Financial Performance Evaluation: Kedison PLC and Chocco plc Analysis

This report provides a comprehensive financial analysis of Kedison PLC and Chocco plc, focusing on their financial performance based on the fundamentals of accounting. It includes an examination of Kedison PLC's Profit and Loss statement and Statement of Financial Position for the year ended December 31, 2020, detailing assets, liabilities, and equity. The report also explains the importance of a balanced Statement of Financial Position through the double-entry system. Furthermore, it involves calculating key financial ratios for Chocco plc, such as ROCE, ROE, EPS, net profit margin, asset turnover, stock holding days, debtors collection period, current ratio, gearing ratio, and inventory turnover ratio for the years 2019 and 2020. The analysis interprets these ratios to assess Chocco plc's profitability, efficiency, and liquidity, comparing them against industry benchmarks to provide a holistic evaluation of the company's financial health.

FUNDAMENTALS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Profit and Loss statement for the year ended 31st December 2020 for Kedison PLC................1
Statement of financial position for the year ended 31st December 2020 for Kedison PLC........2
b) Explaining the reason for the statement of financial position balance....................................3
Question 2........................................................................................................................................3
Calculating ratios as below:.........................................................................................................3
b) Analyzing the financial performance of Chocco plc...............................................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Fundamentals of accountings play important role in obtaining accuracy and relevant
structure of business transaction. In the currents scenario, it is crucial for the organization to
have appropriate information in order to formulate effective decision making. The present
report will give emphasis on Profit & loss, financial position and ratio calculations along
with interpretation to get deeper in sights.
MAIN BODY
Question 1
A)
Profit and Loss statement for the year ended 31st December 2020 for Kedison PLC
Dr. Cr.
Particulars Amount Particulars Amount
By Gross profit 248,000
To
Administrative
expenses 30,000
To Interest paid 4,000
To Distribution
costs 28,000
To Directors
remunerations 5,000
To Corporation
tax 68,000
To sales man
commission 3,000
To Net profit 110,000
248,000 248,000
Income statement helps in getting information regarding the earning and expenses
incurred for specified period of time (Liu and Blanchett, 2021). Above illustrated table indicate
P&L of 2020 for Kedison Plc. From the evaluation of income statement, it can be interpreted
that firm’s net income for the present year is 110000. In order to get smooth functioning of
organization Kedison PLC has given emphasis on incurring expenditure regarding the
administration, interest distribution, paying taxation, salesman commission so that effectual
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outcome can be derived (Laibson, Maxted and Moll, 2020). The gross profit has been derived by
deducting cost of goods sold from the revenue generated.
Statement of financial position for the year ended 31st December 2020 for Kedison PLC
Amount
Assets
Current Assets
Closing Stock 329,620
Debtors 170,125
Trade Receivables 980
Cash and bank 12,900
Fixed Assets
Plant and
equipment 632,730
Total assets 1,146,355
liabilities Amount
Current Liabilities
Outstanding
interest 2000
Outstanding
Commission 3000
Trade creditors 171,355
Tax payable 68000
Long term
borrowing
Debentures 100,000
Equity
£1 ordinary shares 310,000
10% £1 preference
shares 300,000
Retained profits 82,000
Profit for the year 110,000
Total equity and
liabilities 1146355
Above illustrated table indicates the financial health of Kedison PLC. for the 2020 and it
reflects that firm is having positive liquidity. There are several benefits of formulation of
financial position as it helps in getting deeper insights about firm’s performance. The current
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balance sheet contains information regarding assets, liabilities and equity. Organization’s current
assets comprises closing stock, cash & bank, etc. which reflects an enough capacity to pay its
short term obligations in order to get fluent processing. Firm has equity in form of preference &
ordinary shares as well retained earnings is presented for giving clarity to stakeholders. There
are certain outstanding expenditures like interest, etc. which required to pay on time to maintain
efficient credibility & trustworthiness in industry.
b) Explaining the reason for the statement of financial position balance
Balance sheet is referred as financial position as it reflects summarizes of assets, liabilities
and equity as on the year ended. It is one of the crucial financial statement as provide assistance
in gaining knowledge regarding firm’s liquidity to take appropriate decisions. The reason behind
getting financial position always balance is utilization of double entry system (Why balance sheet
need to balance? 2020). The application of principle of double entry system is associated with
recording each transaction as debit and credit to get accuracy and relevancy of financials
statement. It paly important role of checking recording of entries are exerted in proper manner or
not. This provides two-way picture of business transactions by recording data in two different
account.
Financial position statement is formulated by comprising three segment assets, liabilities
and equity. With respect to this, it is based on equity which refers to total assets are equal to
liabilities plus owner’s equity (Cavallo and et.al., 2019). There is utilization of double entry
system and mentioned equation which helps in getting balanced figure to get knowledge
regarding financial health of company. It provides ability to assess the financial stability and
potential risk that is widely taken into consideration by stakeholders to formulate decisions
based on relevant and reliable information provided through balance sheet.
