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Assessment Instructions

Greenspace Supplies Limited makes and sells garden furniture and ornaments.

The financial statements for the business for the past two years are shown below:

 

Statement of Comprehensive Income for the Year Ended 31^st December

	2020			2021
	£000’s	£000’s		£000’s	£000’s
Sales Revenue		6,780			6,220
Less: Cost of Sales:
Opening Inventory	850			780
Manufacturing Costs	4,321			4,223
	5,171			5,003
Less Closing Inventory	(780)			(847)
Cost of Sales		(4,391)			(4,156)
Gross Profit		2,389			2,064
Less: Expenses
Selling & Distribution Expenses	924			1,070
Administrative Expenses	202			323
Bad Debts written off	74	1,200		128	1,521
Operating Profit		1,189			543
Less: Interest Payable		(235)			(301)
Profit before tax		954			242
Less: Tax		(241)			(58)
Profit after tax		713			184
Less: Dividends Paid		(162)			(61)
Retained Profit for the year		551			123

 

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Statement of Financial Position as at, 31st December

		2020			2021
		£000’s			£000’s
ASSETS
Non-Current Assets (net)
Land and Buildings		4,322			4,512
Equipment		1,476			1,617
Motor Vehicles		344			318
		6,142			6,447
Current Assets
Inventory		780			847
Trade Receivables		1,278			929
Bank and Cash		407			16
		2,465			1,792
Total Assets		8,607			8,239
EQUITY AND LIABILITIES
Equity
Ordinary Shares of £1 each		2,950			3,200
Accumulated Retained Profit		1,236			1,359
		4,186			4,559
Non-current liabilities
Long term Borrowing		3,300			2,758
Current Liabilities
Trade Payables		594			891
Taxation		527			31
		1,121			922
Total Equity and Liabilities		8,607			8,239

 

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Financial Statement Analysis Assignment Help

The business has recently appointed a new managing director, who requires information regarding the financial performance and position of the business during the past two years.

After her early discussions with the management team of the business, she believes that:

• Several long-term projects the business has invested in during recent years have produced disappointing financial returns

• This is partly due to inadequate financial evaluation of potential investment projects before they are approved to proceed.

Required:

Prepare a report for the new managing director of the business that:

Part (A)

Analyses the financial position and performance of the business in 2020 and 2021 in relation to:

1. Profitability
2. Efficiency (asset utilisation)
3. Liquidity
4. Gearing
5. Investment

The calculation of relevant ratios must support your report in each of these five evaluation areas mentioned above. It should comment on changes from year to year and their potential implications for the business.

Part (B)

Critically assesses how each of the following techniques can provide useful information to guide managers in the business responsible for long-term investment decisions:

1. Payback period
2. Net present value

You may include illustrative calculations to support your report and help to demonstrate your understanding.

 

 

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