part C D QUESTION 1. You are a financial analyst reviewing the draft financial statements of Speedy Coaches Ltd with a view to purchasing the company and have been given the following information. Income statements for the year ended 30 June 2021 2020 £'000 £'000 Revenue 32,800 29,459 Cost of sales (17,855) (15,840) Gross profit 14,945 13,619 Operating expenses (11,680) (10,477) Depreciation (1,198) (1,063) Operating profit 2,067 2,079 Interest (74) (94) Profit before taxation 1,993 1,985 Taxation (634) (601) Profit for the year 1,359 1,384 Statements of financial position as at 30 June 2021 2020 £'000 £'000 ASSETS Non-current assets Property, plant and equipment 10,300 8,720 Current assets Inventories 750 701 Trade receivables 597 436 Cash 407 279 1,754 1,416 Total assets 12,054 10,136 Current liabilities Trade payables 551 652 Other payables and accruals 390 480 Taxation 225 125 1,166 1,257 Total assets less current liabilities 10,888 8,879 EQUITY AND LIABILITIES Equity Ordinary share capital (£1 shares, fully paid) 7,500 6,500 Retained earnings 2,738 1,379 10,238 7,879 Non-current liabilities Borrowings – Bank loan 650 1,000 Total equity and non-current liabilities 10,888 8,879 Required (show your workings, you may refer to the formulae sheet at the end of the paper) a) Complete the financial statements by preparing the Statement of Cashflows for 2021. b) Calculate least five ratios covering profitability, efficiency, liquidity and gearing. c) Comment on the financial health of Speedy Coaches Ltd, summarising your findings from b) including a recommendation about whether or not to make the purchase. d) Discuss the limitations of ratio analysis and identify any further information that may be useful.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
part C D
QUESTION 1.
You are a financial analyst reviewing the draft financial statements of Speedy Coaches Ltd with a view to purchasing the company and have been given the following information.
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Income statements for the year ended 30 June |
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2021 |
2020 |
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£'000 |
£'000 |
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Revenue |
32,800 |
29,459 |
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Cost of sales |
(17,855) |
(15,840) |
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Gross profit |
14,945 |
13,619 |
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Operating expenses |
(11,680) |
(10,477) |
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Depreciation |
(1,198) |
(1,063) |
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Operating profit |
2,067 |
2,079 |
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Interest |
(74) |
(94) |
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Profit before |
1,993 |
1,985 |
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Taxation |
(634) |
(601) |
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Profit for the year |
1,359 |
1,384 |
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2021 |
2020 |
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£'000 |
£'000 |
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ASSETS |
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Non-current assets |
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Property, plant and equipment |
10,300 |
8,720 |
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Current assets |
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Inventories |
750 |
701 |
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Trade receivables |
597 |
436 |
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Cash |
407 |
279 |
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1,754 |
1,416 |
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Total assets |
12,054 |
10,136 |
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Current liabilities |
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Trade payables |
551 |
652 |
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Other payables and accruals |
390 |
480 |
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Taxation |
225 |
125 |
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1,166 |
1,257 |
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Total assets less current liabilities |
10,888 |
8,879 |
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EQUITY AND LIABILITIES |
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Equity |
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Ordinary share capital (£1 shares, fully paid) |
7,500 |
6,500 |
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2,738 |
1,379 |
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10,238 |
7,879 |
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Non-current liabilities |
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Borrowings – Bank loan |
650 |
1,000 |
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Total equity and non-current liabilities |
10,888 |
8,879 |
Required (show your workings, you may refer to the formulae sheet at the end of the paper)
a) Complete the financial statements by preparing the Statement of Cashflows for 2021.
b) Calculate least five ratios covering profitability, efficiency, liquidity and gearing.
c) Comment on the financial health of Speedy Coaches Ltd, summarising your findings from b) including a recommendation about whether or not to make the purchase.
d) Discuss the limitations of ratio analysis and identify any further information that may be useful.
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