A profit and loss account is intended to show a business its income and expenditures and calculate the company’s net profit or loss based upon the difference between those figures. It is extremely useful in determining past performance and to try and predict future results. It enables a business to see what changes could make to improve on its profit. It also give enough information to help a business to set targets. We can learn more from the statement.
As it shows the expenses so we can see clearly see where the largest expenses are, this could then be used to identify the immediate areas to focus on when trying to save on expenses. Word count 120 1B) The Purpose of a Profit and Loss account From looking at the statement I have found a few reasons for concern, The first I would like to point out is that even if the business is making a profit the margin from 2011 to 2012 in far less and has decreased dramatically. This could mean less money to reinvest into the business.
If the same decrease was to happen in 2013 the business will make no profit and will lose money. Another cause for concern is the amount of money being spent on staff wages. The cost has risen but there is no greater outcome in terms of profit. Lastly from looking at the Cost of goods, there was a combined total of 896,000 for opening stock and purchased, this was far greater in the previous year, this could be that the business recognised they had 96,000 leftover so ordered less stoke in order to have less stoke leftover.
However this did not work and a similar figure for less closing stoke appeared. This would suggest the demand for the product is demising and it is likely to continue for years to come. Word count 185 Q2 A. Balance sheet. A balance sheet is a summary of the value of all assets, liabilities and Ownership equity for an organisation on a specific date. The balance sheet is useful when looked at alongside the profit and loss figures.
This give you a wider picture of the business For example, if you borrowed lots in one particular year, but had made a profit, the profit would show on your profit and loss accounts, but what you owed would only be apparent on the balance sheet. It also helps in understanding the value of the business assets it owns and this can used to help you and other interested parties such as investors, creditors or shareholders to assess the worth of your business at a given moment. Word count 123 B. The Purpose of a balance sheet After reviewing the Balance sheet I have a concern regarding the Current and short term liabilities.
Creditors/ trade payable is payment yet to be made for goods already received, if this continues to rise then it will effect the business profit and less stock will have to be ordered so repayments can be made. Bank overdrafts also continued to rise and in the long-term the business will be paying greater interest, which will again eat into the profit. Both increased quite a great deal from the last year-end. If this continues then the business will get into bad debts and owe too much that it will end up having to sale its assets to survive.
Finally I can see that due to the above issues and other issues the net current assets/ working capital has decreased so therefore the business is less value then it was a year ago. If the business is worth ? 1 million now, this could soon decrease within another year. Word count 164 Q3. A Cash flow A Cash flow Statement shows both money coming into the business and money going out of the business. If the Money flowing out is greater then the money flowing in then the business will in time fail.
It is a useful tool for any business as helps you to plan how much and when to borrow and how much available cash you’re likely to have at a given time. Many banks require cashflow forecasts before considering a loan. Also because a cash flow gives a greater picture of the money avilable to the business it will be highly helpful for planning and management of future financial commitments Word count 107 B. The Purpose of a cash flow From looking at the Cash flow for this business I have noticed a couple of issues to be concerened about.
First of all I have noticed that there is a great increase owed by the business to the Debtors so this will be money leaving the business within the near future and if this continues to rise then the businesswill fall into huge debts and could end up bankkrapt. Overall there is to much cash flowing out of the business and we have seen another increase by over ? 5000 overall. Also there is a decrese in the amount investments in fixed assest, which could either mean the business is investing less or less of the assest were sold from last year which is bad news for any business.
Word count 128 Q4. From anylising the business using all the above tools my conclusing is that Kathryn should Sell her store and retire. I have come to this conclusing because the business is making less profit from the year before and also there is an increase in many cost such as wages etc. I would also be concered about the drop in sales and the increase in barrowing which in my opiniuin will only lead to the business being closed in the future. If the patterns continues onto 2013 the business could well make a loss so getting out now would be the right time.
I don’t think Katheryn will be able to cope with the ongoing debt and bills and it maybe better off in the hands of a company estiblished who can use there name to increase sales on this product. I think the product has hit the height of its popularity and now is on a continuos dip and it may need freshening up and only a new owner could posiblly do this. Word count 173 Total word count 1000 Part 2. Keeping track on your own life. I took part in this discussion and found it interesting how a lot of people really take keeping track on their finances by having recorded spreedsheets etc.
Myself as long as I can do what I need to do and save I don’t keep any records. This made me think that maybe this is something I should be doing. I find it intersting how some people wok within finance and keep track on others finance but when it come to there own they don’t keep any records. I found the view by M’Tima Ferguson, this is a view of a sold trader and has to be strict on him self and really organised when it comes to keeping track, all records need to be stored and this takes great organisation.
Also comments from max about him reciving lump somes of money would be interesting to know how that could be spread out to always have money in the bank. Some people on the discussion never thought about it untill this discussion and some say from what others had to say it has inspired them to set up a spread sheet etc. Myself I will continue to pay the bills, save and keep no records as I find this to time consuming. But I admire people that keep records.