1. BTEC Level 3 Business
Unit 2 Assignment 5
P5, M3, D2

2. Financial Statements
Financial statements allow businesses to measure their financial resources.
Public Limited Companies (PLCs)must publish their accounts so investors can see how well they are doing.
The two main financial statements are profit and loss accounts and balance sheets.

3. Profit and Loss Accounts
This is a useful tools that shows how much has been made at the end of the financial year.
This account can help a bank or lender decide whether a business is worth the investment.
For smaller businesses like sole traders and LTDs it is useful to see how much profit is made at the end of the year.

4. Profit and Loss Accounts
Often businesses will use projected profit and loss accounts to help them to plan finances and budget setting.

5. P5- Interpret the contents of a trading profit and loss account.
1. You must describe the purpose of a profit and loss account and each significant item this should include;
sales and cost of sales
gross profit
net profit
expenses – with brief descriptions of, for example, wages, directors’ salaries, light and heat, rent and rates and advertising.

6. Balance Sheets
The balance sheet is important because it gives a snapshot showing assets, liabilities and equity.
Producing a balance sheet is important as it shows how the business is financed
It also allows investors to see how much the business is worth based on assets

7. P5 –Interpret the contents of a balance sheet
You need to explain the purpose of the balance sheet and the following items that are contained in the balance sheet
fixed assets – with examples
current assets – with brief descriptions of stock, debtors, bank balance
current liabilities – with brief descriptions of creditors, bank overdraft
long-term liabilities
share capital
reserves (retained profits).

8. P5- Final Task
You now need to comment on the differences in
Focus on; sales, gross and net profit, fixed and current assets and retained profits for both and 2007 and make a broad judgement about the performance of Wansbeck Motors Ltd.

9. M3- Basic Ratios
One way a business can measure how it is doing is through ratio analysis.
Ratios can help the business to see how it is doing now and allow it to see how it compares to last year or the year before and against competitors
These ratios can be used to identify any trends over time.
Calculate each ratio and explain how it can be used to measure the performance of a business

10. Analysing Current Ratio
Current ratio for company x in 2013 is x:1 This means that for every £1 of current liabilities they have £X of current assets and they will/ will not be able to meet their debts in the short term.
This is an increase/decrease from 2012, when the current ratio was x:1
Therefore company x have become more/less solvent than the previous year
There are several factors that might explain this improvement/deterioration

11. Analysing Acid Test Ratio
Acid test ratio for company xx in 2013 is x:1. This means that for every £1 of current liabilities, they have £X of liquid current assets and they will/will not be able to cover their debts in the short term, without considering the least liquid asset, stock.
This is an increase/ decrease from 2012, when the Acid Test Ratio was x:1
Therefore company x have become more/less solvent than the previous year.
There are several factors that might explain this improvement/deterioration

12. Analysing GPM
Gross Profit Margin for company x in 2013 is xx%. This means that or every £1 of sales revenue earned xx pence of it was profit, before overheads were deducted.
This is an increase/decrease from 2012 when the Gross Profit Margin was xx%
Therefore the company have become more/less profitable than the previous year.
There are several reasons that might explain this improvement/deterioration.

13. Analysing NPM
Net Profit Margin for company x in 2013 is xx%. This means that or every £1 of sales revenue earned xx pence of it was profit, after overheads were deducted.
This is an increase/decrease from 2012 when the Net Profit Margin was xx%
Therefore the company have become more/less profitable than the previous year.
There are several reasons that might explain this improvement/deterioration.

14. Analysing ROCE
Return on Capital Employed for company x in is xx%. This means that for every £1 of capital invested xx pence was earned as Net Profit.
This is an increase/decrease from 2012 when the ROCE was xx%
Therefore the company has become more/less profitable than the previous year.
There are several factors that might explain this improvement/ deterioration.

15. Analysing Stock Turnover
Stock Turnover for company in 2013 is x times per year. This means that on average company holds stock for x days.
This demonstrates greater/less efficiency from when the ST was x times per year, and on average stock was held for x days.
Therefore company have become more/less efficient at turning their stock.
There are several factors that might explain this improvement/deterioration.
Cause1
Cause2
Cause3

16. Analysing Debtors’ Collection Period
Debtors’ Collection Period for company in 2013 is x days. This means that it takes company x days to collect money owed to it from goods bought on credit.
This is an increase/decrease from 2012, when the DCP was x days.
Therefore company have become more/less efficient at collecting money owed to it, than the previous year.
There are several factors that might explain this improvement/deterioration.
Cause1
Cause2
Cause3

17. Analysing Creditors’ Payment Period
Creditors’ Payment Period for company in 2013 is x days. This means that it takes company x days to pay for goods they have bought on credit.
This is an increase/decrease from 2012, when the CPP was x days.
Therefore company have paid off their debts to suppliers quicker/slower than in 2011.
There are several factors that might explain this improvement/deterioration.
Cause1
Cause2
Cause3

18. D2- ratio limitations
Produce a power point which shows the benefits and drawbacks of using financial accounting ratios. Use the links below:
s/advantages-limitations
tp/limitations-financial-ratio-analysis.htm
ges-disadvantages-financial-ratio-analysis.html