GBMT 4003 Finance And Accounting Assignment Sample

Introduction To GBMT 4003 Finance And Accounting Assignment

Component 1:

Task 1: Trial Balance

a) Calculation of Trial Balance

Figure 1: Trial Balance

As per the above table of trial balance calculated for LCCA considering the social enterprise wing, it can be established that totals of debit and credit include a numerical value of GBP 340,000.

b) Source and structure of trial balance

The source of a trial balance predominantly originates from individual account balances extracted from general ledger accounts. As per opinions and illustrations of Huang and Vasarhelyi (2019), structure of a trial balance mainly includes classification of accounts extracted from general ledger to debit or credit side. The debit side of a trial balance predominantly includes entries associated with expenses and assets of an organisation, while credit side includes ledger entries associated with income and liabilities of a company.

Task 2: Final Accounts

a) Income Statement

Table 1: Income Statement

The income statement indicates a net profit balance of GBP 3,600 generated in the financial 2023 for LCCA. Purpose of income statement or profit and loss account is mainly associated with identifying operational efficiency achieved for an organisation considering revenues, operating expenses and non-operating expenses and income (Chen and Fang, 2020).

b) Balance Sheet

Table 2: Balance Sheet

The above balance sheet indicates values of total assets and total liabilities including equity as GBP 26,260. According to Felber et al. (2019), the principal purpose of a balance sheet is associated with determining overall financial position stability for a company and how it drives business competitiveness in the market. Non-current and current assets are integral parts of a balance sheet for LCCA to its stakeholders which establishes financial worthiness generated. The liability section of a balance sheet mainly includes short-term and long term-liabilities and equity to stakeholders which establishes overall financial obligations and shareholder attraction generated by a company.

Component 2:

Task 1: Financial Ratios

a) Calculation of Ratios

Table 3: Calculation of Ratios

b) Comparative analysis and interpretation of results

Table 4: Comparative Analysis

Gross Profit Margin

Gross profit margin for LCCA has been calculated as 72.5 0% in 2023 while the past average dictates a value of 15% and a difference of 57.5% is established. Therefore, the performance of LCCA is comparatively superior then past average and hence possesses favourable business credentials in 2023. Possible reasons for difference in the ratio predominantly include a higher gross profit valuation and a higher sales value. The overall performance of LCCA due to a higher gross profit margin should encourage efficiency and effectiveness in manufacturing and production activities thereby driving financial credibility performance in future. As per opinions and illustrations of Nariswari and Nugraha (2020), higher gross profit margin also indicates optimisation of manufacturing costs where easy facilitation of procurement for raw materials has been contemplated. The higher gross profit margin also possesses positive indicators to ensure significant financial growth for LCCA in the near future.

Net Profit Margin

Net profit margin for LCCA in 2023 has been calculated as 18%, while the past average is calculated as 10%. The difference in ratios is further calculated as 8% which mostly indicates a favourable business credential for LCCA in 2023. Potential reasons identified for difference in the ratio are considered to be related with higher net profit and higher value of sales. The higher net profit margin for LCCA would enable the organisation to ensure better operational efficiency and command in future and generate substantial business competitive measures in the market. Siregar et al. (2021), illustrated and explained that net profit margin is mostly identified to be the most important measure of profitability where higher numerical substance encourages an organisation to grow in quantitative and qualitative measures. Solutions to further encourage more net profit also include determination of additional revenue generation sources and adherence to integrate cost optimisation techniques.

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Current Ratio

Current ratios calculated for LCCA include numerical figures of 2.57:1 while past average is considered as 3:1. The overall difference arrived is considered to be -0.43:1 and mostly demonstrates unfavourable or adverse business credentials for 2023. Major reasons associated with decrease in performance of current ratios include reduction in current asset valuation or increase in current liability valuation. As critically illustrated by Husna and Satria (2019), reducing prospects of current ratios are deemed to be harmful financial parameters for a company which could inflict inefficient liquidity performances. Potential recommendations offered mainly include identification of strategies through which cash sales can be incorporated on a temporary basis. The consideration to cash sales would marginally encourage better liquidity bundling allowing faster facilitation of creditor payments.

