Chocco plc Financial Analysis: Statement and Ratio Analysis Report

This report provides a comprehensive financial analysis of Chocco plc, focusing on key accounting ratios calculated for the years 2019 and 2020. The analysis covers profitability, return on capital employed (ROCE), return on equity (ROE), earnings per share, net profit margin, asset turnover, stock holding days, debtors collection period, current ratio, gearing ratio, and inventory turnover ratio. Each ratio is calculated and its implications for Chocco plc's financial health are discussed, highlighting areas of improvement such as revenue enhancement, cost management, and asset utilization. The report concludes that Chocco plc needs to implement new strategies to improve its revenue and overall financial performance based on the analysis of these ratios.

FUNDAMENTALS

TABLE OF CONTENT
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
QUESTION 1 ..................................................................................................................................3
a. Profitability statement .............................................................................................................3
b. Balance sheet .........................................................................................................................4
QUESTION 2...................................................................................................................................5
a. Calculating ratios for Chocco plc for the period of 2020 and 2019 ........................................5
Financial performance analysation of organizations performance............................................12
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................17

INTRODUCTION
Accounting ratios are used for the calculation of the company's performance. There are
different ratios which explains about the different factors about the organization. The business
discussed in this product is Chocco plc. In this project the information about the financial
statements and the ratio's calculation is done. This project compares the performance of the two
years in which the organization operates.
MAIN BODY
QUESTION 1
a. Profitability statement
Particulars Amount (in £) Amount (in £)
Sales revenue 826650
Less: Cost of goods sold 578650
Gross Profit 248000
Less: Indirect expenses
Administrative expenditure 30000
Interest paid 4000
Directors remuneration 5000
Distribution costs 28000
Sales commission 3000 70000

EBT 178000
Corporation tax 68000
Net Profit 110000
(-) Preference dividend 30000
Earnings available to equity
shareholders
80000
(-) Ordinary dividend 20000
Retained earnings 60000
b. Balance sheet
Particulars Amount (in £) Amount (in £)
ASSETS
Fixed assets
Plant and equipment 632730
Current assets
Stock 329620
Debtors 171105
Cash and Bank 12900 513625
Total assets 1146355
LIABILITIES
Long term liabilities
4% Debentures 100000
Current liabilities

Creditors 171355
Outstanding commission 3000
Outstanding interest 2000
Tax payable 68000 244355
Shareholders’ equity
Ordinary shares 310000
10% preference shares 300000
Profit for the period 110000
Retained earnings 82000 802000
Total liabilities 1146355
QUESTION 2
a. Calculating ratios for Chocco plc for the period of 2020 and 2019
1- ROCE
Particulars Formula 2020 2019
Earnings Before Interest and Tax 846 720
Total assets 9736 10087
Current liabilities 2511 3046
Capital employed Total assets - Current liabilities 7225 7041
ROCE ratio EBIT / Capital employed 11.7% 10.2%

2- ROE
Particulars Formula 2020 2019
Net Income 431 366
Shareholders’ equity 3088 2912
ROE Net income / average shareholders’ equity 13.96% 12.57%
3- Earnings per share

Particulars Formula
202
0
201
9
Net income 431 366
Preferred dividend 0 0
Average common shares
outstanding 600 600
Earnings per share
(Net income - Preferred dividend) / Average common
shares outstanding
0.7
2
0.6
1
4- Net profit margin
Particulars Formula 2020 2019
Net profit 431 366
Revenue 6738 6441
Net profit margin Net profit / sales * 100 6.40% 5.68%

5- Asset turnover
Particulars Formula 2020 2019
Revenue 6738 6441
Total Assets 9736 10087
Asset turnover Net sales / Average total assets 0.69 0.64
6- Stock holding days
Particulars Formula 2020 2019
Inventory 708 659

Cost of sales 3235 3096
Stock Holding days (Inventory / COGS)*365 80 78
7- Debtors collection period
Particulars Formula 2020 2019
Debtors 1249 1287
sales 6738 6441
Debtors collection Period (Debtors / sales)*365 68 73

8- Current ratio
Particulars Formula 2020 2019
Current assets 2303 2355
Current liabilities 2511 3046
Current Ratio Current assets / Current liabilities 0.92 0.77
9- Gearing ratio
Particulars Formula 2020 2019
Total debt 4137 4129
Shareholders’ equity 3088 2912
Gearing ratio formula Long-term debt / shareholders’ equity 1.3 1.4

10- Inventory turnover ratio
Particulars Formula 2020 2019
Net sales 6738 6441
Inventory 708 659
Inventory turnover ratio COGS / average stock 9.52 9.77

Financial performance analysation of organizations performance
ROCE :
The return of capital employed is the ratio which helps in the measurement of the
company's performance. This ratio shows that the organization is generating profits with the help
of its capital. For Chocco plc the ROCE ratio for the year of 2019 was 10.2% and in 2020 this
ratio changed to 11.7%. This is a positive result for the company as its capital employed has
improved. However, for improving the capital employed for this organization it can utilize many
methods such as, by selling the old machinery which has lower production rates. This will
decrease the assets of the company and improve the over all ROCE (Parapat, 2018).. This is
known as removal of unnecessary assets. These old assets for the organization makes the
employed capital to be less facilitated towards the amount of production. Paying of the old
outstanding debts can also be considered to be a method of improving the capital employed in
the organization (Suwantari, Ariana and Suprapto, 2020)
ROE :
Return of equity ratio is the type of ratio which provides the investors an idea about the
how much money is generated by the company. This ratio is considered a lot while making
comparison between two or more organization. For Chocco plc the ROE ratio for the year of
2019 was 12.57% which accounted to 13.96% in the year of 2020. Improved return on
investment is considered to be a positive sign for the business. This means that more investors