Question 2
Calculating ratios as below:
1. ROCE
Particulars Formula 2020 2019
Operating profit 805 699
(Total asset-Total
Current liabilities)
(9,736-2,511)
= 7,225
(10,087- 3,046)
=7,041
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Return on capital
employed
Operating profit /
(Total asset-Total
Current
liabilities)*100
11.14 9.92
2. ROE
Particulars Formula 2020 2019
Net profit 431 366
Shareholders’ equity 3,088 2,912
Return on equity Net profit /
Shareholders’
equity*100
13 12
3. Earnings per share
Particulars Formula 2020 2019
Dividend per share 0.85 0.80
Market price 5.12 4
Earnings per share Dividend per share/
Market price
0.166 0.201
4. Net profit margin
Particulars Formula 2020 2019
Net profit 431 366
Revenue 6,738 6,441
Net profit margin Net profit/
Revenue*100
6.39 5.68
5. Asset turnover
Particulars Formula 2020 2019
Revenue 6,738 6,441
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Total assets 9,736 10,087
Asset turnover Revenue/ Total assets 0.69 0.63
6. Stock holding days
Particulars Formula 2020 2019
Average Inventory 708 659
COGS 3,235 3,096
Stock holding days Average Inventory/
COGS *365
79.88 77.69
7. Debtors collection period
Particulars Formula 2020 2019
Trade receivables 1,249 1,287
Sales 6,738 6,441
Debtors collection
period
Trade receivables/
Sales*365
67.65 72.93
8. Current ratio
Particulars Formula 2020 2019
Current assets 2,303 2,355
Current liabilities 2,511 3,046
Current ratio Current assets /
Current liabilities
0.92 0.77
9. Gearing ratio
Particulars Formula 2020 2019
Total Debt 6,648 7,175
Total equity 3,088 2,912
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Gearing ratio Total Debt/ Total
equity
2.15 2.46
10. Inventory turnover ratio
Particulars Formula 2020 2019
COGS 3,235 3,096
Average inventory 708 659
Inventory turnover
ratio
COGS/ Average
inventory
4.5 5.44
b) Analyzing the financial performance of Chocco plc
From the computation of above tables of ratios, it can be interpreted that firm’s two years’
performance has been show. Return on capital employed has been derived for two years such as
2019 and 2020 which are 9.92 & 11.14%. the ideal ratio of this is 10% which is lesser than
current year’s performance that shows ROCE of Chocco plc has inclined as compared to
previous year.
Return on equity for the year 2019 and 2020 are 12 & 13% which is reflecting g an
inclining trend of performance of organization. From the evaluation with ideal benchmarking it
can be articulated that it is less than 15% that requires change to keep investors interested in
organizational practices (Ratio analysis, 2020). Chocco plc’s efforts can be seen from an little
change in its current outcome as compare to previous.
Earnings Per Share (EPS) is an important indicator of firm’s profitability which is expected
to be higher by the stakeholders. From the assessment it can be stated that for the year 2020 and
2019 EPS of Chocco plc is 0.166 & 0.201. it can be analyzed that organization has put effort to
increase its profitability associated with per share and shows positive outcome. It represents
good financial position of organization.
Net profit ratio of Chocco plc is computed for the two years as 2019 & 2020 which has
resulted into 5.68 and 6.39% which is not more than the 10% that is an ideal benchmarking.
Stakeholders largely pay attention on the capacity of generating profits through sales to get
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higher benefits via investing in company. From the evaluation it can be stated that enterprise
current outcome has enhanced as compared to previous.
Asset turnover ratio is calculated to identity’s firm’s efficiency of generating revenue
through utilizing these available assets (Prasoona and Reddy, 2021.). Concerned table can be
taken into consideration for determining actual financial position which presents that in 2020 &
2019 duration Chocco plc has 0.69 & 0.63. the standard mark for this is 0.25 to 0.50 which
lower than enterprise’s derived results that presents that organization is efficiency is higher.
Stock holding days of the company is 79.88& 77.69 days for 2020 and 2019 financial year.
The average ideal days for this is 40 which is not greater than mentioned company’s period that
represents improvement (Pavone, Migliaccio and Simonetti, 2021.). It can negatively impact
stakeholders like suppliers, lenders, etc. and therefore current monitory position as its efficiency
is less.
Debtors collection period matrix provides assistance in recognising organization’s
efficiency in obtaining its due payments from the customers. For the year 2020 and 2019 the
attained results are 67.65 & 72.93. By making comparison it can be identified that it has
decreased from as compared to previous. It presents that organization liquidity condition has
improved as compared to previous.
Current ratio is one of the significant performance indicator showing firm’s efficiency of
utilizing cash & equivalent assets in respect to meet short term obligations. Specified company
has 0.77 & 0.92 times that are lower than standard marking which is 1.2-1.5.
Gearing matrix aids in identifying risk associated with Chocco plc fro the period 2020 &
2019 are 2.15 and 2.46 which is in declining trend indicating lower risk as compared to before.
Inventory turnover ratio in the year 2019 & 2020 are 5.44 and 4.5 which has decreased that
impacts financial performance in negative manner. From the overall evaluation it can be
identified that Chocco plc has good financial health.
CONCLUSION
From the above report it can be concluded fundamentals are crucial for getting depth
knowledge about accounting. Current report has comprised income statement, balance sheet,
ratio calculation and performance evaluation.
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REFERENCES
Books and Journals
Cavallo, M. and et.al., 2019. Fiscal Implications of the Federal Reserve's Balance Sheet
Normalization. 61st issue (December 2019) of the International Journal of
Central Banking.
Laibson, D., Maxted, P. and Moll, B., 2020. Present Bias Amplifies the Household Balance-
Sheet Channels of Macroeconomic Policy.”. Working paper.
Liu, Z. and Blanchett, D. M., 2021. Focusing on both sides of the balance sheet: the potential
benefit of liability management. Financial Services Review, 29(2).
Pavone, P., Migliaccio, G. and Simonetti, B., 2021. Investigating financial statements in
hospitality: a quantitative approach. Quality & Quantity. pp.1-25.
Prasoona, J. and Reddy, R. G., 2021. Analysis of financial statements. Biotica Research Today.
3(5). pp.373-375.
Online
Ratio analysis. 2020. [Online]. Available through: < https://cleartax.in/g/terms/ratio-analysis >
Why balance sheet need to balance? 2020. [Online]. Available through:
<https://www.brixx.com/why-does-a-balance-sheet-need-to-balance/>
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