Comprehensive Financial Analysis and Performance Report of T Shirt Ltd

This report offers a comprehensive financial analysis of T Shirt Ltd and its competitor, focusing on the firm's performance in 2018 and 2019. It begins with an in-depth examination of the profit and loss statement, evaluating key financial ratios such as gross profit, net profit, and operating profit ratios to identify trends and areas of concern. The report then assesses the firm's financial position through the statement of financial position, analyzing current, receivable turnover, and payable turnover ratios to gauge liquidity and efficiency. Further, the report delves into financial information, exploring accrual and cash accounting methods, and analyzing profit and cash flows. The report concludes with a discussion of budgeting and the benefits of creating a limited firm and getting it listed on the stock exchange, providing valuable insights into the firm's financial health and potential strategies for improvement.

Business finance

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................2
PART 1 Analysis of Business Performance of the firm in detail....................................................3
1. Detailed research, analysis and evaluation of the profit or loss statement of the company....3
2. Determination of the financial position of the firm through statement of financial position. .6
PART 2 Understanding in detail the concept of Financial Information & Cash Management.......9
1. Explaining the concept of accrual and cash accounting methods in detail..............................9
2. Analysing and evaluating various aspects of Profit and Cash flows.....................................10
PART 3 Budget and finance of company......................................................................................10
1. Determining the meaning of budget and its purpose.............................................................10
2. Evaluating the benefits of creating a limited firm and getting it listed on the stock exchange
...................................................................................................................................................10
CONLCUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Finance in business is said to be one of the most important aspects for the profitability
and growth of the firm because if finances of the firm is allocated in an appropriate manner then
it can result in more growth of the firm as compared to a business in which finances are not
allocated in a precise manner (Boskov and Drakulevski, 2017). This report covers various
aspects of a firm named T Shirt Ltd and its competitor that is operating in the similar industry
that is T Shirt plc. Apart from this the report also covers various other factors of T Shirt Ltd as
the firm is not performing up to the set standards and thus analysis and detailed evaluation of all
the financial aspects are covered in this report. Further reasons and appropriate solutions are also
mentioned in this report so that the company can perform well in the long run and in the market
too in which it is doing its operations.
PART 1 Analysis of Business Performance of the firm in detail
1. Detailed research, analysis and evaluation of the profit or loss statement of the company
Statement of profit or loss is very crucial for each and every firm that is doing its operations
irrespective of the industry in which it is operating as it helps in analysing and evaluating the
financial performance of the firm so that necessary measures can be taken according to the
needs, requirements, and demands of the organisation. The firm that is T Shirt Ltd statement of
profit or loss was showing a profit of £372000 in the year 2018 and that is considered to be a
pretty good amount but in the year 2019 it showed a loss of £500000 and that is not at all a good
sign for the firm. The firm is not operating in an appropriate manner in the year 2019 and it can
be seen through the statement itself and it have to take necessary measures so that it can add to
the value of the firm rather than destroying the already existed one. There are many ratios
calculated below that are very essential to determine the loop holes in the business and all are
explained below briefly-
Gross profit ratio- It is a ratio that possess a lot of importance from the firm’s point of view as
it helps to identify the gross profit generated in the business while doing all the activities that a

firm does in the market to sustain itself (Boubaker, Cumming and Nguyen, 2018). This ratio can
be calculated by subtracting the cost of goods sold from the cost of sales and the resultant will be
gross profit ratio and this helps a firm to evaluate its financial position in the market. Below is
the calculation of this ratio done with respect to the firm that is T Shirt Ltd-
Particulars 2018 2019
Gross profit ratio 60.02% 45.02%
As it can be seen from the above that the gross profit ratio of the company was around
sixty percent in the year 2018 but it had fell down by around 15 percent and came down to 45
percent in the year 2019 which is not a good sign for the company at all. There could be many
reasons for this fall but mainly it can be decrease in sales amount that resulted in this sharp fall
and the firm has to take necessary and appropriate steps so that it can achieve the rate that is
decided at the time of formation of the business and these steps has to be taken as soon as
possible to reduce any other future damages.
Net profit ratio- This ratio is one of the most important from all of the ratios as it helps to
determine the net profit that is generated by the firm while operating its business in the market. It
is also very easy to calculate and it is preferred at a higher side and 10 percent net profit ratio is
considered to be satisfactory while above that is said to be very good for the firm and below that
is considered to be bad for the company (Currie and Pandher, 2020). This ratio is also very
useful in analysing the effectiveness and efficiency of the firm so that necessary rectification
measures can be taken if it is not up to the mark as it is expected to be. Below is the calculation
of this ratio done on the basis of the company T Shirt Ltd-

