CO5117 Introduction to Accounting: WaveRider Financial Report Analysis

This report provides a comprehensive analysis of WaveRider's financial performance, focusing on the company's income statement, balance sheet, and key financial ratios. The executive summary highlights the importance of accounting in understanding financial figures and comparing them against industry benchmarks for profit maximization. The report delves into the income statement, examining revenue from hiring and lessons, as well as various expenses. The balance sheet details the company's assets and liabilities, providing a snapshot of its financial position. Ratio analysis, including profitability and liquidity ratios, is conducted to assess the company's financial health. The report identifies the limitations of the ratio analysis due to the business's simplicity. Recommendations are provided to the owner, Daniel, regarding potential investments and business opportunities. The report concludes with suggestions for improving financial performance and achieving industry benchmarks, emphasizing the importance of efficient resource management. It also includes references to relevant accounting and business research and supporting data in the appendix.

Accounting

Contents
Executive summary..........................................................................................................................3
Introduction......................................................................................................................................4
Section B: Report to owner, Daniel Simons....................................................................................4
Part 1................................................................................................................................................4
Part 2................................................................................................................................................6
Results and findings.........................................................................................................................6
Discussion........................................................................................................................................7
Conclusion and Recommendation...................................................................................................7
Referencing......................................................................................................................................8
Appendix..........................................................................................................................................9

Executive summary
The reader of this report would be able to understand the usefulness of accounting so that
is able to analyse the financial figured for the year. This will help him in understanding the need
to compare with the business benchmark through ratio analysis. An organisation can achieve the
target of maximising profit through comparing to the other business organisation. This report
also contains the analysis of the various business options available to the users so that further
business opportunities can be achieved.

Introduction
Basic of a business is whether it is generating profit or not. The returns are sufficient
according to the capital employed or not. Accordingly are there any other options available in the
market to earn more or not. Because the main goal of any business is all about the maximisation
of profit. For that we have to compare data of the company and the competitors already in the
market. For meeting the performance benchmarks we should understand the working of industry
and various areas we can do better. This report consists of the analysis of the financial data of
Daniel Simons, Summary of the financial reports for the current financial year, ratio analysis of
the financial statements and report of profitability. Also identification of the limitations of ratio
would be done. At last the analysis of the different business opportunity that is available to Mr.
Daniel would be done for the following year.
Section B: Report to owner, Daniel Simons.
Part 1
Business report
A business report is a collection of the financial data of the business organisation which
gives the reader an understanding of what is the performance of the business in the current
financial year and what are the areas where changes are to be made so as to achieve the success
(Broda, 2013). For a closer look the income statement and Balance sheet is being considered and
are analysed. The performance of Wave Raider as shown in the statement is in a good position.
Further analysis is done below.
INCOME STATEMENT:
Income statement is the statement that shows the income that is generated from the
operations of the business. It is basically prepared to check the actual profit that the business has
generated at the end of the current financial year. After deducting all the expenses the net profit
is calculated.

Income: - The main operating income of Wave rider achieved is from the hiring business.
In period of one year the organisation has achieved the sales figure of 127,242, it is at the good
level. Also the part of revenue that is made from lesson income is 30,180. So the total revenue
income form the service is around 158,052. Comparing the data from the previous year the
revenue is increasing according to the trend. And this means the business is growing and the
services provided are being preferred by the customers. In the statement some other incomes
were also there which are being received because of the owner’s skills and competencies (Collis,
& Hussey, 2013). For the current financial year the total other income received figure obtained is
886 which is one time income.
Due to the great management of the owner the business expenses are being well
managed. The owner has maintained the average expenses to 40% whereas the average expenses
in this industry tend to be at 53%. Salaries and wages expenses are also under control while on
the other hand Interest is second most expensive expense which should be controlled so that total
expense comes to 40% of the turnover.
But the net profit of the company is not meeting the benchmark and it should be consider
and steps should be taken to maximise the profit. The net profit of the company is around 47,775
which is low.
BALANCE SHEET:
It is the statement that contains the elements assets and liabilities of the business. This is
the actual face of the financial holdings of the business organisation. It gives the user information
about the actual liabilities that the business has to pay and the assets which it holds.
The total assets of the firm are 390,913. Which is a good number and petty cash is also
being maintained to meet the daily expenses.
The total liabilities of the firm are 230,960. Total liabilities of the company includes loan
from the bank as well as current liabilities which includes the creditors of around 5,372. Which
when deducted from the assets gives a Net asset of 159,953.
RATIO ANALYSIS
Profitability ratio: It is the ratio that is calculated so that actual profit of the company can
be checked and the ability of earnings in a company can be analysed. It includes the following:

Return on equity: This ratio helps in calculation of profitability of equity fund. The return
according to the industry should be around 40% but the wave riders return on equity is 29%
which is very low.
Net profit ratio: It discloses the residual profit after all costs of production,
administration, and financing have been deducted from sales. The industry benchmark is of 45%
but wave riders have only 30% which is very low.
Liquidity ratio: it is the ratio between the liquid assets and the liabilities of an
organisation. So that liquidity of the business can be checked
It includes the following ratios that are discussed below:
Current ratio: It is the ration between the current assets and current liabilities. The ideal
current ratio is 2:1 and wave riders have current ratio of 1.27:1. This is again low.
Quick ratio: this ratio shows the liquidity of the firm (Cotton, & Falvey,2012). Quick ratio
and current ratio of the firm is same because firms don’t have prepaid expenses to deduct from
current assets.
Limitations
Due to the less elements in the business the ratio analysis cannot be done properly. Firm
is not able to analyse the other profitability ratio but is not possible to conduct.
Part 2
Recommendation for Daniel would be that he should purchase the van which is costing
him around $2200 for 12 seater. As it would help him in increasing sales which means higher
profit.
Taking into consideration the current business position of Daniel he cannot take the
opportunity to coordinate the school students as the total capital involve in purchasing the
equipments would be $6000 and he don’t have this much of amount right now. And to take this
opportunity Daniel would have to appoint a new trainer who would take double the salary
(Newman, and et. al., 2017).

Results and findings
The wave rider does not have the sufficient amount of funds to get into a venture with the
schools and financial figures are not good and the expected profit is also very low.
Discussion
As Wave rider is a good firm which is showing the evidence of achieving good targeted
sales. it should analyse the business objective and should work in a manner that it will be able to
cope up with the industry benchmark.
Conclusion and Recommendation
The report above shows the present financial position of the company. The ratio analysis
helped in understanding the position of the company according to the benchmarks. The company
should go for the second option that will help in increasing sales and maximising profit as well.
It is recommended to Daniel to use the available resources in a better manner and to achieve the
benchmark of the industry so that it will enable him to make maximum profits after this he can
take further steps to expand its business as the available funds are limited.

Referencing
Books and journals
Broda, T. (2013). U.S. Patent No. 8,577,989. Washington, DC: U.S. Patent and Trademark Office.
Collis, J., & Hussey, R. (2013). Business research: A practical guide for undergraduate and postgraduate
students. Macmillan International Higher Education.
Cotton, D., & Falvey, D. (2012). Market Leader Upper Intermediate: Business English Course Book.
Pearson education.
Hair Jr, J. F., Wolfinbarger, M., Money, A. H., Samouel, P., & Page, M. J. (2015). Essentials of business
research methods. Routledge.
Newman, N., Fletcher, R., Kalogeropoulos, A., Levy, D. A., & Nielsen, R. K. (2017). Reuters Institute
digital news report 2017.
Sadgrove, K. (2016). The complete guide to business risk management. Routledge.
Shaheen, S. A., Martin, E. W., Cohen, A. P., Chan, N. D., & Pogodzinski, M. (2014). Public Bikesharing in
North America During a Period of Rapid Expansion: Understanding Business Models, Industry
Trends & User Impacts, MTI Report 12-29.
World Bank Group. (2014). Doing Business 2015: Going Beyond Efficiency: Comparing Business
Regulations for Domestic Firms in 189 Economies: a World Bank Group Flagship Report. World
Bank Publications.

Appendix
RETURN ON EQUITY
Formula: Net profit/Net worth 47775/159953 = 0.29
NET PROFIT RATIO
Formula: Net profit/Sales*100 47775/158052 = 30%
CURRENT RATIO
Formula: current assets/ current liability 15061.37/11,768.41 = 1.27
QUICK RATIO
Formula: Quick assets/ current liability 15061.37/11768.41 = 1.27