Business Finance Report: T-shirt Ltd's Financial Performance Analysis

This report provides a comprehensive analysis of T-shirt Ltd's financial performance. It begins with an introduction to business finance and its importance, followed by a detailed analysis of T-shirt Ltd's performance using financial ratios. The report examines profitability, liquidity, efficiency, and capital gearing ratios, comparing data from 2018 and 2019 to assess trends and identify areas of strength and weakness. The report then delves into the concepts of accrual and cash accounting, outlining the benefits and disadvantages of each method. Finally, it explains the role of budgeting in financial management, detailing essential techniques and their application. The report concludes with a summary of the key findings and recommendations for T-shirt Ltd. This assignment is valuable for understanding financial statement analysis, accounting methods, and budgeting principles.

Business Finance

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK1.............................................................................................................................................1
Analysis business performance of T-shirt Ltd ............................................................................1
TASK 2............................................................................................................................................5
Brief description related with financial information & management of cash of T-shirt Ltd ......5
TASK 3............................................................................................................................................7
Explanation of budget and its essential techniques .....................................................................7
CONLCUSION................................................................................................................................9
REFRENCES.................................................................................................................................11

INTRODUCTION
Business organizations to run their trade activities require effective management of their
finance resource. Finance is the source of money through which the overall organization
activities circulate. It is blood of organization. To understand relevance of business finance, T-
shirt Ltd has been taken. This report includes analysis of business performance by calculating
and comparing financial ratio. This also define use of accurate and cash accounting system. It
includes how effectively managers use budget to take decision and identify future profit value. In
this report benefits of public organization registrar in stock exchange has been describe in
effective manner.
TASK1
Analysis business performance of T-shirt Ltd
To evaluate business performance of an organization managers use financial ratio
through which they can easily understand variations arises between each item of financial
statements of an entity.
Statement of profit and loss: This financial statement is prepared to calculate revenue earn by
business organization after deducting all the relevant expense. By formulating this statement
manager can easily interpret effect of every item on generating profit (Yadav. and Kapoor,
2018).
Profitability ratio
Gross profit ratio
Particular 2018 2019
Gross profit 1261 615
Sales 2101 1366
Gross profit ratio = GP/ Sales
*100
60.01% 45.02
Operating profit ratio
Net revenue ratio
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Particular 2018 2019
Net profit 372 -500
Sales 2101 1366
Net profit = NP/ Sales *100 17.07 -36.66
Return on assets ratio
Particular 2018 2019
Net revenue 2101 1366
Total assets 1634 1700
ROA = Net revenue / Total
assets
1.28 0.8
Return on equity ratio
Particular 2018 2019
Net revenue 2101 1366
Shareholders equity 810 310
ROE = Net revenue/
Shareholder's equity
2.59 4.4
Interpretation: Income statement is used to determine profitability ratio of organization.
Theses considers elements which necessary for generating revenue. Ii consider ration not only
item which is included or relevant with income statement, however they also considerer those
items which is related wit balance sheet. Gross profit ratio, help ion determining revenue earn by
organization through selling their product . T-shirt Ltd generate 60% of gross profit from the
financial year 2018, but in 2019 they are not able to generate high rate of gross ration as
compare to previous year.
This directly impact on net profit ratio. As compare to 2018, organization's not able to
earn profit moreover they suffers from high loss (Kim, Baik, and Cho, 2016).
Their net profit decrease due to large expenses incurred on operating business activities.
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T-shirt Ltd, due to its probability situation it is really hard for organization to provides their
shareholders sufficiency return. In 2018, return generate by using assets is higher , T-shirt Ltd
able to gernate1.28 % of revenue from using its business assets and in 2019. they adjust able to
earn 0.8 from their business assets. However, rate of revenue generate from equity in 2019 is
much higher as compare to 2018.Decline rate of revenue show that T-shirt Ltd not properly
maintain their financial capital and not use effective management policies. Due to
mismanagement of financial structure, its volume of cash outflow actives is increase as comparer
to cash inflow business activities.
