To support your analysis for this part you will need to calculate and use appropriate ratios using the course definitions. You need to show all ratio calculations workings which should be placed in the appendices to your report.

1.1 Case Study – T shirts Ltd

You are a finance trainee for a company of Vests plc and have been asked by your marketing manager to review the business of your key competitor T-shirts plc and to assist her with helping the marketing team understand financial information.

You know that T-shirts plc is struggling in the current economic climate and that other expenses have risen as a result of an aggressive advertising campaign to stimulate sales.

Your sales manager has informed you that T-shirts plc increased the credit terms given to their customers from 30 days to 60 days in an attempt to attract more business.

The rate of interest on the bank overdraft in 2019 is significantly higher than the rate of interest on the loan.

1.2. Task

Prepare a 2,500 word business report for your manager providing analysis and business advice following the requirements below.

Presentation and format:

Business report with a title page, contents page and clear structure. It must be written in an appropriate business tone with appropriate Harvard reference where necessary. Note no introduction is required. No marks will be awarded for an introduction.

Part 1: Business Performance Analysis:

To support your analysis for this part you will need to calculate and use appropriate ratios using the course definitions. You need to show all ratio calculations workings which should be placed in the appendices to your report.

1.1.Statement of Profit or Loss

Analyse and comment on the financial performance of T-shirts Ltd using the case study information and exhibit 1. Your analysis should critically evaluate all the lines of the Statement of Profit or Loss.

1.2.Statement of Financial Position

Analyse and comment on the financial position of T-shirts Ltd using the case study information and exhibit 1. Your analysis should critically evaluate all the lines of the Statement of Financial Position.

Part 2: Understanding Financial Information & Management of Cash:

2.1. Explain the concept of accrual accounting versus cash accounting, including the benefits and any limitations of each, with examples from this case study where relevant.

2.2. What is meant by Profit and Cash flow and how they are different?

Part 3: Budget techniques and Company Finance:

3.1. Define Budget and explain purposes of preparing a budget.

3.2. What might be the main benefits of forming a limited company and listing it on a stock exchange?

The word limit of 2,500 words excludes numerical tables, bibliography and appendices.

To assist you with this task you have been supplied with the following information:

• · Exhibit 1: Extracts from T-shirt Ltd’s Financial Statements for 2019, including the Statement of Profit or Loss, and the Statement of Financial Position.

1.3.Assessment Submission Structure

Part 1: Business Performance Analysis

1.1 Statement of Profit or Loss

1.2 Statement of Financial Position

Part 2: Understanding Financial Information & Management of cash

2.1 Accruals vs cash accounting

2.2 Profit vs Cash flows

Part 3: Budget and Company Finance

3.1 Meaning and Purposes of Budget

3.2 Benefits of forming a limited company and getting it registered on a stock exchange

Appendices

• · Supporting calculations
• · Bibliography as required

 

Formulas

These formulas are given just to have an idea about the lecturer style.

Cos (cost of sales) or Cogs (cost of goods sold)

= Opening inventory + Purchases – Close inventory

If there is no opening or closing inventory (stock) of goods, then

-> Cos = Purchases

Gross Profit = Sales – Cos

Net Profit = Gross Profit – Other expenses 

Cash balanced carried forward

= Cash balance brought forward + total receipts - total payments

Assets = Capital + Liability

CA (current asset) + NCA (noncurrent asset)

= [Capital + profit for the year – loss – drawing] + [CL + LTL]

 

Closing Equity = Opening eq + Profit for the year – Div paid

• Return on capital employed

Operating profit                                            × 100
(Shareholders funds + long-term loans)

 

• Gross profit margin

Gross profit                                         × 100
Sales

Operating profit margin

                  Operating profit         × 100%
                  Sales

Expenses: sales

                  Expenses                  × 100%

                  Sales

Use of assets

                  Sales                                             

                  Capital employed

Current ratio

                  Current assets               : 1
                  Current liabilities

Acid test ratio

                  Current assets – inventories          : 1
                  Current liabilities

Inventory days

      Inventories                 × 365 days
      Cost of sales

 

Trade receivable days

            Trade receivables     × 365 days
                        Credit sales

Trade payable days

            Trade payables           × 365 days
            Credit purchases