Financial Performance Analysis of Stratford Yachts Limited Report

This report provides a comprehensive overview of managing financial resources. It begins by differentiating between financial and management accounting, highlighting their key differences in terms of purpose, objectives, time frame, and information used. The report then explores the purpose of various financial statements for both profit and non-profit entities, including balance sheets, income statements, and cash flow statements. It identifies different stakeholder groups, such as owners, investors, management, lenders, employees, government, and customers, and evaluates their respective information requirements. The second part of the report focuses on a financial performance analysis of Stratford Yachts Limited, calculating key financial ratios such as net profit margin, return on capital employed, and asset turnover. The analysis assesses the company's performance based on liquidity and profitability, discussing the implications of the calculated ratios and comparing them to industry standards. The report concludes with an evaluation of the company's financial position, highlighting areas of strength and weakness and offering recommendations for improvement.

MANAGING
FINANCIAL
RESOURCES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Explaining difference between financial account and management account........................3
1.2 Identifying and explaining purpose of different financial statements in a profit and non-
profit entities...............................................................................................................................5
1.3 Identifying the different groups of stakeholders and evaluating their different information
requirement.................................................................................................................................6
TASK 2............................................................................................................................................8
2.1 Calculate below mentioned ratio...........................................................................................8
2.2 Report on performance of Stratford Yachts Limited on basis of liquidity and profitability.9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
The organization has very important aspect of managing financial resources. The present
report is giving brief discussion about basic concepts of both financial and management
accounting as well along with its key variations. Further it is reflecting requirement of financial
and managerial requirements. In the same series it has elaborated various objective of statements
in business which are profitable or non profitable. In the last part of report it had interpreted
financial position of Stratford Yachts Limited in terms of profitability and liquidity analysis
along with specific ratio analysis.
TASK 1
1.1 Explaining difference between financial account and management account.
The key difference between financial and management accounting are:
Basis of difference Financial Accounting Management Accounting
Meaning Financial Accounting gives the
true and fair view of the
financial position of the
company. Financial accounts
are prepared so that the
stakeholders and investors can
analyse the financial
performance of the company
with the past performance.
Financial accounts help the
stakeholder to analyse the
financial statement of the
company and to decide whether
to invest in the company or not
(Financial Accounting vs
Management Accounting,
Management accounting is
prepared for the managers to
have the better understanding
of the management of the
organization. It provides the
information within the
organisation. The
information from the
management accounts helps
the managers to formulates
the policies, planning,
forecasting and controlling
the day to day operations of
the company for the effective
working of business
organisation.

2018).
Objectives Financial accounting is
prepared to show the accurate
and true picture of financial
position of a company by
analysing daily financial
statements and transactions to
the outside parties.
Management accounts are
prepared to help the
management of the
organisation to analyse the
operation and make the
correct decisions and
strategies for the business
operations and to maximised
the profit.
Time frame Financial accounts are made at
the end financial year or on
quarterly basis.
Management accounts are
prepared as per the need and
requirement of the company.
Basis of making The past performance of the
company is the base to make
the financial accounts.
Management accounting can
be done by past information
or the predictive information
on the basis of decision
making.
Information Financial accounts are mostly
quantitative, and it is
mandatory by law to prepare
financial accounts of all
companies.
Management accounting can
be made on both quantitative
and qualitative basis and
there is no statutory
requirement to prepare the
management accounting.
1.2 Identifying and explaining purpose of different financial statements in a profit and non- profit
entities.
The purpose of the profit organization is to maximize its profit for their owner. To

achieve the purpose various financial statements are prepared to for profit organizations.
The financial statements for profit organizations are:
1) Balance Sheet:
For the profit organizations, Balance sheet is an important financial statement which
gives the clear picture of a financial position of a company. Balance sheet shows the assets and
liabilities of the company. After assets and liabilities the balance sheet shows the owner's equity
which is the net worth of the company. It is an important statement which helps the stakeholders
and investors to decide whether to invest in the company or not (Minnis and Sutherland, 2017).
2) Income statement:
The revenue of a company is evaluated through the income statement over a specific time
period. The income statement shows what the company is earned or lost in a specific time period.
The statement shows the company's profitability and increasing assets which correlate to the
future dividends and the return on investment to the shareholders and owners.
3) Cash flow statement:
The inflow or the outflow of the cash in a specific time period is represented through the
cash flow statements. All the profit and non-profit organization has cash flow system as it is an
integral part of the financial system which is used to evaluate the transaction of many in different
activities in business organization. Stratford Yachts Ltd. Has fallen under the profit organisation,
it should follow the various financial statements like balance sheet, income statement and cash
flow statement for the financial analysis of the company. Non-profit organisation are those which
are not owned by shareholder or investors and not intended to earn profit they generally work on
a charitable basis. Non-profit organisation uses a different financial statements.
The non-profit financial statements are:
1)Statement of financial position:

The balance sheet of non-profit organisation is termed as statement of financial position as there
are no shareholder or investors in non-profit organisation. But unlike balance sheet the leftover
after the liabilities and assets is called net assets. In non-profit organisation the net asset is
further divided into unrestricted net assets, temporarily restricted net assets, and permanently
restricted net assets which based on the donor restrictions (Cascino and et. al., 2014).
2)Statement of activities:
In non-profit organisation revenue is not generated through selling of goods and services,
but the sources of funds are grants, donation fundraising etc. Non-profit organisation also have
day to day operative expenses. Statements of activities shows the surplus or the deficit with the
net of sources of funds and expenses. This statements help the company to check how much they
are spending the money.
3)Cash flow statements:
For business organization, cash flow statement is very important, in non-profit
organisation apart from revenue they also get cash from donations, governments, grants. So they
maintain different statements that shows the source and use of funds from each donors.
1.3 Identifying the different groups of stakeholders and evaluating their different information
requirement.
The various group of stakeholders are:
1. Owners and Investors:
The financial information is important for the shareholder and investors of the company
to decide whether to invest in the company or not. Financial statements help them to analyse the
return in investment.
2. Management:

