Business Finance Report: T-Shirt PLC Financial Performance

This report presents a comprehensive financial analysis of a business, likely T-Shirt PLC, evaluating its performance across several key areas. It begins by examining the company's revenue, cost of sales, gross profit, operating expenses, and net profit before and after tax, highlighting significant trends and providing potential reasons for financial fluctuations. The report then delves into the analysis of inventories, trade receivables, cash and cash equivalents, trade payables, and equity, providing an overview of the company's assets, liabilities, and financial position. Furthermore, the report explores two fundamental accounting methods: accrual accounting and cash basis accounting, outlining their benefits and drawbacks. Finally, it differentiates between profit and cash flow, explaining their significance and how they are measured. The report concludes with an assessment of the company's overall financial health and offers recommendations for improvement.

BUSINESS FINANCE

Table of Contents
MAIN BODY..................................................................................................................................3
Part 1................................................................................................................................................3
Part 2................................................................................................................................................5
Part3.................................................................................................................................................7
References......................................................................................................................................10
Appendices....................................................................................................................................11

MAIN BODY
Part 1
1.1
Revenue: Revenue is the compensation generated by normal business activities and includes
limits and allowances for reported inventory. This is the main line or figure of total salary from
which expenses are deducted to determine the total compensation. Revenue is money that an
organization brings into its business. Tenders are called income, as in the bargaining cost ratio,
an alternative to the cost-to-profit ratio that uses revenue in the nominator.
There are different ways to measure income, depending on the method of accounting used.
Collective accounting includes transactions made using a loan as income for products or
administrations provided to the customer. It is important to examine the structure of income to
examine the productivity of an organization raising the money due. The trend line of Revenue is
diminishing; as its revenue has been decreased by 35% since 2018. The reason might be low in
consumer demand either due to change in customer taste or poor marketing strategies. Price is
not considered as the reason because its Gross Profit has also declined despite of decrease in
Cost of sales.
Cost of Sales: Companies cost of sales also declined by 11% since 2018; but this decrease is
lesser than Revenue’s fall. This indicates failure of company in maintaining its costs with the
decrease in Revenue. Here, it is recommended that, company should focus on cost controlling
measures.
Gross Profit: As discussed above; gross profit is declined by 51%. The reason is increasing of
Cost of sales with the decrease in Revenue. Cost of sales has been increase by 24% due to which
profit margin has been declined by 15% since 2018. To increase gross profit, firm has three
options; increasing revenue, decreasing cost of sales and increasing the product price.
Operating expenses: It is increased by 23%; due to investment in marketing campaign or
recruiting more staff for marketing department. It is bad indicator for the company and it should
be controlled by removing unnecessary expenses on marketing campaign and paying salary to
extra staff.

Net Profit before tax: Net Profit before tax is called the main line because it first appears in an
organization's payroll definition. Full compensation, also known as realism, includes short costs.
There is an advantage when the income exceeds the expenses. To maximize profits, and
therefore the income of each sector for investors, an organization increases revenue and reduces
costs. Financial experts often consider an organization's total income and compensation
independently to determine corporate welfare. Total benefits can improve as long as revenues
remain constant thanks to cost cuts. Such a situation does not seem good for the development of
an organization. When public bodies report quarterly earnings, income and earnings per share are
the two most important figures considered ("profit" equals total). Ensuring added value in
inventory largely depends on whether an organization is outstripping or losing the income and
profit of each stock expert.
Firm is facing loss of £394,000; reason is clear increasing of operating expenses by 23%. The
only way to gain profit in next year is either increasing the operating revenue or decreasing the
operating expenses.
Net Profit after tax: The overall finance cost of the business, has been increased by 54%; due to
which Net loss increased to -£500,000 for the year and trend line fallen by 234% which is huge
failure for the company.
Conclusion
In conclusion of above part this can be stated that company’s performance is poor in year 2018
as compared to year 2019. This is so because of more number of expenses and less amount of
revenue in year 2019. Company needs to enhance their revenue sources and try to minimize their
expenses as much as possible.
1.2
Inventories: Stocks refer to a corporation's ending inventory of products at the close of a given
era. The incorporation of raw resources, final goods and work - in - progress. The organization is
required to estimate its investments using the rules of the accounting directive. Stocks are the
smart but inert assets found by the organization towards the end of the accounting period. It is a
key asset of an organization in its resources report. Inventory valuation is therefore an important
feature of an organization’s accounting. It is the part of current assets and considered as
convertible within a year. The trend analysis of inventories shows that it has been increased by

