Grace Primary School Finance Report

This report provides a comprehensive financial analysis of Grace Primary School, covering the years 2015 and 2016. It utilizes ratio analysis to evaluate the school's financial performance across three key areas: profitability, liquidity, and solvency. Key ratios calculated include Return on Total Assets (ROA), Net Profit Margin, Current Ratio, Quick Ratio, Debt-Equity Ratio, and Equity Ratio. The analysis reveals a significant drop in profitability in 2016 compared to 2015, despite an increase in liquidity. The school's reliance on debt is also highlighted. The report concludes with recommendations for improving the school's financial performance, suggesting diversification of income streams and more efficient utilization of assets.

FINANCE REPORT

Grace primary school
Abstract
The financial position of any organization or division can be easily ascertained through a
yearly analysis and by computing the financial ratios. Hence, financial ratio is the vital tool as
it helps in shedding light on the performance of the organization and an evaluation can be
done. In this report, Grace primary school is selected for the purpose of study and the reports
stress upon the financial performance of the school. Ratio analysis is conducted and the
calculations provide an indication of the performance. Three different ratio that is the
liquidity, profitability and solvency ratios are computed to ascertain the financial position.
With the help of the ratios analysis, the position of Grace primary school will be studied in an
in-depth manner.
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Grace primary school
Table of Contents
Introduction...........................................................................................................................................3
Financial performance...........................................................................................................................4
Ratio analysis.........................................................................................................................................5
Profitability ratios..................................................................................................................................5
 Return on total assets....................................................................................................................5
 Net profit margin...........................................................................................................................6
 Liquidity Ratio................................................................................................................................8
 Current ratio..................................................................................................................................8
 Quick or acid test Ratio..................................................................................................................9
Solvency ratio......................................................................................................................................11
 Debt equity ratio..........................................................................................................................11
 Equity Ratio.................................................................................................................................12
Recommendation................................................................................................................................13
Conclusion...........................................................................................................................................14
References...........................................................................................................................................15
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Grace primary school
Introduction
The report is prepared to evaluate two years of income along with two years of the balance
sheet. The evaluation will be based on four areas that are profitability, efficiency, liquidity
and long-term solvency. The four mentioned areas will help in evaluating how much the
profit is earned by the school and the manner in which the productivity of the school can be
enhanced.
Grace primary is located in Yorkshire and the schooling caters to the children who are aged
between 4 to 11 years of age. It is a co-educational school with modern facilities such as
playing arena, trees, gardens and various other adventures. The annual income is derived
from the Department of Education through the Education Funding Agency and it happens in
the manner of a General Annual Grant. The school escalated to a new position and the
planning was done in an effective manner ensuring there was a strong value of money. The
funds were utilized in the best possible way. The funding that the school received in 2015-16
catered to 374 children while the school educated 295 children that rose to 200 by 2016. The
school continuously made effort to generate additional income that is evident from the
activities such as providing Bursar service to another local primary school. Even the
Headteacher was able to generate additional income by utilization of the premises to various
groups. Further, the Trust even opened a new nursery school.
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Grace primary school
Financial performance
Going by the very nature of the Grace Primary school it can be said that the school always
strive to earn additional income. However, as per the comparison of the income statement of
the school, it can be seen that the school incurred losses of £66,222 in 2016 as against a profit
of £2,967,733 in 2015. This indicates that the school had a loss-making activity in the year
2016 and this can be cited due to the low-level income. As against £ 8,008,426 income in
2015 the income of the school dropped significantly at £ 1,638,263. This indicates the
deficiency on the income generation part. The total expenses reduced vastly however, the
school was unable to turn the opportunity into a profitable one.
Moreover, the fixed assets were in 2016 and hence, a reduction can be witnessed. The current
assets increased and the current liabilities meaning the school had sufficient liquidity to meet
the obligations (Petersen & Plenborg, 2012).
The total staff cost of the school increased meaning that the school will have more outflow.
Moreover, there has an increment in the total number of administrative staff. However, going
by the scenario of the school in 2016, it can be said that the school should eliminate few costs
from the system so as to maintain the profitability similar to 2015. Additional staffs vouch for
additional pressure.
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Grace primary school
Ratio analysis
Profitability ratios
Profitability ratio can be defined as the major component of the company that helps in
arriving at the profit and determine the status in the long run (Peterson & Fabozzi, 2012).
The reason can be cited is that the present performance of the company determines the long-
term viability of the company. As per the profitability of the Grace primary school, it can be
stated that the company had a strong position in the year 2015 while the performance dropped
significantly in the year 2016. Both the ratios that are the net profit margin and the return on
total assets have dropped indicating a poor show by the school in the year 2016.
 Return on total assets
This ratio indicates the ability of the company to generate profit in tune to the
presence of the total assets. The ratio of the past two years has been compared and