Balance sheet ratio
Management department by using balance sheet ration also analysis effect of each
balance sheet items on performance of business organization (Laitinen, and Suvas, 2016).
Liquidity ratio
Current ratio
Particular 2018 2019
Current assets 352 426
Current liabilities 824 1390
Current ratio = CA/CL 0.42 0.3
Quick ratio
Particular 2018 2019
Quick assets 352-89 = 263 426 – 121 = 305
Current liabilities 824 1390
QR = Quick asserts / Current
Liabilities
0.31 0.21
Efficiency ratio
Stock turnover ratio
Particular 2018 2019
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Cost of goods sold 840 751
Average inventory 89 121
Stock turnover = Cogs/
Average stock
9.43 6.2
Receivable turnover ratio
Particular 2018 2019
Net credit sale 2101 1366
Average account receivables 218 305
Receivable turnover = Net
credit sales / Average
receivables
9.63 4.47
Capital gearing ratio
Debt ratio
Particular 2018 2019
Total debt 824 1390
Total assets 1282 1274
Debt ratio = Total debt / Total
assets
0.64 1.09
Debt to equity ratio
Particular 2018 2019
Total liability 824 1390
Value of total shareholder's
equity
810 310
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Debt / Equity 1.01 4.48
Earning per share
Particular 2018 2019
Net revenue 2101 1366
Total number of share/ Value
of share
310 310
EPS = Net revenue/ Number of
share
6.77 4.4
Liquidity ratio's will be calculated by organization to determine storage of liquid assets a
organization have to fulfil their liabilities. Theses directly link with ability of generating cash ,
by trading activities. Value of current ratio determine , comparison of assets over liabilities. T-
shirt Ltd 's value of current ratio is comparative high in 2018, this represent that is to
compression, organization have sufficient working capital to fulfil their current debt liabilities.
They calculate efficiency ratio which help in identity capability of business entity of
payment of creditors debt and time require for converting raw materiel into finished goods and
earn cash. T-shirt Ltd 's stock turnover ratio is much higher as which means that organization
take more time in generating cash from their stock.
T-shirt Ltd take 9 days for collecting funds from debtors own the other side in 2019,
organization able to received payment from debtors within 4 days. Which means that even T-
shirt Ltd not effective generate revenue however they work effective of managing their business
debtors policy . By using gearing ratio, effect of liabilities as well as assets and connection
between them identify. Capital gearing ratio use to understand value of assets required for
fulfilling debt liabilities and ability of organization to cover their cash. Debt ratio of 202189 is
comparatively low which shoes that business performance of T-shirt Ltd is better then 2019,
even they provides much more benefits on share as compare to 2019 (Eng, and Vichitsarawong,
2017).
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By evaluating business performance through calculating ratio, it is recognized that T-
shirt Ltd perform much better as compare to 2019, as they're not generate sufficient profit and
not able to maintain assets in effect way.
TASK 2
Brief description related with financial information & management of cash of T-shirt Ltd
Concept of accrual accounting versus Cash accounting: Both are essential concept while
recording business transactions. The only difference arise between using accrual or cash
accounting concept for relevant transaction entries is that , while using accrual concept,
accountant record ,each item effect when the time they occur, on the other side, in cash
accounting system, accountant record , sale an purchase or other relevant business transaction
only when they received or exchange cash. In other words, accountant record entries when their
will be inflow and outflow cash activity are generated.
Benefits of cash accounting:
 Easy method Using cash accounting method is as comparability easy. There will be no
adjustment regarding future payment .
 Focus on present:In this system , accountant only focus on present situation of business
organization. Business have sufficient fund for investing in any security. They are
capable of maintain their position and handle any business risk activity.
 Tax benefit: Business entities get benefits when they adopt this system . As they only
record transaction recorder only rewarding cash. Thus they by managing timing , able to
control or avoid their tax liability.