36%; because of huge stock left at the end of the year due to fewer sales by the company. This is
the failure for the company; because firm doesn’t achieve the expected sales during a year. This
excess inventory has also increased the cost of sales due to more production and storing cost of
inventory in warehouse.
Trade receivables: Accounts receivable are the accumulated sums owed to a corporation for
products and services it has delivered, and are expressed in the study offered to its clients by the
organization, and have not yet earned rewards. To add a receipt to exchange receipts, it is
necessary to normalize a full allowance within one year. Since exchange receipts are the total
amount applicable to an organization, that organization must reduce that amount by paying its
credits faster. Trade receivables have been increased by 40% from 218,000 to 305,000; as
company has followed the strategy of increasing the sales by selling product on credit. The result
already clear that company’s credit sales strategy failed because revenue has been declined by
35%.
Cash and cash equivalents: It is highly liquid current assets; company has not left with any hard
cash. This situation can be risky for the firm; because it will not able to meet small expenses
such as paying to vendors, purchasing small stationery, etc. The reason is huge loss to the
company and average receivables are more than average payables. In this situation, firm don’t
left with any choices but to take Bank overdraft to meet small cash requirement for short
durations.
Total current Assets: Total current assets have been increased by 21%, but it is not good
indication for the company; because lots of cash is stuck into operations. Company is facing
extra high interest payment burden due to Bank overdraft to meet short duration expenses.
Trade payables: Accounts payable (AP) is an account within the general ledger that reflects an
organization’s commitment to taking care of a transition obligation for its banks or providers.
Another basic use of "AP" refers to the office or business department that is responsible for the
agency's contributions to the various loan providers and managers. A Payroll (AP) is a very
important part of an organization's accounting report. The duration of trade payables is shorter
than trade receivables. This results into shortage of working capital into the business.
Equity: In accordance of given information of equity, this can be inferred that value of equity
was of £810 million in year 2018 which reduced and became of £310 million for year 2019. The

reason behind this decline in amount of equity is due to zero value of retained earnings in year
2019.
Non-current liabilities: Under noncurrent liability, there is only one element which is Long-term
borrowings. In the aspect of it, this can be assessed that non-current liabilities in year 2018 was
of £688 million which increased and became of £921 million in year 2019. This shows that there
are too number of debts which have been taken by above company in year 2019.
Conclusion
In accordance of above mentioned balance sheet, it can be stated that company’s performance is
good in year 2019 as compared to year 2018. This has been justified by higher amount of assets
in year 2019 instead of year 2018. Though, liabilities of above company also raised but rationale
to these assets are also increasing.
Part 2
2.1
There are mostly two forms of accounting, cash accounting and financial basis, since both two
are thoroughly tested methods that are very relevant for the company, and therefore these are
analyzed in depth below in relation to the company T Shirt plc.
Accrual accounting method- As per this accounting information system, a transaction is
reported if it can be measured in income at the same period. In the field of income, real money
transfers are new management right after time (Ylhäinen, 2017). The trade will be recorded in
the cash system only at the particular time where it entails the exchange of cash. The sum will be
reported in the financial documents for the next day if there is a potential for benefit or
expenditure on any transaction. As income and expense are reported hand-to-hand instead of
waiting as the day of payment, it is very significant, and it is often practiced by major
corporations and large companies. Its key benefit is that it is very straightforward and easy to
operate as well as very helpful with a lot of convenience in doing trade. While the primary
downside to this method of accounting is that it lacks recording and the portion expenditure
made by a client is not helpful.
Benefits-