contrasted. ROTA projects the manner in which the assets are put to use by the
company (Albrecht et. al, 2011). Hence, the above computation clearly stresses that
the school failed to utilize the assets effectively in the year 2016. The degrading of the
ratio in the year 2016 is indicating that the school was unable to convert the money
required to purchase assets into profits. A Higher ratio is always needed because it
denotes better management of the assets.
There is a vast difference when it comes to the year 2015 and 2016. In 2015, Grace
primary school operated with ROA of 44.5% in 2015 while it slipped to a negative of
-1 in 2016. It is a deficiency on the part of the school authority as the assets were not
utilized to an optimum level.
Return on total assets 2016 2015
Net Income -66,222 29,67,733
Average Assets 66,21,291 6670272.5
ROA
-
1.000137
3
44.491930
4
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Grace primary school
2016 2015
-10
0
10
20
30
40
50
ROA
ROA
 Net profit margin
Net Profit Margin
2016 2015
Net Income
-66,222 29,67,73
3
Sales Revenue
16,38,26
3
80,08,42
6
Net Profit Margin [(Net Profit after tax/Sales
Revenue)*100] -4.04 37.06
The net profit margin declined in the year 2015 indicating that the school has faced
several issues in the year 2016. A higher net profit is always the main priority
because it reflects that the school will be able to transform the profits when the period
gets over. The net profit margin of different industries varies and a lower margin for
one does not mean a lower margin for another. The net profit margin of the school
declined as the school was able to post a very low level of income that ultimately led
to a downfall considering a good control over the expenses. Hence, a drop has been
witnessed from 37.06%$ to -4.04$. If the two years are compared then a big dent in
the profit-making ability can be reflected. One of the prominent reasons lies in the
fact that the school has catered to educate more children as compared to the funding
that is received by the Education Funding Agency. Hence, an additional stress on the
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Grace primary school
school is witnessed that has led to lower revenue. The higher the increment in the net
profit, the better would be the chances of meeting the expenses (Deegan, 2011).
2016 2015
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
Net Profit Margin [(Net Profit after
tax/Sales Revenue)*100]
Net Profit Margin [(Net
Profit after tax/Sales
Revenue)*100]
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Grace primary school
Liquidity Ratio
The liquidity ratio projects the ability of the company to discharge the obligation when they
are due and when the long-term liabilities materializes. The liquidity ratio projects the level
of cash of the company and the manner in which assets can be transformed so that the
liabilities can be repaid (Davies & Crawford, 2012).
 Current ratio
When the current ratio is high, it is a favorable message to the organization because the
liquidity is present with the organization. It reflects that the organization is able to meet the
obligations and repay the current debt (Melville, 2013). From the computation of the ratio of
Grace primary school, it can be said that the school has a strong current ratio that is more
than 1:1 indicating it contains more current assets as compared to the current liabilities (Choi
& Meek, 2011). This projects that the school is having enough from operations to support the
activities. Hence, the school is not losing money.
Further, the ratio enhanced in the year 2016 indicating that the school is moving towards
closer to the ideal ratio of 2:1. Thereby, it can be commented that the liquidity problem is not
present with the school and hence can perform with ease. Banks generally require a ratio of 1
or 2 and going by the computation it is evident that the school has a strong current ratio and
in future can avail loans because it has liquidity present with it (Fields, 2011).
On comparison of both the years that is 2015 and 2016, it is observed that the current ratio
enhanced in the year 2016 thereby enhancing the liquidity of the school. Hence, more
liquidity is observed in 2016 s the ratio peaked to 1.45 in 2016 as against 1.08 in 2015.
Current ratio
2016 2015
Current Assets 1,54,153 1,26,597
Current Liabilities 106649 117391
Current Ratio (Current Assets/Current Liabilities) 1.45 1.08
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Grace primary school
2016 2015
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Current Ratio (Current
Assets/Current Liabilities)
Current Ratio (Current
Assets/Current Liabilities)
.
 Quick or acid test Ratio
The quick ratio helps in measuring the skills of the company in repayment of the current
liabilities when it becomes due. Quick assets are those assets that can be converted into cash
in the short term (Brigs, 2013). If the organization contains a higher level of quick assets as
compared to the current liabilities, the firm will be in a strong position to discharge the
obligations without selling off any long-term assets. A higher quick ratio is a big advantage to
the company because it projects the strong liquidity of the company. In this scenario, the
Grace primary school has the quick ratio of 1.45 that means the obligations can be discharged
by simply using the quick assets and there will be no impact on the long-term assets (Brigs,
2013). Hence, going by the liquidity factor it can be said that the liquidity position of Grace
School is strong and can meet the obligations easily.
The graph clearly signifies that the quick ratio has enhanced in 2016 as compared to 2015
indicating that the liquidity is strong. A higher quick ratio projects higher liquidity and as
compared to the year 2015, the liquidity has increased (Libby et. al, 2011).
Quick ratio
2016 2015
Current Assets 1,54,153 1,26,597
Inventory 0 0
Current Liabilities 106649 117391
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Grace primary school
Quick ratio [(Current Assets-Inventory)/Current
Liabilities)] 1.45 1.08
2016 2015
0.00
0.40
0.80
1.20
1.60
Acid Test [(Current Assets-
Inventory)/Current Liabilities)]
Acid Test [(Current Assets-
Inventory)/Current Liabilities)]
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Grace primary school
Solvency ratio
 Debt equity ratio
The debt-equity ratio is one of the potent solvency ratios that provide a comparison of the
total debt of the company with that of the total equity. The debt-equity provides a percentage
of finance that the company extracts from the creditors and investors. Higher debt equity
projects that the company has procured more loans (Graham & Smart, 2012). From the
computation of the Grace primary school debt to equity ratio it is seen that the ratio ranks
higher in 2016 meaning more loans are taken by the school to fund the operations. Lower
debt-equity ratio is highly favorable as it indicates that the organization has more longevity
and potential (Needles & Powers, 2013).
The Debt equity of Grace Primary is 1.50 which is more than indicating a heavy reliance on
debt. Such a ratio indicates that the creditors have more contributions as compared to the
investors. As compared to the functioning of the company it was observed from the financial
statements that the creditor component was huge considering the operations (Gibson, 2012).
The debt portion of the school increased heavily in 2016 where it touched 1.50 stressing on
the fact that the financial structure is comprised of more debt and hence, a further increment
will endanger the stability (Horngren, 2013).
Debt Equity Ratio
2016 2015
Total liabilities 106649 117391
Total Equity 6160642.00 6360863.00
Debt Equity Ratio 1.50 1.20
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