Particulars 2018 2019
Net profit ratio 17.71% -36.60
As it can be seen from the above very clearly that the firm was performed a
commendable job in the year 2018 by keeping its net profit ratio at around 18 percent but the
company performed horribly in the year 2019. But profits was converted into losses and the
firm’s net profit ratio was negative at that time at around 37 percent and this is very bad sign
from the business’s point of view and the firm has to take immediate steps to improve it
otherwise it can prove very dangerous for the company in the long run. There could be many
reasons for it but the main is the performance of the company and it must take appropriate steps
to improve that aspect.
Operating profit ratio- It is a ratio that analysis and evaluated the performance of the firm
according to the profitability and growth of the company as it can be calculated by dividing the
profits that are generated by the firm and are of operating nature by the total revenue that the
business generates. It can be said that this ratio is good if a firm has 15 percent operating profit
ratio while above that is considered to be exceptionally great for the firm whereas below 15
percent is considered to be worst (Dubey, Kothari and Awari, 2016). T Shirt Ltd operating profit
ratio is calculated below from the details that has been given-
Particulars 2018 2019

Operating profit ratio 20.99% -28.84%
From the above it can be seen very clearly that the firm was on a right track in the year
2018 as the operating profit ratio was around 21 percent which is considered to be very good for
a firm. Whereas the ratio of operating profit of the company came to negative 28.84 percent in
the year 2019 due to various factors but main could be decreased revenue and it is a very serious
aspect that has to be considered by the firm as soon as possible otherwise it has the potential to
damage and destruct the working of the company in an adverse manner.
2. Determination of the financial position of the firm through statement of financial position
Financial position statement is very essential as well as important for every firm that is operating
in the industry because it is very helpful in analysing and evaluating various aspects that are
related with the liquidity, performance, and aspects regarding financial issues of the business. It
is also very useful as it helps in identifying the problem and then appropriate solution can be
searches according to the problem (Heil, 2017). As it can be seen that the firm that is T Shirt Ltd
is not performing well in the current year as per expected and it is incurring huge losses because
of it and statement of financial position is the one that can help the company to solve the issues
that the business is having by correctly identifying it and that too well within a limited period of
time so that steps can be taken to correct it as soon as possible. Below are some ratios calculated
which can prove very crucial from the firm’s point of view-

Current ratio- This ratio possess a lot of importance for each and every firm that is
operating in the industry as it helps to analyse and measures the short term liquidity of the
company that can prove very crucial for the firm in the long run. It is desirable to have current
ratio two times which simply means that a firm’s current assets are two times than the current
liabilities as the ratio is calculated by dividing current assets with current liabilities. If a business
has higher current ratio it can be assumed that the assets of the company are capable enough to
pay off its liabilities and vice-versa.
Particulars 2018 2019
Current ratio 2.59 times 0.91 times
As it can be seen from the above firm was maintaining a decent current ratio till the year
2018 as it was around 2.5 times in the year 2018 but it has dropped drastically in the year 2019 to
make it around .91 percent and it is not a good sign for the firm. There can be many aspects of it
while it can be said that assets could have been decreased or the liabilities could be increased but
the company has to pay serious attention to this aspect so that it does not become a barrier in the
growth of the business in the long run (Khoshhal, 2018).
Receivable turnover ratio- It is one of the most important ratio as it determined the
average days the amount is struck in the market and it is also known as debtors turnover ratio as
it can be calculated by dividing credit sales by average number of debtors. It is preferable at a
lower side as it means that the company is collecting dues from its debtors and the amount

received can further be reinvested so as to get a higher return in the future and it is also very
helpful in maintain chain of supply. T Shirt Ltd calculation regarding this ratio is given below in
detail-
Particulars 2018 2019
Receivable turnover ratio 9.64 times 4.48 times
It can be seen from the above that the firm has improved this aspect as this ratio of the company
was around ten days or times in the year 2018 but it has reduced it considerably and it has came
down to 4.48 days or times in the year 2019. There can be many factors behind this and the main
could be firm taking coercive measured to collect the dues from the debtors that are prevailing in
the market (Lehner, 2016).
Payable turnover ratio- It is also considered as one of the most essential as well as
crucial ratio as it helps in determining the time period in which firm collect the amount from its
creditors. This ratio is also known as creditor’s payment period and it can be calculated by
dividing credit purchase by average number of creditors of the company. It is preferable at a
higher side because it means that the amount is with the firm for a longer period and thus it can
be invested at a higher rate of return as compared to a lower time period. Below is the calculation
of this ratio done on the basis of the above firm T Shirt Ltd-
Particulars 2018 2019

