Describe the performance of a selected business by its trading, prot and loss, appropriation accounts and balance sheet
Abscon Ltd owns a large TV and DVD player shop in Scotland. The company also has a servicing and repairs department. The Malcorn family, who own the business, decided to expand and open a new store in Coventry where they would lease premises in the shopping centre. Abscon Ltd would like to obtain a loan worth £100,000 to finance this development. I will write a report, identifying their improvements made in their financial statements.
I have identified the following improvements from their Trading, Profit and Loss and Appropriation Statement from 2013 to 2014:
Firstly, Abscon Ltd.’s turnover has increased by £200,000 from £1.3million in 2013 to £1.5million in 2014. This represents an increase of 15.38%. The business has done really well in increasing their sales.
Furthermore, their gross profit has improved by £130,000. This has increased from £510,000 from 2013 to £640,000 in 2014. This is a 25.49% increase.
Additionally, administration expenses have decreased by £10,000 from £140,000 in 2013 to £130,000 in 2014. This is a 7.14% improvement.
Their operating profit has improved drastically. It has increased by £120,000 from a loss of £20,000 in 2013 to a profit of £100,000 in 2014; this represents a 600% increase.
Also their profit before taxation has increased
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Moreover, their profit after taxation has improved. It has increased by £90,000 from a loss of £30,000 in 2013 to a profit of £60,000 in 2014. This is a vast increase of 300%.
Lastly, their Trading, Profit and Loss and Appropriation Statement shows they have an increased retained profit. It has increased by £90,000 from a loss of £70,000 in 2013 to a profit of £20,000 in 2014. This represents an increase of 128.57%.
I have identified the following improvements from their Balance Sheet from 2013 to 2014:
Firstly, I consider an improvement in their premises. Their premises value has decreased by £50,000 from £550,000 in 2013 to £500,000 in 2014. I assume this as an improvement because I assume they have sold parts of their premises that were not in use. This is good business practice and allows Abscon Ltd to operate more efficiently. Furthermore, they could invest the £50,000; this could be in the expansion at Coventry or buying other more useful assets.
Additionally, their fixtures and fittings have increased by £27,000 from £106,000 in 2013 to £133,000 in 2014. I see this as an improvement because despite spending more money, they have spent money on making their shop look presentable and current which positively leads to more customers. The increase in customers will allow them to sell and repair more TV’s and DVD players leading to more sale revenue and an increase in profits.
Moreover, Abscon Ltd has £24,000 more in the bank than they did in the following year (2013). In 2013 they had £51,000 and in 2014 they had £75,000. This is an improvement because they can use the extra cash to employ new staff, buy more fixtures and fittings or invest in the expansion in Coventry.
Also Abscon Ltd has been able to improve their trade creditors by £6,000 from £41,000 in 2013 to £35,000 in 2014. This is an improvement because they were able to decrease the amount of money they owe to other firms. This means that they don’t have to pay as much money out and can use the money for other things, for example, investing in the newest TV’s and DVD players.
Lastly, their profit and loss account shows an improvement of £20,000 from £43,000 in 2013 to £63,000 in 2014. This is an improvement as it clearly shows that they have made an increase, this means the extra cash could go towards the expansion or buying more fixtures and fittings to encourage more customers to shop there.
By identifying all improvements made by Abscon Ltd I have come to the conclusion that the bank manager would approve a loan of £100,000. This is because they have made a clear improvement from 2013 to 2014. For example, a £200,000 increase in turnover and £90,000 increase in their retained profit. Because they have made more profit the following year Abscon Ltd are more likely to be able to pay back the loan; which is why they should obtain this financial help to expand their shop in Coventry.