Disadvantage
Not able to provide accurate result: Using this systemic business accountant only able to
show limited picture of business performance. As many transaction, depreciation, goodwill,
intangible item, opportunity cost, theses are those item which indirectly affect business activities
these are not converted in cash form,. Thus it become really hard to use cash accounting system.
As they are not provides, accountant and reliable business result.
Restriction in use: This type of accounting system is not relevant for all type of business
entities .Speciality hypoplasia sector and organization which deal their business on the basis of
credit terms.
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Difficulty in switching cost: With changes of business environment and when
organization grow, to cover up market share, organization need to switch of cash to accrued
accounting method. It is really hard for changing cash system to accuracy as accountant don't
have any information regarding accurate business activities (Kobayashi, Yamamoto, and
Ishikawa, 2016).
Benefits of accrual accounting:
Accurate and reliable business information: any business activities require time for occurrence ,
they impact for future period of time. This method help in considering all the relevant
information and effect of current business transaction on future business activities in effective
way.
Investors preference:At present time period, money may be medium of exchange but to
maintain curricular of money supply , organizations prefer credit transaction, it is beneficial for
buyer as well as sellers. Thus most of organization use this method for recording transaction.
GAAP's preference: Accounting standard are formulated by GAAP, they also recommend that to
run business is ethical or moral way by fulfilling of every rule of accounting standard , mangers
need to use accurate method.
Disadvantage
Tax:Organization pay tax on those transaction or selling products which they even not
use because they don't get cash of those transactions.
Not beneficial for micro entities: Small organization don't have large target market, even
they don't have people knowledge regarding each adjustment and provision of accurate business
accounting thus, small entities prefer cash accounting method.
Difference between profit & cash flow
Profit Cash flow
This term is define as amount earn by business
organizations after deducting all the essential
expense.
It is amount of money received by trading
activities
Profit is calculated by deducting all their
expenses
It is calculate by collecting all the money
receive amount.
For calculating profit , managers use to By preparing cash flow statemented manager
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formulate profit and loss statement. recognize value of cash inflow activities.
Profit useful in growth and development of
organization.
Cash flow useful in running and managing
business by prodigy Fianna source.
Profit help in achieving business objective. Cash flow useful in enacting business capital.
TASK 3
Explanation of budget and its essential techniques
Budget: It is define as statement which formulated to define all the relevant future
information regarding business activities. It is numerical formate, which define future profit, and
cost required for retaining business expenses.
Without preparation of budget, organization not able to maintain their position within the
business environment as well as they need it for providing path .
In other words, budget is numerical statement showing future possibilities by recognizing value
of future business outcomes. There will be various types of budget , which organization able top
formulate, it is totally depend on the management department which type of budget and
methodology they choose for formulating budget (Brown, and Caldeira, 2017).
Following are the main requirement of formulating budget
Estimation of future earning: It is quantitative statement manager on the basis of collection of
information formulate budget through which they able to estimate their future business earning.
Decision making process: Manager by formulating budget can able to understand , activities
which become reason of high cash outflow, they formulate policies and take decision through
which they able to control future risk. Budget useful in deciding best alternative . Manager
choose those alternative which help in generate more future earning in future.
Communication device: Manager circulate sales, flexible budget. It will useful in
communication with other member of organization.
Useful in performance measurement:Sales budget, purchase, cash budget all these are useful in
performance measurement. As on the basis of measuring difference between accurate and budget
outcome, manager decide to give reward and benefits to workforce.
Help in motivation: Budgeted profit or productive margin useful in influence workforce to
achieve budget target, so they can get incentives as well as moral rewards.
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T-shirts plc formulate budget through which they can easily analysis future earning and
formulate effective business policies to control or mitigate risk (Ren, Qiu, Wang, and Lin,
P2016).