Payable turnover ratio 15.45 times 9.05 times
It can be seen from the above that the firm has done exceptionally well in the year 2018 to keep
this ratio at around 15.45 times while it has reduced in the year 2019 and came down to around 9
times which is not very beneficial for the firm and it can prove very dangerous too in the long
run so the company has to take strict and necessary steps to improve this ratio and that too within
a limited period of time so that ait can add to the value of the business rather than destroying it
(Motta, 2020).
PART 2 Understanding in detail the concept of Financial Information & Cash
Management
1. Explaining the concept of accrual and cash accounting methods in detail
Accrual accounting method- In this type of accounting method in which transactions are
recorded at the same time of the occurrence of the event and it is highly used in the current times
as it is very feasible and is tried and tested approach that is backed up by a pretty good success
rate too in the long run. The firm that is T Shirt Ltd uses this method to record their transactions
and it has proved very beneficial too for the firm in increasing its profitability and growth.
Cash basis accounting- It is a method of accounting in which transactions are recorded at the
time of exchange of cash and it is widely used by the old firms but it is not very useful at times

because it can lead to duplication of work and at times fraud and errors too. The company T Shirt
Ltd also used this approach at the time of starting of the firm but it has moved to accrual
accounting method as it is more feasible and easy as compared to this method (Puck and
Filatotchev, 2018).
2. Analysing and evaluating various aspects of Profit and Cash flows
Profit is a term that involves profit in it irrespective of the type of profit and it is related with the
well being of the organisation in terms of its profitability. While cash flow is a much bigger
aspect than this as it includes the net cash flow in the business that is cash inflow minus cash
outflow. A positive cash flow means that the is profit while a negative cash flow means outflows
exceeds inflow and it is not a very good sign for a firm (Rogers and Clarke, 2016).
PART 3 Budget and finance of company
1. Determining the meaning of budget and its purpose
Budget is a systematic evaluation of all the incomes and expenditures of a company in order to
analyse and evaluate the true and fair picture of the firm and it can also be used to reduce or
allocate funds of a business in an appropriate manner. While the purpose of budget can be many
according to the needs, requirements, and demands of a business its main purpose is to formulate
such a plan that could help the company to organise, improve, and track its financial position that
can prove very beneficial in the long run (Van Klyton and Rutabayiro-Ngoga, 2018).
2. Evaluating the benefits of creating a limited firm and getting it listed on the stock exchange
Limited liability firm is a one in which owners have limited liability and it is one of the
most important benefit of it too as it helps in separating the company and owner which is very
important in the current scenario. While listing that company on the stock exchange is also very
important as it helps the firm to get additional funds that can be utilised in the business as and
when needed (Wang, Wang and Florescu, 2020).
CONLCUSION
Business finance is an important aspect as it helps a firm to identify all the aspects of
allocation of funds in the business. From the above it can be concluded that the firm T Shirt Ltd
is not performing well in the current year and thus it have to take necessary steps so that it can
help the business to grow and prosper in the long run.

REFERENCES
Books and journals
Boskov, T. and Drakulevski, L., 2017. Strategic and Finance Management–Determining Factors
for the Success of the Companies in the Business World. Calitatea-acces la succes
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Boubaker, S., Cumming, D. and Nguyen, D. K. eds., 2018. Research handbook of finance and
sustainability. Edward Elgar Publishing.
Currie, R. R. and Pandher, G. S., 2020. Finance journal rankings: Active scholar assessment
revisited. Journal of Banking & Finance. 111. p.105717.
Dubey, U., Kothari, D. P. and Awari, G. K., 2016. Quantitative techniques in business,
management and finance: A case-study approach. CRC Press.
Heil, M., 2017. Finance and productivity.
Khoshhal, Y., 2018. The Role of Teaching Materials in the ESP Course: A Case of Business
English (Finance and Economics). Journal of Humanistic and Social Studies. 9(1).
pp.85-99.
Lehner, O. M. ed., 2016. Routledge handbook of social and sustainable finance. Routledge.
Motta, V., 2020. Lack of access to external finance and SME labor productivity: does project
quality matter?. Small Business Economics. 54(1). pp.119-134.
Puck, J. and Filatotchev, I., 2018. Finance and the multinational company: Building bridges
between finance and global strategy research. Global Strategy Journal.
Rogers, C. and Clarke, C., 2016. Mainstreaming social finance: The regulation of the peer-to-
peer lending marketplace in the United Kingdom. The British Journal of Politics and
International Relations. 18(4). pp.930-945.
Van Klyton, A. and Rutabayiro-Ngoga, S., 2018. SME finance and the construction of value in
Rwanda. Journal of Small Business and Enterprise Development.
Wang, D., Wang, T. and Florescu, I., 2020. Is Image Encoding Beneficial for Deep Learning in
Finance? An Analysis of Image Encoding Methods for the Application of Convolutional
Neural Networks in Finance. arXiv preprint arXiv:2010.08698.