Financial Analysis

ALPHA Limited is a manufacturing company based in UK. ALPHA Limited started back in 1954. The company is planning to expand its operations to other parts of UK in the next ten (10) years. The financial statements are attached for your consideration. You are advised to incorporate the suggested amendments/feedback you received from the module leader during assignment briefing.

Required

Task 1

Accounting and Finance functions are paramount to any organisation. Critically evaluate the role of accounting and finance within any organisation of your choice (i.e. related to your academic discipline/program). Your evaluation must include some examples within the organisation where appropriate.

                                                                                                                                                                           (50 marks)                                                                                                                                                                               

Task 2

Using the financial statements for ALPHA Limited calculate the ratios required and comment on the company’s performance from a potential investors perspective.

The summarised financial statements of ALPHA, a limited liability company engaged in manufacturing, are shown below:
Statement of profit or loss:

For the year ended 31 Dec. 2017 For the year ended 31 Dec. 2018
£000    £000    £000    £000

Sales revenue 2,400 3,000
Cost of sales
Opening inventory 600 225
Purchases 1,350 2,400
1,950 2,625
Less: Closing inventory (225) (1,725) (450) (2,250)
Gross profit 675 750
Operating expenses (300) (337.50)
Finance cost (75) (150)
Net profit 300 262.50

Statement of financial position As at year to 31 Dec. 2017 As at year to 31 Dec. 2018
£000 £000 £000 £000
Non-current assets 1,477.50 3,000
Current assets
Inventory 225 375
Receivables – trade 450 600
Prepayments 45 52.50
Cash 37.50 757.50 7.50 1,035
2,235 4,035
Issued share capital 450 450
Share premium account 150 150
Retained earnings 562.50 825
1,162.50 1,425
Non-current liabilities
10% loan notes 750 1,500
Current liabilities
Payables – trade 285 1,050
Accruals 37.50 322.50 60 1,110
2,235 4,035

a. Calculate the following five ratios for each of the two years:

(i) Return on capital employed
(ii) Net profit margin
(iii) Current ratio
(iv) Average Receivable days/ Debtors collection period
(v) Average Payable days/ Creditors collection period
(10 marks)

Sample Solution