Financial Management Report: Analysis of Showerpak's Finances

This financial management report offers a comprehensive analysis of Showerpak's financial performance. It begins with an introduction to financial management and then delves into the accounting equation, comparing balance sheet figures from 2017 and 2018 to assess the company's financial position, highlighting changes in assets, liabilities, and capital. The report further examines the impact of revenue and capital expenditure on profit, differentiating between net and gross profit, and comparing cost of sales and turnover. A key section focuses on the purpose of the cash flow statement, and the differences between bank statements and cash books. The report also explores benchmarking as a performance measurement tool, discussing its advantages and limitations. Finally, it analyzes key financial ratios to evaluate Showerpak's liquidity, efficiency, and overall financial health, concluding with an assessment of the company's financial standing based on the analysis. The report references several books and journals to support its findings.

FINANCIAL
MANAGEMENT

Table of Contents
INTRODUCTION............................................................................................................................3
TASK 1............................................................................................................................................3
Accounting Equation...................................................................................................................3
Comparison of balance sheet figures of 2017 & 2018................................................................3
Reasons for changes in capital....................................................................................................4
TASK 2............................................................................................................................................4
Impact of revenue & capital expenditure on profit.....................................................................4
Difference among Net Profit & Gross Profit...............................................................................5
Difference of Cost of Sales and Turnover...................................................................................5
TASK 3............................................................................................................................................6
Purpose of cash flow statement...................................................................................................6
TASK 4............................................................................................................................................6
Measuring performance with benchmarking...............................................................................6
Analysis of Companies Ratio......................................................................................................7
CONCLUSION ...............................................................................................................................7
REFERENCES.................................................................................................................................8

INTRODUCTION
Financial Management is a activity organisations uses for planning, controlling,
managing & monitoring its all financial resources. This report explain accounting report. Further,
this report compares balance sheet & capital of Showerpak. Furthermore, this report elaborate
cash flow statement & its purpose. Moreover, this report includes impact of revenue expenditure
on profits. Further, this report explains limitations & Benefits of benchmarking.
TASK 1
Accounting Equation
Accounting Equation
Accounting equation is a base of double entry book keeping system. This principle is
used by companies to equate assets & liabilities side of balance sheet thus, it is also known as
balance sheet equation. Both sides of balance sheet (Assets & Liabilities) is to equated to make
sure that each transaction has an effect on both side such as debit & credit. Accounting Equation
is used by Showerpak Company to balance its assets & liabilities and it also establishes
relationship among assets, liabilities and owners capital(Renz, 2016).
Assets= (Liabilities + Equity)
By balancing assets & liabilities financial position of company can be evaluated thus,
Accounting Equation is beneficial for organisation in their expansion.
Comparison of balance sheet figures of 2017 & 2018
By analysing Balance Sheet of Showerpak for Financial Year 2017 and 2018 it is figured
it out that financial position of company is strong. As in 2017 Fixed Assets of company was
£ 7615 which is increased and in 2018 it is showing a figure of £ 11417 which shows that firms
productivity & performance its improved which further helps company in enhancing its market
share & profitability. Further, Balance sheet of both year of Showerpak shows an improvement
in Current Assets of company by 56.31% which shows that company has enough liquidity to pay
all of its liabilities which also strengthen its financial position. Thus, an increase in total assets of
company from last year shows that its business is growing and it has an opportunity to expand its
business.

But, On the liability side Reserves and Shareholders Capital of Showerpak is also
increased in financial year 2018 by 45.34% as compared to financial year 2017 which depict that
companies market share & customer base is increased and more of individuals are investing in
shares of company. But, this apparently enhances companies liability towards its shareholders
and other investors. According to Balance Sheet of Showerpak there is an increase in Total
Liabilities by 227% and in 2018 Total Liabilities is £ 8849. After analysing overall liabilities and
assets side it is evaluated that current liability of company is more than its current assets thus, it
is required for firm to improve its offerings so that profits can be increased.
Reasons for changes in capital
Share capital of Showerpak does not change from last financial year which shows
company does not issue further share capital and it further shows that firm does not have any
plan to expand its business. Further, reserves of company is increased in financial year 2017 as
compared to 2018 with which it can be evaluated that companies retained earning is increased &
it is not distributing profits to its shareholders(Uwonda and Okello, 2015).
TASK 2
Impact of revenue & capital expenditure on profit
Revenue Expenditure & its Affect on Profit- Revenue Expenditure are expenses
incurred for manufacturing & operating products & services of Showerpak. This expenditure
helps company in maximising its profits as it focuses on improving business performance &
productivity. Revenue Expenditure is also done by firms to maintain their profitability by
investing in continuous improvement. This expenses includes repair & maintenance expenses
and operating expenses which affects profits of Showerpak Company. If Company does not
spend on improvement of quality & maintenance of its services than it directly affects profits as
it gets reduced. Thus, ineffective allocation of revenue expenditure affects profits. Further, this
expenditures are totally tax deductible which also helps company in generating revenue.
Capital Expenditure- Expenses made companies for enhancing their capital as to
expand business operation is known as capital expenditures. Which in turn helps Showerpak in
enhancing its profits. Various expenses such as purchase of capital assets which in turn generate
revenue is are come under capital expenditure thus, it has effect on companies profitability.
Impact of Incorrect Identification