 For expenditure and income matched, accrual accounting provides for financial accounts
that are not influenced by the cash sequencing of businesses objectives.
 Matching costs and revenues using this approach helps the firm to do more useful market
research.
Drawbacks:
 It is crucial to note that the uncertainty that has arisen with this accrual accounting may
lead people to misappropriate financial reports.
 Difficulty is a big downside to accrual-based accounting, where the guidelines for
identification of revenue and spending can be very complex.
Cash basis accounting: According to this strategy, payments would only be registered in the
accounting documents if any cash money conversion or options are made. In the accounting
period, trades that do not have any capital transactions will not be reported, such as depreciation.
This strategy isn't used in large firms, but is appropriate for smaller companies and their relevant
financial condition, where the primary mode of exchange is considered to be cash. It is really
important for a business where deals are often made on the basis of currency. Its greatest benefit
is that it reflects the company's simple and equal reputation in the long term (Kennickell, Kwast
and Pogach, 2016). Although the biggest drawback is that it reduces the company's jobs and
activities and therefore negatively impacts it.
Benefits:
 Since cash basis is the simplest form of accounting, it is also simpler for company owners
to understand, adopt and manage. Not to mention, it may also be more cost-effective.
 Another benefit of cash-based accounting is that it helps one to quickly see how much
cash you really have on hand.
Drawbacks:
 The cash basis does not reflect the liabilities of the company. As a consequence,
companies may believe that they have more funds to invest than they really have.
 This accounting basis is not suitable for all kinds of elements of financial reports.

2.2
Profit- Profit represents the financial gain realized when the income earned by the
company operation increases the prices, costs and taxes relating to the maintenance of the
activity in question. Any money gained by funnel back to business holders who either
collect the cash or spend it back in the business. Profit is measured as net income minus
total expenditure.
Cash flow- Cash flow is the actual value of cash equivalents exchanged to and from a
company. In the most basic level, the capacity of a corporation to create profits for
investors is measured by its capacity to achieve positive cash flows or, more simply,
optimize lengthy free cash flow (FCF).
Difference between cash flow and profit:
Cash Profit Cash
Financial
statement
This is presented in the income
statement.
While it is shown in cash flow
statement.
Meaning Profit is the amount which
remained after deducting all
expenses.
On the other side, it is the amount
which is left after deducting all cash
expenses from cash receipts.
Role Profit is useful for companies to
sustain in competitive
environment.
While, cash is useful for companies to
deal with day to day expenses.
Part3
3.1
In order to assess and measure profitability for such a factor, the budget can be described as a
systematic calculation of a company's expense and revenue (Connolly and Jackman, 2017). The
primary purpose of making a budget is to establish a strategy to coordinate, monitor and develop
the profitability of a business in the long term so that the corporation's priorities and targets can
be accomplished in an appropriate and profitable way and even within a short amount of time.

Purpose of budget:
In a continuing process, a carefully crafted budget allows a company to monitor where they will
be significantly. This making large succession direction, from current running costs to potential
expansion, for all. Recognizing where the strategy lands sets up possibilities for recruiting new
employees, engaging in better types of goods, and setting earnings goals in accordance with the
firms' accounting spending needs.
Budgeting is a particularly critical aspect of organizational financial strategy. In essence, the
purpose of a budget is to have a roadmap of how the enterprise can function, whether certain
strategies, practices, initiatives are implemented, mainly economically. Corporate executives and
leadership want to be able to predict not whether a company will make money.
The purpose of a budget and to provide a decision to invest for the decision process, i.e. the
proposed course for intervention is what firms are planned or not for. When running an
enterprise carefully, spending must be tightly controlled. The presumption that firms should
spend money in ads is likely to be " is likely being no" before the advertising budget has been
thoroughly invested (Osano and Languitone, 2016).
The purpose of a budget is to allow actual operating productivity to be measured against both the
expected financial statements, i.e. the company that achieves our objectives. In the equation
opposite, the difference between budgeted expenditures and take extra is "variability".
For small-business owners, who frequently work on a tight budget, budgeting is especially
critical. In a limited activity, even being somewhat off on cost estimates or earnings may have a
catastrophic impact. It could be worthwhile to employ an in-house or outside consultant, or a
general consultant who has experience in business financing, to ensure that budgeting is
conducted correctly. This person will assist with setting up an accounting, monitoring spending
and generating reports that help company owners make measured and informed key business
decisions.
3.2
The biggest advantage of creating a limited partnership is that there is no minimum amount of
money needed and a small amount of business can still be launched and limited liability is also
possible and it is one of the most valuable facets of it (Adhikary and Kutsuna, 2016). In addition
to this simplicity of fund raising, certain kinds of businesses often benefit from it. While the

