Financial Statement Analysis: A Report on Kedison and Chocco PLC

This report provides a comprehensive financial analysis of Kedison PLC and Chocco PLC. It includes the preparation of financial statements for Kedison PLC, such as the profit and loss statement and balance sheet, along with detailed working notes. The report also presents a ratio analysis for Chocco PLC for the years 2020 and 2019, calculating key ratios like ROCE, ROE, EPS, net profit margin, asset turnover, stock holding days, debtors collection period, current ratio, gearing ratio, and inventory turnover. Furthermore, it offers insightful comments on the financial performance and position of Chocco PLC, evaluating various aspects such as profitability, efficiency, and liquidity based on the calculated ratios. This document helps in understanding the financial health and performance of both companies through detailed analysis and calculations.

FUNDAMENTALS

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
QUESTION 1 ..................................................................................................................................1
(a) Financial statement of Kedison PLC.....................................................................................1
(b) Reasons for balancing the statement of financial position....................................................3
QUESTION 2 ..................................................................................................................................4
(a)Calculate the following ratios for Chocco plc for 2020 and 2019, showing the formulas and
workings:.....................................................................................................................................4
(b) Comments on the financial performances and position of the Chocco Plc.........................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Fundamentals of accounting are basically a procedure of data entry along with
summarizing, recording, analysing and reporting the data which are related to the financial
transactions of business organizations (Lev, 2019). The current project is about the preparation
of financial statements within the business. According to this, all the important calculations have
been made in respect to the firm's data that are given in order to interpret the final results. The
statements will interpret the financial position and the profitability of the business. Apart from
this, the report has also describe the ratio analysis of the firm data that are given for two
particular years. The ratio analysis of the company provides data with comparing different sets
of financial data. This comparison will give a detailed understanding of the financial position of
the establishment.
MAIN BODY
QUESTION 1
(a) Financial statement of Kedison PLC
Profit and loss statement for the financial year ended 31st December 2020
Particulars Amount
Sales 826650
Less: Cost of sales 578650
Gross Profit 248000
(-) Administrative expenses 30000
(-) Interest paid (W.N. 1) 4000
(-) Directors remuneration 5000
(-) Distribution cost 28000
(-) Sales commission (W.N. 2) 3000
(-) Corporate tax 68000
Net Profit 110000
1

(-) Preference dividend paid (W.N. 3) 30000
Earnings available to equity shareholders 80000
(-) Ordinary dividend paid 20000
Retained Earnings 60000
Statement of financial position as on 31st December 2020
Particulars Amount Amount
ASSETS
Fixed Assets
Plant and equipment 632730
Current Assets
Stock (W.N. 4) 329620
Debtors (W.N. 5) 171105
Cash and bank 12900
Total assets 1146355
LIABILITIES
Long term liabilities
4% Debentures 100000
Current Liabilities (W.N. 6)
Creditors 171355
Outstanding commission 3000
Outstanding Interest 2000
Tax payable 68000
Shareholders equity 802000
2

Ordinary shares 310000
10% preference shares 300000
Profit for the period (W.N. 7) 110000
Retained earnings (W.N. 8) 82000
Total Liabilities 1146355
Working Notes:-
1. Interest expense for the year 2020 on 4% Debentures are 100000 * 4% i.e. 4000.
From the expense of 4000, amount of 2000 has been paid and the remaining balance of 2000 is
outstanding for the firm. Interest expenses in profit and loss statement is 4000 and the
outstanding balance in the balance sheet is 2000.
2. Sales commission which is to be paid to the sales person in the month of January has to
be evidenced as the expense within the current month because it belongs to the sales that
has been made in recent year.
3. The payments of dividends pertaining to the shareholders must be paid after the complete
analysis of the firm as they are not the expense of the firm. This will never recorded in
the P&L account in order to calculate the profits of the organization for the period.
4. The closing stock of the Kedison PLC had been reduced by the amount of 980 as the
goods are delivered to the consumers on 31st December 2020 for which the adjustment is
not made by the firm.
5. The balance of the debtors account has been enhanced by 980 as the consumers have
remaining to pay the amount of the goods. Thus, the amount of dues has been settled at
later stage after the closure of the books of company accounts.
6. The outstanding interest, tax and the sales person commission has been recorded in the
current liabilities of the firm. The expenses that are belong to the current year but not
paid yet has been settled at later stage.
7. The net profit of the amount of 110000 has been recorded in the balance sheet by adding
it in the shareholder's equity segment.
8. The balance of the retained earnings of previous year has been used in the payment of the
recent year's dividend which is 30000 to the preference shareholders and 20000 to the
3

