Business Finance Project: Practical Business Accounting Report

This report provides a comprehensive analysis of business finance, focusing on the practical application of accounting principles and financial statement analysis. The report begins with an introduction to business finance, followed by an examination of profit and loss statements and balance sheets. It then explores various sources of finance for different organizational structures, including sole traders, partnerships, and both private and public limited companies. The core of the report involves a detailed performance evaluation of Morrison Ltd using ratio analysis, covering liquidity, profitability, turnover, and solvency ratios. The analysis includes interpretations of the financial data, highlighting the company's strengths and weaknesses. Finally, the report discusses the significance of finance in operating a business organization, emphasizing its role in initial capital, operational expenses, asset creation, new product development, and navigating business cycles. The report concludes with a summary of the key findings and a list of relevant references.

Business Finance project 3
Practical Business Accounting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
LO 1.................................................................................................................................................1
1. Producing income and the balance sheet statement................................................................1
LO 2 ................................................................................................................................................4
2.1 Sources of finance for a range of various organisations.......................................................4
LO 3.................................................................................................................................................4
3.1 Measuring the performance of Morrison Ltd using ratio analysis........................................4
LO 4.................................................................................................................................................8
4.1 Analysing the significance of the finance in respect of operating the business organization.
.....................................................................................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Business Finance means knowing the requirement of finance in Morrison Ltd. The
company needs various such as Profit and Loss account and Balance sheet statement reports in
order to know the requirement of finance for earning higher profits for the company. It covers
the various strategies in order to mange the money either by borrowing loans from outside the
company or by retaining back all the profits and investing them in company itself. This reports
cover various analysis of financial statements in order to know the liquidity and profitability
position of the company. The company has also analysed financial statements using ratio
analysis to measure the business performance.
LO 1
1. Producing income and the balance sheet statement.
Profit and loss statement- This statement shows the operational profitability of the
company and states the information relating to sales, operational expenses and the income earned
by the organization. This statement shows the financial status of the company which help the
external and the internal users in evaluating the performance of an entity. The statement is
prepared in compliance with the accounting standards as provided by the IFRS and GAAP in
consideration with all the accounting principles and conventions.
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2

Interpretation- From the above table it has been interpreted that the gross profit of
Morrisons company is increasing over the year that is from 15713 to 16629 which means that the
sales has been increased. However, the operating profit reduces because of the increase in the
administrative expenses resulted as 468 in the year 2017 and 458 during the year 2018. The
overall financial performance of the enterprise is good as the net profits are showing an
increasing trend which clearly states that after paying off all the cost and the tax liability the
company is earning higher profit margins.
Balance sheet- It is the financial statement that provides the details regarding the assets,
liabilities and the shareholders' equity of the company. It reflects the financial position of an
entity which helps the users in determining the capability of the company in meeting its
obligations. It is also prepared with compliance of all the accounting standards as provisioned
which clearly depicts the accuracy in the financial information.
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4