As Revenue Expenditures are having direct impact on Current Assets and Retained
Earnings of Showerpak whereas Capital Expenditure directly and indirectly affects Fixed Assets
and Income Statement of Company. So, if Accountant of firm is mistakenly classify any of
companies revenue expenditure as capital expenditure than It affects Balance Sheet of firm as
current assets of company gets reduced and fixed assets gets increased. With this short term
profits of Showerpak gets declined and its cost of depreciation also gets increased(Righetto,
Morabito and Alem, 2016).
On the other side., if capital expenditure of Showerpak is accounted as revenue
expenditure than operating expenses of company is increased and which affects profitability in
an adverse manner. This further reduces Amount of Fixed Assets which in turn declines long
term benefits of firm. Thus, Showerpak needs to understand its revenue and capital expenditures
to get its clear financial position.
Difference among Net Profit & Gross Profit
Gross Profit Net Profit
 Gross Profit is calculated by subtracting
manufacturing expenses such as
purchase of raw material & direct
expenses for sales.
 Gross Profit benefits Showerpak
Company in eliminating cost of
manufacturing.
 It is not an actual profit.
 Net profit is determined by deducting
all indirect expenses of Showerpak
from Gross Profit(Karadag, 2015).
 Net Profit is calculated with an
objective of measuring business
performance.
 It shows actual profit earned by
Showerpak during a financial year.
Difference of Cost of Sales and Turnover
Cost of Sales Turnover
 Cost of sales are sum total of all
expenses used in manufacturing of
products & services provided by
Showerpak.
 Turnover shows total amount of sales
made by Showerpak during a financial
period.

TASK 3
Purpose of cash flow statement
Cash Flow Statement is a financial statement prepared by organisations to evaluate
liquidity of their business by showing amount of cash & cash equivalent.
Purpose- Purpose behind preparation of cash flow statement is to find out cash inflows
and outflows of firm during a specific period generally for a year. Further, Showerpak prepare
cash Flow to check its solvency and capability of paying its liabilities on time(Burtonshaw-Gunn,
2017).
Reason's for difference between Bank Statement & Cash Book
Bank Statement of Showerpak Company shows balance available in its Bank Account
and it gives a detailed information as to how much amount is to withdrawn and how much
money is to be deposited on what date. Whereas Cash Book of Showerpak shows all cash
translations done by company with its suppliers and customers.
There is difference in balance of both the accounts as Cheques Issued by company does
not get cleared of same date it is recorded when it get cleared but in cash book receipts &
payments are recorded on the same date.
Further, Cash Book does not show any Bank Charges deducted by bank of Showerpak
which creates a discrepancy in balance of cash book & bank statement. Many Errors are made by
banker and cashier while recording transactions gives difference between balances of both
statements. Direct debits made by banks are also not recorded in Cash Book of Showerpak
through which bank & cash balances are not matched(McKinney, 2015).
TASK 4
Measuring performance with benchmarking
Benchmarking is used by Showerpak to compare and evaluate its performance with its
competitors. It help firms in evaluating strength & weakness of its business performance. By
using Benchmarking Showerpak get to know strategies used by other business firms operating
with in same industry and this further helps in improving performance of business. By using
benchmarking company can measure various elements such as marketing, production process

and customer services and improve its business performance accordingly. Advantage &
Disadvantage of Benchmarking are discussed below-
Benefits Limitations
 It helps Showerpak in strengthening its
financial position by providing creative
ides.
 It focuses on specific areas which gives
higher profits to firm.
 It gives detailed information about
operations of Showerpak.
 It does not give effective results.
 It does not focus on over all
improvement of business firm.
 Many times Showerpak uses wring
benchmarking which gives wrong
projection of financial position.
Analysis of Companies Ratio
By analysing ratio's of Showerpak Company it is concluded that Debtor payment period
in year 2018 is increased to 137 days as compared to previous year now payments from debtor is
to be collected with an extra delay of 39 days which affects liquidity of firm. Further, it is
evaluated that Creditor’s turnover ratio is also increased which is beneficial for company asit
does not require immediate cash. Inventory turnover ratio of Showerpak also increased by 35
days in year 2018 which shows that firms production is managed with cost minimisation and
higher sales. Further, it is concluded that operating cycle of company is also increased which in
turn shows that company is facing problem in converting its purchases in to cash. Moreover,
assets turnover ratio of firm is reduced in year 2018 as compared to last year through which it is
concluded that Showerpak is facing problem in generating cash from its assets. Thus, by
analysing ratios it is concluded that companies financial position is not so strong(Balazs and Lee,
2016).
CONCLUSION
This report outlined meaning of accounting report. Further, this report summarises a
comparison of balance sheet & capital of Showerpak of two financial years. Furthermore, this
report outlined impact of revenue expenditure on profits. Moreover, this report concludes
purpose of cash flow statement. At last, this report summarises limitations & Benefits of
benchmarking.

REFERENCES
Books and Journal
Renz, D.O., 2016. The Jossey-Bass handbook of nonprofit leadership and management. John
Wiley & Sons.
Finkler, S.A., Smith, D.L. and Calabrese, T.D., 2018. Financial management for public, health,
and not-for-profit organizations. CQ Press.
Uwonda, G. and Okello, N., 2015. Cash flow management and sustainability of small medium
enterprises (SMEs) in Northern Uganda. International Journal of Social Science and
Economics Invention. 1(03). pp.153-to.
Righetto, G.M., Morabito, R. and Alem, D., 2016. A robust optimization approach for cash flow
management in stationery companies. Computers & Industrial Engineering. 99. pp.137-
152.
Burtonshaw-Gunn, S.A., 2017. Risk and financial management in construction. Routledge.
Karadag, H., 2015. Financial management challenges in small and medium-sized enterprises: A
strategic management approach. EMAJ: Emerging Markets Journal. 5(1). pp.26-40.
McKinney, J.B., 2015. Effective financial management in public and nonprofit agencies. ABC-
CLIO.
Balazs, A.G. and Lee, R.E., Intuit Inc, 2016. Methods, systems, and articles of manufacture for
implementing adaptive levels of assurance in a financial management system. U.S. Patent
9,444,824.