Acid-Test

Acid-test ratio calculations include numerical figures of 1.36:1, while past averages indicate numerical expressions of 1.5:1. The overall difference identified is considered to be -0.14:1 and is mostly associated as an adverse business performance characteristic for LCCA. Potential reasons due to which acid-test ratio performance is degraded includes higher valuation of inventory that minimises overall balance of quick assets. Recommendations offered to encourage growth in acid-test ratio includes consideration to adopt Just-In-Time inventory handling process. The Just-In-Time handling of inventory process further includes replenishment of inventory and acquisition of inventory happening at the same time. In this mannerism, finished goods can be sold off in the market and better inventory storage can be capitalised to ensure higher financial conversions.

Return on Capital Employed

The return on capital employed calculated for LCCA in 2023 includes a numerical value of 14.23%, while the past average has been calculated as 25%. The resulting difference has been identified as - 10.77% and business performance features are identified to be mostly adverse. The potential reasons due to which return on capital employed performance is degraded includes lower value of operating profits and higher value of capital employed. The return on capital employed is identified as an important profitability ratio which establishes correspondence of profits with overall investor net worth that can be generated (Sumiati et al. 2022). Potential recommendations offered to increase future return on capital employed of LCCA includes identification of additional revenue sources as well as clubbing of redundant costs. Through this technique the company can expect a higher profitability composition and encourage more investor influx in future.

Gearing Ratio

Gearing ratio includes calculation of 2023 as 36.59% while the past average is considered to be 30%. The resulting difference arrived as 6.59% which mostly indicates favourable business performance indicators for LCCA in 2023. Potential reasons for higher gearing ratio include higher acquisition of loans and borrowings which boosts financial and capital leverage. The gearing ratio is further identified as an important component of solvency assessment where potential investor attraction, risks and rewards are established. Potential solutions offered to the concerned management of LCCA includes identification of alternative sources of funding through which gearing ratio can be synchronised to project higher investment traffic.

References

• Chen, J. and Fang, J., 2020. Reclassification of income statement items and weight adjustment of compensation performance indicators. China Journal of Accounting Studies, 8(3), pp.410-434.
• Felber, C., Campos, V. and Sanchis, J.R., 2019. The common good balance sheet, an adequate tool to capture non-financials?. Sustainability, 11(14), p.3791.
• Huang, F. and Vasarhelyi, M.A., 2019. Applying robotic process automation (RPA) in auditing: A framework. International Journal of Accounting Information Systems, 35, p.100433.
• Husna, A. and Satria, I., 2019. Effects of return on asset, debt to asset ratio, current ratio, firm size, and dividend payout ratio on firm value. International Journal of Economics and Financial Issues, 9(5), pp.50-54.
• Nariswari, T.N. and Nugraha, N.M., 2020. Profit growth: impact of net profit margin, gross profit margin and total assests turnover. International Journal of Finance & Banking Studies (2147-4486), 9(4), pp.87-96.
• Siregar, Q.R., Rambe, R. and Simatupang, J., 2021. PengaruhDebt to Equity Ratio, Net Profit Margin dan Return On Equity Terhadap Harga Saham Pada Perusahaan Property dan Real Estate yang Terdaftar di Bursa Efek Indonesia. Jurnal AKMAMI (Akuntansi Manajemen Ekonomi), 2(1), pp.17-31.
• Sumiati, S., Wijayanti, R., Yuana, P. and Nikmah, C., 2022. Improving company value: the role of human capital, structural capital, capital employed, investment decisions, and manager's attitude to risk. BISMA (Bisnis dan Manajemen), 14(2), pp.110-123.