biggest gain of having a limited partnership registered on the stock exchange is that by using
various types of instruments used in the sector, new resources can be applied to the company and
therefore the company can achieve viability and success in the long term. Below some key
advantages are mentioned in such manner:
Many firms hit a stage where increased money is needed to be infused to finance the
development / expansion strategic planning. Thus, making it public is a means of addressing
these limitations. The business raises the shareholder base and strengthens reputation by listing
on a stock exchange.
Going public boosts the exposure and reputation of the organization among organizations and the
buying public because it complies with different regulatory requirements and guarantees
accountability during operations.
Liquidity is stimulated by listing, offering owners the ability to understand the worth of their
assets. It enables investors to trade in the outstanding earnings, to share risks and to profit from
any rise in organizational valuation.
Listing adds accountability and usefulness to the firm's corporate activities. A public company's
board and executive committee are responsible to the owners. In addition, the entities listed will
need to enable quick enforcement by supplying the Exchange/shareholders with knowledge as
set out in the Listing Agreement or relevant guidelines.
Going public boosts awareness and improves the firm's public image, thus increasing the value
and productivity of workers. Which can also contribute to new hires being hired and can
encourage stock-based transactions such as ESOPs, etc.
One of the greatest obstacles to market development is the shortage of supply of cheap capital.
Many businesses traded on the stock exchange are able to raise more affordable capital more
quickly by offering new shares to investors (Jordà, Schularick and Taylor, 2016). They would
use the funds they raise from issuing bonds to grow their enterprises to compensate for capital
expenditures. Stocks postpone taxation on the profits of the shareholder as well. There is no
requirement to file a return on profits when buying equity if the stock valuation rises. When
trading the stock, the seller just has to disclose the stock additions. In addition, if the owner
makes a loss by selling securities, the loss will be used to offset taxation on some other increase
in the portfolio. Investments receiving interest, such as savings deposits or shares, must pay tax
on taxable earnings

References
Ylhäinen, I., 2017. Life-cycle effects in small business finance. Journal of Banking &
Finance, 77, pp.176-196.
Kennickell, A.B., Kwast, M.L. and Pogach, J., 2016. Small businesses and small business
finance during the financial crisis and the great recession: New evidence from the survey
of consumer finances. In Measuring Entrepreneurial Businesses: Current Knowledge and
Challenges (pp. 291-349). University of Chicago Press.
Connolly, E. and Jackman, B., 2017. The Availability of Business Finance. RBA Bulletin,
December, pp.55-66.
Adhikary, B. and Kutsuna, K., 2016. Small Business Finance in Bangladesh:
Can'Crowdfunding'Be an Alternative?. Review of Integrative Business and Economics
Research, 4, pp.1-21.
Jordà, Ò., Schularick, M. and Taylor, A.M., 2016. The great mortgaging: housing finance, crises
and business cycles. Economic policy, 31(85), pp.107-152.
Osano, H.M. and Languitone, H., 2016. Factors influencing access to finance by SMEs in
Mozambique: case of SMEs in Maputo central business district. Journal of Innovation
and Entrepreneurship, 5(1), p.13.