The managers of the organisation needs to analyse the accounting information of business
and checking the performance with the past performance which will help them for better decision
making.
3. Lenders:
The banks and other financial institution which are granting loans to the organisation can
need accounting information to check the ability of the company to repay the loan at the
maturity.
4.Employee:
The employment security and growth opportunities is the basic needs of the employees.
The employee have interest in knowing the company's stability and profitability. The financial
position and performance of the company can give them the career development opportunities.
5.Government:
Different government agencies and tax authority will be interested in knowing the entity's
financial position for tax and regulation purpose. The financial statement is the base for the tax
authorities for accessing the amount of tax collected from the business.
6. Customers:
The customers who are in long term contract with the company will be interested in
knowing the financial position and the company's ability to continue its existence and maintain
to continue its existence (Edmund and Lyamtane, 2018).

TASK 2
2.1 Calculate below mentioned ratio

2.2 Report on performance of Stratford Yachts Limited on basis of liquidity and profitability
 Net profit margin: It is reflecting net income which has been earned with sales which
has been gained. The organization has given net profit as 11% in year 2015 but due to
sales revenue it had decreased to 8% in year 2015. The industry standards are above the
calculated ratio, so in simple words it is not able to transform sales in terms of profit. So
it can be interpreted that it should lay special emphasis on increasing sales.
 Return on capital employed: The amount of profit is indicated by capital which is
employed for purpose of generating returns. The organization was able to gain return
which was above industry standard in year 2015 to 27.9 but due to issues in operation it
had decreased up to 22% . So on this context, organization must be able to improve
operations in very systematic aspect which will direct impact financial of the organization
(Hayes, 2015).
 Asset Turnover ratio: It is replicated as ratio of efficiency which is tracing ability of
company for incurring sales through assets. From the above ratio analysis, Stratford
Yachts has efficiently applicable its assets in very systematic return as it is reflecting in

this ratio, because it has attained industry standards and in next year it had increased its
level as over-attainment of meeting industry standards.
 Accounts Receivable collection period: It is used for comparison of receivables which
are identified as outstanding for business to its sum of sales. From this perspective
organization has attained very good and strong position for getting accounts as it had
crossed industry standards which is 83 days so in this context, it should be able to
optimize this remaining money for generating resources and funds as blockage of money
will be avoided.
 Current ratio: It is replicating organisation's liquidity position. The above mentioned
company is not able to match industry standard, but from above analysis it can be
interpreted that it is improving from previous year. As it is 1.5 which cannot be achieved
in less duration.
 Quick ratio: It has direct relationship with current ratio as it reflects the assets which are
not converted in cash easily. The industry standard is not achievable neither is 2015 nor
in 2016.
 Gearing ratio: It is major part of solvency ratio and in above organization, it is
exceeding standards of industry. It had created capability to repay its dividends in very
systematic aspect and large quantity as well.
 Distribution costs as percentage of sales: It is replicated by dividing distribution cost to
total sales revenue. Sales will be not increased in above mentioned criteria. As in the year
2015 and 2016 it was stable but lower than industry standards which has very small
differences.
 Administration cost as percentage of sales: The administration cost and revenue of
sales replicate performance. On the basis of mentioned ratio, it lacks ability to increase
sales and there is absence of increment in both year which has very less variation.
 Labour cost as percentage of sales: It is representing sales on basis of variable cost. In
year 2016, standards have been met by organization as there is presence of small
difference in ratio. In the same series, for accomplishing organization's standard has to
raise direct labour with sales revenue and in this it had crossed specific industry standards
(Coggan and et. al., 2017).

 Operating cost as percentage of sales: Sales has been generated from operation's cost
which is specified in this stated ratio. In the year 2016, industry standards have been
exceeded along with increasing cost of production and sales revenue which had been
raised from previous year's comparison.
Stratford Yachts Limited financial performance had been evaluated in terms of
profitability in very stable manner and by measuring liquidity, it is not capable to gain good
position in industry. The organization had not yet met debt position or in simple words it can be
stated that debts of short term are not covered with so much ease as it is justified in liquidity
ratio.
CONCLUSION
From the above study it can be stated that managing financial resources are very
important aspect for any organization and especially for Stratford Yachts Limited. It helps in
keeping information in very systematic manner. It has been articulated from above report that
financial position has been reflected via statements of company. It has shown that by giving
information to various stakeholders which has their own way to observe requirement. Further it
can be summed up by this report that it had replicated organisation's profitability and liquidity is
working well in which there is lack of maintaining liquidity in easy aspect.

REFERENCES
Books and Journals
Cascino, S. and et. al., 2014. Who uses financial reports and for what purpose? Evidence from
capital providers. Accounting in Europe. 11(2). pp.185-209.
Coggan, A. and et. al., 2017. Does asset specificity influence transaction costs and adoption? An
analysis of sugarcane farmers in the Great Barrier Reef catchments. Journal of
Environmental Economics and Policy. 6(1). pp.36-50.
Edmund, S. and Lyamtane, R. D. E., 2018. Effectiveness of the Heads of Schools in Managing
Financial Resources in Public Secondary Schools in Moshi Municipality. International
Journal of Scientific Research and Management. 6(05).
Hayes, P., 2015. Managing financial resources. Good Practice. (11). p.21.
Minnis, M. and Sutherland, A., 2017. Financial statements as monitoring mechanisms: Evidence
from small commercial loans. Journal of Accounting Research. 55(1). pp.197-233.
ONLINE
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