Company finance
Benefits of formulate as public entity & registered in stock exchange
Individual have various options to start up their business as register in various type of
organization. public company is one of them. it is one of the most beneficial start up for personal
who have sufficient capital funds. public company is an entity in which more then 51 % of
shareholding is held by public or government. following are the benefits of set up as public
company
large capital: Personal don't need to worry about funding, as public sector organization; fund
collected by government and they can easily get loan or financial assistance.
free transfer of shareholder: In private sector, business entities is not able to transfer their shares
direct to public. This is advantage for public entities as they dot have restriction and limitation
regarding transferring shares.
tax benefits: due to register as public company, government provide benefits of subsidiaries as
well also give tax advantage them.
Democratise management: Monopoly organization structure is not made, in this type of
organization, they use democratic management style in which every personal have right to share
their perception regarding taken decision.
perpetual existence: Public company have different identify from their powers, thus it is not
liquidate even owner or shareholders left company.
limited liability: Every shareholder is liable for bearing loss only to the amount of share they
hold of the organization.
Benefits of registered in stock exchange
Enhance goodwill: Listing in stock exchange help in enhancing business value and goodwill of
organization in market. As most of customers prefer organization which is listed in stock
exchange.
Higher rate of profits: Research reports define that most of listed organization generate more4
profits as compare to private organization . As they provides assurance of secure to investors.
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Easy to access capital: It is relay easy to task or assess capita funds for listed company.
Financial institution provides list companies assisted become of trust reasons.
High value of securities: Once organisation get listed in stock exchange. Then it provides
security for investor as well a companies. Investor feel safe and security regarding their
investment and organization secure risk industry trading and cyber crime , decrease (Wu, and
Huang, 2017).
T-shirt Ltd is public sector organization which is listed in London Stock exchange, thus even
after suffering from loss and economic crises the organization maintain position due to have
strong goodwill within the market. They got benefit and competitive advantage to defeat with
their rival industries.
CONLCUSION
From the above analysis it has been identified that to maintain position in market it is
really essential for organization to manage business finance. It refers as fund required for
running trade activities. By applying relevant accounting system manager able to record each
transaction, which beneficial in prepare budget and financial statement in effective manner.
Business organization by evaluate ratio able to reconsign performance of business . There will be
many options personal have to register their organization but formulating as public entity help in
generate more finance as well as provides benefits of transferability, security , and long term
sustainability to business organization.
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REFRENCES
From books and journals
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Yadav, S. K. and Kapoor, R., 2018. Financial performance ranking of automotive companies in
India using TOPSIS method. International Journal of Business Excellence, 16(2),
pp.149-161.
Kim, Y.J ., Baik, B. and Cho, S., 2016. Detecting financial misstatements with fraud intention
using multi-class cost-sensitive learning. Expert Systems with Applications, 62, pp.32-
43.
Laitinen, E. K. and Suvas, A., 2016. Financial distress prediction in an international context:
Moderating effects of Hofstede’s original cultural dimensions. Journal of Behavioral
and Experimental Finance, 9, pp.98-118.
Eng, L. L. and Vichitsarawong, T., 2017. Usefulness of Accounting Estimates: A tale of two
countries (China and India). Journal of Accounting, Auditing & Finance, 32(1), pp.123-
135.
Kobayashi, M., Yamamoto, K. and Ishikawa, K., 2016. The usefulness of accrual information in
non‐mandatory environments: The case of Japanese local government. Australian
Accounting Review, 26(2), pp.153-161.
Brown, P. T. and Caldeira, K., 2017. Greater future global warming inferred from Earth’s recent
energy budget. Nature, 552(7683), pp.45-50.
Ren, L., Qiu, H., Wang, P. and Lin, P. M., 2016. Exploring customer experience with budget
hotels: Dimensionality and satisfaction. International Journal of Hospitality
Management, 52, pp.13-23.
Wu, Q. S. and Huang, X. H., 2017. The function display of finance company and financing
constraints relieve of the group’s listed companies. China Industrial Economic, 9,
pp.156-73.
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