount of trade creditors has increased from 528370 in year
2016 compared to 573269 in year 2017 respectively. Trade creditors are the amount that is
owed by company to their suppliers. Increase in amount of trade creditors is indicative of the
fact that organization has been purchasing additional amount of raw materials to purchase
raw materials for manufacturing (Petty et al. 2015). Therefore, the three indicators as
depicted in the balance sheet that implies expansion of business are increase in value of plant
and machineries, stock and trade creditors.

MATHS INFORMATION
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MATHS INFORMATION
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