Financial Accounting Report: Ratio Analysis, Giorgio Plc Statements

This financial accounting report provides a comprehensive analysis of financial performance and position. It includes a ratio analysis of ASOS Plc, evaluating profitability, working capital, liquidity, and long-term financing through metrics like return on capital employed, net profit margin, asset turnove...Read More

Financial Accounting

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Section A .........................................................................................................................................3
Question – 1 ....................................................................................................................................3
Ratio analysis .............................................................................................................................3
Part B ..............................................................................................................................................7
Question B1: ...................................................................................................................................7
1) Income statement of Giorgio Plc ...........................................................................................7
2) Statement of changes in equity: .............................................................................................7
3) Statement of Financial position: ............................................................................................8
Question B2: ...............................................................................................................................9
1) Grazyna Ltd cash budget .......................................................................................................9
2. Grazyna Ltd profit budget.....................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Financial accounting refers to the process of presenting the financial reports to the
internal or external users. It is utilized in big company for measuring the monetary performance.
It aids to evaluate the difficulties that is faced by the businesses enterprises. This report is about
the ASOS Plc company to measure the financial position. The ASOS Plc company is an retail
organisation which indulge such as investment related business. It is a multinational fashion and
beauty retailer. It was established in the year 2000 in UK (Allen, Aselta, and Engel, 2019) . It
has several branches in many countries and includes 850 brands deals in garments and
accessories. In the first section company has done deep study on the accounting ratios and their
impact on the organisation. Further, company has made the financial statements from the trial
balance of the organisation.
MAIN BODY
Section A
Question – 1
Ratio analysis
Profitability ratio
1. Return on capital employed: This ratio show that how organisation is able to generate its
revenue by using the capital efficiently. It denotes how organisation is managing its profit from
the mixture of the debt and equity
In 2020 Return on capital employed= Profit before interest and tax / capital employed *100
= 151/1621*100
= 9.31%
In 2021 = 190/2068*100
= 9.18%
Comments: From the analysis it is determined that the return on capital employed in 2020 is
9.31% which is more as compared to the year 2021. It means in the present year company is
getting less returns from the investment. It means company debts is much higher as compared to
owners equity(Astuty, and Pasaribu, 2021).

2. Net profit margin: It identifies the relationship between the sales and the net profit of the
organisation. It indicates the how much revenue can be earned from the sales.
In 2020 Net profit ratio= Net profit/ sales
= 151/3264*100
= 4.62%
In 2021 = 190/3911*100
= 4.85%
Comments: The net profit ratio in 2021 is 4.85 % and it is quite higher than the net profit ratio
of 2020. It shows the company has generate more sales which increases the profit of the
company and minimize the direct or indirect expenses (Banker, Huang, and Zhao, 2021)
(,Bertuzi, and Silva, 2020). Higher the net profit ratio is good for the organisation it indicates the
ability of the company to improve the cost efficiency of the product.
3. Asset turnover ratio: It is the accounting relativity between the total assets of the enterprise
and the sales of the organisation.
In 2020 Asset turnover ratio = Total assets / sales *100
= 1990/3264
= 60.96%
In 2021 = 2885/3911*100
= 73.76 %
Comments : The assets turnover ratio of the organisation in 2021 is 73.6 % and it is 10% higher
from the ratio in 2020. It shows that organisation has employed the assets to earn the profit. In
this the ratio has increased it indicates that organisation is utilizing the assets more effectively to
produce the income(.Cagle, 2020). If the company has high ratio it means organisation is
performing better as against with the lower assets turnover ratio. This information is used by the
external users or investors for getting the idea about the assets.
Working capital ratio
1. Inventory days: In 2021 = Average inventory * 365 / cost of goods sold
= 699.5*365/2134
= 115 days

Average stock = opening stock + closing stock / 2
(532+807/ 2
= 669.5
In 2020 = 266*366/1716
= 57 days
Average stock = (0+532)/ 2
= 266
Comments: In 2021 the inventory day ratio is 115 days that is more high from the year 2020. It
means stock spends lot of time in the company premises and organisation is not quickly selling
its products and services and the stock becomes obsolete and idle.
Accounts receivable days in 2021 = Mean of accounts receivable*365/ net sales
= 59*365/3911
= 5.5 days
In 2020 = 60*366/3264
= 6.71 days in approximately
= 7 days
Comments: It shows the days of collecting the amount from the debtors and company has 5.5
days which is improved from the year 2020. It means debtors making the payment of its dues in
a quick manner and shows the positive relationship between the customers and the enterprises
(Honigsberg, 2020).
Accounts payable days in 2021 = Mean of average accounts payable *365/ COGS
= 863*365/2134
= 148 days
In 2020 = 770*366/ 1716
= 164 days
Comments: In this ratio the organisation has lower days to make payment to the creditors and
their bills. It means company has not sufficient time to make the dues of its payment(Kordestani,
Ghaderzadeh, and Haghighat, 2018). On the other side higher accounts payable ratio means
suppliers provide more time to pay its liabilities.
Liquidity ratio
1. Current ratio in 2021= Current assets/ currents liabilities

