LCBB4001: Kedison & Chocco Financial Analysis - Accounting Report

This report provides a comprehensive financial analysis of Kedison PLC and Chocco PLC. For Kedison PLC, a profit and loss statement and balance sheet are constructed to assess its financial standing. For Chocco PLC, various financial ratios, including ROCE, ROE, earnings per share, net profit margin, asset turnover ratio, stock holding days, debtors collection period, current ratio, gearing ratio, and inventory turnover ratio, are calculated and interpreted to evaluate the company's financial performance and position. The analysis includes commentary on the trends and implications of these ratios, along with suggestions for operational improvements. The report concludes that accounting is essential for business analysis and decision-making.

Accounting Fundamentals

TABLE OF CONTENT
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Question 1........................................................................................................................................3
Profit and loss statement for Kedison PLC .................................................................................3
Balance sheet for the year ended.................................................................................................4
Question 2........................................................................................................................................5
Calculation of ratios for Chocco plc............................................................................................5
Commenting on the financial performance and position of Chocco plc...................................12
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Accounting is the process which helps in the recording financial transactions that helps
the business for pertaining of a business. With the help of an accounting process the business can
summarize analyse and report the financial analysis. Accounting fundamentals are the various
different components of accounting such as, recording, summarizing, analysing of assets,
liabilities and owners equity. In this project a profit and loss statement has been prepared for
understanding the financial performance of Kedison Plc has been analysed. This project with the
help of different financial ratios explains the financial performance and position of Chocco plc.
MAIN BODY
Question 1
Profit and loss statement for Kedison PLC
Particulars Amount (in £) Amount (in £)
Sales revenue 826650
Less: Cost of goods sold 578650
Gross Profit 248000
Less: Indirect expenses
Administrative expenditure 30000
Interest paid 4000
Directors remuneration 5000
Distribution costs 28000
Sales commission 3000 68000
EBT 180000
Corporation tax 68000

Net Profit 110000
(-) Preference dividend 30000
Earnings available to equity
shareholders
80000
(-) Ordinary dividend 20000
Retained earnings 60000
Balance sheet for the year ended
Particulars Amount (in £) Amount (in £)
ASSETS
Fixed assets
Plant and equipment 632730
Current assets
Stock 329620
Debtors 171105
Cash and Bank 12900
Total assets 1146355
LIABILITIES
Long term liabilities
4% Debentures 100000 100000
Current liabilities
Creditors 171355
Outstanding commission 3000

Outstanding interest 2000
Tax payable 68000
Shareholders’ equity
Ordinary shares 310000
10% preference shares 300000
Profit for the period 110000
Retained earnings 60000
Total liabilities 1146355

Question 2
Calculation of ratios for Chocco plc
ROCE : Return on capital employed
Particulars Formula 2020 2019
Earnings Before Interest and
Tax 846 720
Total assets 9736
1008
7
Current liabilities 2511 3046
Capital employed Total assets - Current liabilities 7225 7041
ROCE ratio EBIT / Capital employed
11.7
%
10.2
%
ROE : Return on equity
Particulars Formula 2020 2019

Net Income 431 366
Shareholders equity 3088 2912
ROE Net income / average shareholders equity
13.96
%
12.57
%
Earnings per share :
Particulars Formula 2020 2019
Net income 431 366
Preferred dividend 0 0
Average common shares
outstanding 600 600
Earnings per share
(Net income - Preferred dividend) / Average
common shares outstanding 0.72 0.61

Net profit margin :
Particulars Formula 2020 2019
Net profit 431 366
Revenue 6738 6441
Net profit margin Net profit / sales * 100
6.40
%
5.68
%

Asset turnover ratio :
Particulars Formula 2020 2019
Revenue 6738 6441
Total Assets 9736
1008
7
Asset turnover ratio Net sales / Average total assets 0.69 0.64
Stock holding days :
Particulars Formula 2020 2019
Inventory 708 659
Cost of sales 3235 3096
Stock Holding days (Inventory / COGS)*365 80 78

Debtors collection period
Particulars Formula 2020 2019
Debtors 1249 1287
sales 6738 6441
Debtors collection Period (Debtors / sales)*365 68 73
Current ratio :

Particulars Formula 2020 2019
Current assets 2303 2355
Current liabilities 2511 3046
Current Ratio Current assets / Current liabilities 0.92 0.77
Gearing ratio
Particulars Formula 2020 2019
Total debt 4137 4129
Shareholders’ equity 3088 2912
Gearing ratio Long-term debt / shareholders equity 1.3 1.4

Inventory turnover ratio :
Particulars Formula 2020 2019
Net sales 6738 6441
Inventory 708 659
Inventory turnover ratio COGS / average stock 9.52 9.77