equity shareholders in the organization. In such order, the total amount of 50000 has
been reduced from the last year's balance of 132000. So, the final amount of retained
earnings that has been recorded in the current balance sheet are 82000.
(b) Reasons for balancing the statement of financial position
The balance sheet is the document which involves all the necessary informations
regarding the organization and has been considered as crucial in order to understand the overall
condition of the firm. The top half of the document consists of assets which describes the ways
in which the values has been utilised in the business. The bottom half of the document includes
the liabilities + equity which shows the way in which the value was acquired or the sources of
funding (Trainor, Phillips and Cangialosi, 2018). Both the accounts are need to be balanced
because the total value of the business assets will all have been funded with the help of liabilities
and equity. In case if both the accounts are not balanced, it has been clearly understood that
some part has been missed to include while preparing balance sheet statement. Another reason is
that the company utilises double entry book keeping system of accounting in which states that
each time single transaction occurs, it will be recorded in at least two places. With the help of
recording the transactions into both the accounts at the same time enables the firm to matches
the balance sheet from both sides (McCarron and Burstein, 2017). The balance sheet is the
crucial information about the firm and has been help various stakeholders and users in order to
evaluate the exact position of the company in detailed manner.
QUESTION 2
(a)Calculate the following ratios for Chocco plc for 2020 and 2019, showing the formulas and
workings:
(1)
Particulars Formula 2020 2019
Earning Before Interest
and Tax 846 720
Total assets 9736 10087
Current liabilities 2511 3046
Capital employed Total assets - Current liabilities 7225 7041
4

ROCE ratio EBIT / Capital employed 11.7% 10.2%
(2)
Particulars Formula 2020 2019
Net Income 431 366
Shareholders equity 3088 2912
ROE
Net income / average
shareholders equity 13.96% 12.57%
5
0.09 0.095 0.1 0.105 0.11 0.115 0.12
ROCE
2019
2020

(3)
Particulars Formula 2020 2019
Net income 431 366
Preferred dividend 0 0
Average common
shares outstanding 600 600
Earning per share
(Net income - Preferred dividend) /
Average common shares outstanding 0.72 0.61
6

(4)
Particulars Formula 2020 2019
Net profit 431 366
Revenue 6738 6441
Net profit margin Net profit / sales * 100 6.40% 5.68%
7
0.54 0.56 0.58 0.6 0.62 0.64 0.66 0.68 0.7 0.72
Earning Per Share
2019
2020

(5)
Particulars Formula 2020 2019
Revenue 6738 6441
Total Assets 9736 10087
Asset turnover
Net sales / Average total
assets 0.69 0.64
(6)
Particulars Formula 2020 2019
Inventory 708 659
Cost of sales 3235 3096
Stock Holding days (Inventory / COGS)*365 80 78
8

(7)
Particulars Formula 2020 2019
Debtors 1249 1287
sales 6738 6441
Debtors collection Period (Debtors / sales)*365 68 73
9
76.5 77 77.5 78 78.5 79 79.5 80 80.5
Stock Holding Days
2019
2020

(8)
Particulars Formula 2020 2019
Current assets 2303 2355
Current liabilities 2511 3046
Current Ratio
Current assets / Current
liabilities 0.92 0.77
10
65 66 67 68 69 70 71 72 73
Debtors Collection Period
2019
2020