Question

Final Term Financial Accounting.pdf

Answer 1

Income Statement:			Horizontal analysis		Common Statement
	2019	2018	Inc. / Dec.	%	2019	2018
Gross rev.	5000000	3000000	2000000	67	100	100
COS	3000000	1500000	1500000	100	60	50
Gross profit	2000000	1500000	500000	33	40	50
Add:Int. income	100000	90000	10000	11	2	3
Total Gross Profit	2100000	1590000	510000	32	42	53
Less: Expenses:					0	0
compu. Software	50000	20000	30000	150	1	0.7
bad debts	295000	50000	245000	490	5.9	1.7
Advertising	120000	60000	60000	100	2.4	2.0
Salaries and wages	90000	40000	50000	125	1.8	1.3
Insurance	200000	100000	100000	100	4	3.3
Depreciation	45000	20000	25000	125	0.9	0.7
total expenses	800000	290000	510000	176	16	9.7
Profit from operations	1300000	1300000	0		26	43.3
Less:Finance charges	100000	10000	90000	900	2	0.3
Profit before tax	1200000	1290000	-90000	-7	24	43.0
taxation exp.	440000	645000	-205000	-32	8.8	21.5
Profit for the period	760000	645000	115000	18	15.2	21.5
Other comprehensive income	0	0	0		0	0.0
total Comprehensive income	760000	645000	115000	18	15.2	21.5
Market price per share	115	105	10	10
Ratios analysis:	Formula	Calculation		Result
		Yr 2019	Yr 2018	Yr 2019	Yr 2018
Gross profit ratio	GP/Revenues	2.1m/5m	1.59m/3m	0.42	0.53
Operating profit ratio	OP/Revenues	1.3m/5m	1.3m/3m	0.26	0.43
Net profit ratio	NP/Revenues	0.76m/5m	0.645m/3m	0.15	0.22
Interest coverage ratio	OP/Finance charges	1.3m/0.1m	1.3m/0.01m	13	130

Analysis and Appraisal of performance of company:

a) Gross profit : The company’s gross margin has reduced since 2018.

b) Operating expenses: The operating expenses of the company has increased three folds, specially the bad debts in the year 2019.

c) Operating profit : The company has been maintaining the operating profit amount-wise. Comparing to the sales, the operating profit has reduced.

d) Finance expenses : The company’s finance charges has increased 9 times of year 2018.

e) Taxation expenses: The company’s taxes has reduced 32% even though the Revenue increased 67%.

f) Net Profit : Net Profit margin has reduced from 22% to 15% in the year 2019.

g) Interest coverage : The interest coverage has reduced from 130 times to 13 in the year 2019. So, it become risky to finance the company’s operation.

h) Overall performance: The company’s overall performance is worse except the growth in the Revenue in the year 2019.

i) Share Price: The price of the company’s share has increased 10% since year 2018.

j) Investment opportunity: The company’s offers good investment opportunities as long as market price of the shares are concerned, but performance-wise investment in the company is not recommended.