Interpretation- From the above analysis it can be stated that Morrisons has the good net worth
because the assets and equities of the company is increasing which depicts the better financial
position of the enterprise.
LO 2
2.1 Sources of finance for a range of various organisations
Various organisations need finance in order to invest in their company. The various
organisations are as follows-
Sole Trader- Sole Trader is the organisation which is run by an individual owner. The whole
business is operated by himself. In this form of business, finance is either brought by owner
himself in the form of capital or owner can borrow money from outside the organisation in the
form of loan. Owner can also retain the profits and invest back into the organisation (Zietlow and
et.al., 2018).
Partnerships- Partnership is the form of business in which to run a business there is minimum
requirement of two persons. In this form of business, Finance can be brought either by all the
partners equally or partially by all partners. They can also borrow money from outside the
organisation in the form of loan. They can also retain profits in order to invest back into the
company.
Private and Public Limited Companies- Private limited company can be formed by minimum
two members and maximum shareholders cannot exceed 50 shareholders. In this business there
is no need to disclose the annual report of the company. The company can get capital from its
shareholders, retain back all the profits, borrowing through banks or bonds or by selling the stock
of the company (Bryce 2017).
Public Limited Company can be formed with the minimum requirement of seven
members and maximum shareholders can be unlimited. Public Limited Company can also get
capital from its shareholders, reinvestment of profits, borrow money from banks or issue
debentures or can sell their stock.
LO 3
3.1 Measuring the performance of Morrison Ltd using ratio analysis
Liquidity Ratio
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Particulars 2018 2019
Current Assets 1278 1382
Current Liabilities 3081 3295
Current Ratio 0.41 0.42
Current Ratio
0.4
0.41
0.41
0.41
0.41
0.41
0.42
0.42
0.42
0.42
0.41
0.42
2018
2019
Liquidity ratio of Morrison Ltd is having its current ratio less than ideal ratio. Company
should increase its current assets in order to pay off its current liabilities (Business Finance,
2019). Company should not face any liquidity crunch at the time when the company has to pay
all its current liabilities. Company should focus on improving its current ratio to improve the
liquidity of the company.
Profitability Ratio
Particulars 2018 2019
Gross Profit 633 607
Net Sales/ revenue 17262 17735
Gross Profit Ratio 3.67% 3.42%
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Gross Profit Ratio
0.0325
0.033
0.0335
0.034
0.0345
0.035
0.0355
0.036
0.0365
0.037 3.67%
3.42% 2018
2019
Gross Profit Ratio of Morrison Ltd is decreasing from year 2018 to year 2019 which does
not shows good sign for the company. Company should try to improve the gross profit of the
company either by increasing its revenue or decreasing its expenses (Tamulevičienė 2016). In
year 2019 company' revenue and gross profit both are decreasing which shows that expenses also
decreased in the same percentage as decrease in revenue. Thus, company should put its focus on
company's operating expenses.
Particulars 2018 2019
Net Profit 311 244
Net Sales/ revenue 17262 17735
Net Profit Ratio 1.80% 1.38%
Net Profit Ratio
0
0
0
0.01
0.01
0.01
0.01
0.01
0.02
0.02
0.02 1.80%
1.38%
2018
2019
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Net Profit Ratio of Morrison Ltd is also decreasing from year 2018 to year 2019 which
shows that company should pt its focus on indirect expenses of the company. Morrison Ltd
should put its focus on direct and indirect expenses of the company.
Turnover Ratio
Particulars 2018 2019
COGS 16629 17128
Average Inventory 614 686
Inventory Turnover Ratio 27.083 24.968
Inventory collection Period (in
days) 13 15
Inventory Turnover ratio
23.5
24
24.5
25
25.5
26
26.5
27
27.5 27.083
24.968 2018
2019
Inventory Turnover ratio of Morrison Ltd also decreased which shows that the converting
of inventory into sales has been increased from year 2018 to year 2019. Previously company was
taking only 13 days to convert the inventory into sales while now it takes 15 days to convert the
inventory into sales. This shows the negative sign for the company.
Solvency Ratio
Particulars 2018 2019
Total Debt 2319 2041
Total Shareholders Fund 4063 4545
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Debt to Equity Ratio 0.571 0.449
Debt to Equity Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6 0.57
0.45
2018
2019
Solvency ratio of Morrison Ltd has been decreased from year 2018 to year 2019. This
shows that the company's debt has been decreased as compared to shareholders fund.
Overall, the company's performance is not good and company should put its focus on
direct and indirect expenses of the company. Also, company should change its policy of
converting inventory into sales. Morrison Ltd should also increase its current assets to pay off its
current liabilities.
LO 4
4.1 Analysing the significance of the finance in respect of operating the business organization.
Finance is an inevitable function of the business and it is crucial for the firm to focus on
the financial management efficiently in order to reach the success. Finance involves the
management of the financial resources and also the financial activities of an enterprise. It is
important to the organization in various means as follows-
Initial capital- Finance plays a vital role in starting up the business activities. A huge
capital is needed to begin the business so it is important for the organization to effectively
manage its funds which could be used for converting the idea into the development of the
product or the services. For arranging the initial capital business had to make choice in between
the debt and the equity financing.
Meeting the operational expenses- For meeting the short term requirement, business
needs finance in terms of the working capital in order to meet the operational or the routine
expenses like raw materials, interest payments, remunerative payments and inventory.
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Appropriate financial planning for the short term and the maintenance of the better flow of
working capital is vital for keeping the operations flowing. By maintaining the adequate cash
flow, an enterprise could be able to pay-off its expenses with ease.
Asset creation- In the long run, capital is critical for buying the assets such as machinery,
equipment and land in order to expand the scale of production. This helps the company in
growing and in penetrating the existing markets. It is important that the business has sufficient
capital ad could not depend on the short term finances.
New products and market development- Without the finance and the poor financial
management, even the established enterprise could not explore the new markets or could not
develop newer solutions for creating something new in the existing or innovating the new
product. Finance plays a major role in testing and researching the purposes and also for the
advertising or marketing purpose.
Business cycles- The financial plans mus be prepared in such manner that includes the all
the economic aspects and the external factors that may affect the business such depression,
recession, boom and the growth period. Such effect financial management helps the business in
facing the economic downturn without any failure.
CONCLUSION
From the above report it has been concluded that business finance is an important field in
the overall financial management of the company which helps the business in knowing its
financial performance and position against different competitive firms. It also helps in
determining various sources of finance that Morrisons can use for meeting its funding
requirement. It has also been assessed that finance plays an important role in procuring, efficient
utilization and in generating larger profits within the business.
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REFERENCES
Books and Journals
Bryce, H. J. 2017. Financial and strategic management for nonprofit organizations. Walter de
Gruyter GmbH & Co KG.
de Villiers, A. 2016. Solvency Ratios–the challenges, debate and proposed
solutions. HEALTH. 29, p.31.
Jiménez, P., Nogal, M. and Caulfield, B. 2018. Effectiveness of Small Scale Bike Sharing
Systems According to the Analysis of Turnover Station Ratios (No. 18-00480).
Kajananthan, R. and Velnampy, T. 2018. Liquidity, Solvency and Profitability Analysis Using
Cash Flow Ratios and Traditional Ratios: The Telecommunication Sector in Sri
Lanka. Research Journal of Finance and Accountin. 5(23).
Röglinger, M. and et.al., 2016. How to structure business transformation projects: The case of
Infineon’s finance IT roadmap. Journal of Information Technology Theory and
Application. 17(2). pp.5-21.
Sauer, R. M. and Wiesemeyer, K. H., 2018. Entrepreneurship and gender: differential access to
finance and divergent business value. Oxford Review of Economic Policy. 34(4). pp.584-
596.
Sidek, S., Mohamad, M. R. and Nasir, W. M., 2016. Entrepreneurial Orientation, Access to
Finance and Business Performance: A Preliminary Analysis. International Journal of
Academic Research in Business and Social Sciences. 6(11). pp.692-707.
Tamulevičienė, D. 2016. Methodology of complex analysis of companies’
profitability. Entrepreneurship and sustainability issues. 4. pp.53-63.
Zietlow, J. and et.al., 2018. Financial management for nonprofit organizations: policies and
practices. John Wiley & Sons.
Online
Business Finance, 2019. Available through
<http://financials.morningstar.com/balance-sheet/bs.html?t=MRW&region=gbr&culture=en-
US>
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