University of West London: Accounting Report for Credo Ltd Analysis

This report provides a detailed financial analysis of Credo Ltd, examining its performance over a five-year period. It begins with an introduction to financial accounting tools, including ratio analysis, horizontal, and vertical analysis. The main body presents both horizontal and vertical analyses of Credo Ltd's financial statements, detailing trends in revenue, cost of sales, gross profit, administrative expenses, selling and distribution costs, and profit before and after tax. Key features highlighted include the effective management of the cost of sales, a declining trend in gross profit, and a decrease in net profit. The analysis reveals that while revenues increased until 2017, they have since declined, impacting the company's operations and motivation. Administrative expenses require control, and promotional strategies should be adopted to boost sales. The report concludes that while Credo Ltd is a credible company, it shows a declining trend in profitability and emphasizes the importance of controlling costs and increasing revenues. References to relevant accounting literature are also provided.

ACCOUNTING

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
MAIN BODY..................................................................................................................................1
a) Horizontal and Vertical analysis..............................................................................................1
b) Key Features............................................................................................................................2
c) Financial analysis of Credo Ltd...............................................................................................2
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUTION
Reports reveals about the tools used in financial accounting to assess the performance of the
company. Different tools like ration analysis, vertical and horizontal analysis are used. Report
will analyse financial performance of Credo ltd.
MAIN BODY
a) Horizontal and Vertical analysis
Horizontal analysis
Horizontal analysis
2,016 2,018 2,018 2,019
Revenue 3.56% 13.32% 12.98% 10.01%
Cost of Sales 4.46% 15.92% 15.98% 13.08%
Gross Profit 2.26% 9.58% 8.66% 5.57%
Administrative expenses 1.77% 6.18% 6.38% 10.58%
Selling and distribution costs 1.08% 1.33% 2.56% 6.92%
Profit before Tax 5.54% 32.56% 25.20% -7.06%
Tax 5.37% 32.55% 25.17% -7.05%
Profit after tax 5.62% 32.56% 25.22% -7.06%
Vertical analysis
Vertical Analysis
2,019
2,01
8 2,017 2,016 2,015
Revenue 100% 100% 100% 100% 100%
Cost of Sales -61% 61% 60% 60% -59%
Gross Profit 39% 39% 40% 40% 41%
Administrative
expenses -17% -15% -15% -16% -16%
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Selling and distribution
costs -16% -15% -15% -16% -16%
Profit before Tax 7% 9% 10% 8% 8%
Tax -2% -3% -3% -3% -2%
Profit after tax 5% 6% 7% 6% 6%
b) Key Features
Vertical analysis
 Company has effectively managed the cost of sales as against the sales during 5 years.
 Gross profit has shown declining trend over the five years
 Return in net profit has also declined by 2% over the years.
Horizontal analysis
 It is seen that sales have increased till 2017 and started decreasing as at 2019.
 Administrative expenses are required to be controlled as showing continuous increase.
 Profit of the company has reduced by 7% approx from the base year 2015.
c) Financial analysis of Credo Ltd
The financial analysis of Credo ltd is performed for analysing the financial performance of the
company during the period of five years. It is seen that revenues of the company has increased
till 2017 with the increased efforts of management. However it started showing a decline from
2018 which is required to be focused. Decrease in revenues will affect the operations of company
and also the motivation of entity (Schroeder, Clark and Cathey, 2019). The gross profit of the
company is also declining even after the company is putting full efforts for keeping control over
the costs. Expenditure of the company in administrative costs has increased where the company
is required to spend over marketing and promotion for increasing the sales. It is required to
control the administrative expenses and focused over increasing the revenues by adopting
effective promotional strategies. It could be seen that the profit levels have also decreased as the
cost have not decreased with the decrease in revenues. Declining profitability is cause of concern
as if not controlled at this stage it may face losses in the near future. Profitability of the company
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has direct impact over market position (Fleischman and McLean, 2020). The management of the
company is efficiently managing the cost of operations but is required to focus over increasing
the revenues and further cutting the costs and expenses.
CONCLUSION
Horizontal and vertical analyses are two of the important tools that help in analysing the
financial statement of firm. it is evaluated that Credo limited is a credible company nut is
showing declining trend in profitability.
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REFERENCES
Books and Journals
Schroeder, R.G., Clark, M.W. and Cathey, J.M., 2019. Financial accounting theory and
analysis: text and cases. John Wiley & Sons.
Fleischman, R. and McLean, T., 2020. Management accounting: theory and practice. Routledge.
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