= 1560/998
= 1.56
In 2020 = 1020 / 818
= 1.24
Comments : In the recent year the current ratio is 1.56 times which has increased as compared
to previous year. It means company has more current assets to meet out its short term
obligations. It indicates the position of the company to pay its short term liabilities from the
current assets. The perfect current ratio is 2:1 if it is more from the 2 than it will not be the good
sign for the company (Mălăescu, and Avram, 2018).
2. Acid test ratio in 2021 = Quick assets / current liabilities
Quick assets = Current assets – inventory – Prepaid expenses
= (1560-807) / 998
= 0.75
In 2020 = (1020-532) / 818
= 0.60
Comments: The company has 0.75 quick ratio in 2021 which is little bit higher as compared to
the 2020. It denotes company does not have enough assets to meet its liquidity. The best quick
ratio is 1:1 (Naranjo, Ripoll Feliu, 2021).
Long term financing
Gearing ratio in 2021 = Equity / debt
= 1034 / 1034
= 1 times
In 2020 = 810 / 810
= 1 times
Comments: In this it has same gearing ratio for both the years it company has equal debts and
liabilities which shows the good position of the business (Mutha, Bansal, and Guide, 2021). It is
related with the liquidity of the business. It concentrates the long term monetary stability of the
company. It analyses the potion of the assets which is funded by the long term sources of the
business.

Part B
Question B1:
1) Income statement of Giorgio Plc
GIORGIO PLC
Profit and loss statement for the year ending 31 march,
2020
Particulars £ £
Revenue 940000
Cost of sales (w1) 370000
Gross profit 570000
operating expenses 177500
Profit from operations 392500
Finance cost 10000
Profit for the year 382500
workings £ £
(w1) Cost of sales
Opening inventory 125000
Purchases 372000
closing inventory (-) 127000
624000
(w2) Operating expenses
Heat and light 25000
Audit fee 3000
Add: Outstanding fees 500 3500
Communication
expenses 20000
salaries and wages 54000
Directors remuneration 10000

Provision for
depreciation
Buildings 50000
Fixtures and fittings 15000 65000
177500
2) Statement of changes in equity:
Statement of changes in equity for the year ending
Ordinary share
capital Share premium
Retained
earnings
General
reserve Total
Balance as on 1
April 2019 800000 150000 145000 22000 1117000
Profit for the year 382500
dividends paid 120000
transfer to general
reserve 20000
Total 1302500 150000 145000 42000 1117000

3) Statement of Financial position:

Question B2:
1) Grazyna Ltd cash budget
Grazyna Ltd cash budget for 6
months to
Month January Feb. March April May June Total
£ £ £ £ £ £ £
Sales 15000
1500
0 15000
1500
0 20000 20000 100000
purchases 0
1800
0 9000 9000 12000 12000 60000
Wages 1000 1000 1000 1000 1000 1000 6000
rent 6000 6000
Overheads 1000 1000 1000 1000 1000 1000 6000
Monthly Net cash flow 7000 5000 4000 4000 6000 6000 22000
Opening balance of the
month
Closing balance of the
month

2. Grazyna Ltd profit budget
CONCLUSION
From the above report it is concluded that financial accounting is essential for every
company. It guides the company to how to execute its operations and how manage the finances
of the organisation. There are various ratios used to know the performance of the organisation
like liquidity ratio, activity ratio and profitability ratio. The profit and loss statement show that
capacity of the business to mitigate the expenses and yield more income. In this the balance sheet
has prepared which shows the position of the equity and liability. It provides the clear picture of
the finances at the end of the financial year. At last the company has prepared the cash budget
which indicates the arrival or the payment of the cash. The profit budget show the estimated
figures of the predicted income and expenses incurred duing the given period of time.
REFERENCES
Books and Journals
Allen, D., Aselta, J. and Engel, R., 2019. Cryptocurrencies for the Payment of Products or
Services: Risks, Accounting Practices and Regulations. Accounting and Finance
Research, 8(4). pp.1-19.

Astuty, W. and Pasaribu, F., 2021. The impact of business environment and organizational
culture on the implementation of management accounting information system in some
hotels. Budapest International Research and Critics Institute (BIRCI-Journal):
Humanities and Social Sciences, 4(3). pp.6251-6262.
Banker, R., Huang, R., Li, Y. and Zhao, S., 2021. Do accounting standards matter for
productivity?. Production and Operations Management, 30(1), pp.68-84.
Bertuzi, R. and Silva, P., 2020. Learning by doing: an experience with accounting students.
In EDULEARN20 Proceedings (pp. 8381-8385). IATED.
Cagle, M.N., 2020. Reflections of digitalization on accounting: the effects of industry 4.0 on
financial statements and financial ratios. In Digital Business Strategies in Blockchain
Ecosystems (pp. 473-501). Springer, Cham.
Honigsberg, C., 2020. Forensic accounting. Annual Review of Law and Social Science, 16,
pp.147-164.
Kordestani, G., Ghaderzadeh, S.K. and Haghighat, H., 2018. Impact of social responsibility
disclosure on accounting, economic and market based Measures Of corporate
performance evaluation.
Mălăescu, A.M. and Avram, M., 2018. THE ACCOUNTING PROFESSION IN THE DIGITAL
AGE. Annals of the University of Craiova, Economic Sciences Series, 2(46).
Mutha, A., Bansal, S. and Guide, V.D.R., 2021. Managing the inter‐functional tension between
accounting‐and financial‐profits in remanufacturing multiple‐usecycle
products. Production and Operations Management, 30(9), pp.2993-3014.
Naranjo Tuesta, Y., Crespo Soler, C. and Ripoll Feliu, V., 2021. Carbon management accounting
and financial performance: Evidence from the European Union emission trading
system. Business Strategy and the Environment, 30(2). pp.1270-1282.