Assignment Sample on Accounting and Finance in the Organisation
INTRODUCTION
Company’s performance can be analysed by using multiple techniques such as Vertical analysis, Horizontal analysis, Ratio analysis etc. The vertical analysis will help to compare the figures of a company’s one year data with other years. Similarly, the Horizontal analysis will help to see the growth of the turnover or the profit.
RATIO ANALYSIS
Ratio analysis helps the company’s to measure their performance and compare the same with that of the prior year or with the industry leader. This will help the management to understand as where they stand when compared to their peers. They also make some policy decision based on the outcome of the ratio analysis.
GROSS MARGIN ANALYSIS
Gross Margin analysis is obtained by dividing Gross Profit over Sales. It helps us to understand as how much quantum of pounds is being earned post the direct expenses by the company for every 100 pounds of revenue.
Gross Margin = (Gross Profit / Sales) *100
| Particulars | 2019 | 2020 |
| Gross Profit | £1,334.40 | £1,547.40 |
| Net Sales | £2,733.50 | £3,263.50 |
| Gross Margin | 48.8% | 47.4% |
Gross Margin for the year 2019 stood at 48.8%. However, in the year 2020 it has declined by more than a percent and stands at 47.4%.
NET MARGIN ANALYSIS
Net Margin Analysis is computed by using the formula (Net Profit / Sales ) * 100. Thus it helps the company to know as how much money is being earned for every 100 pounds of revenue.
| Particulars | 2019 | 2020 |
| Net Profit | £ 24.60 | £ 113.30 |
| Net Sales | £2,733.50 | £3,263.50 |
| Net Margin | 0.9% | 3.5% |
The Net Margin of the company in 2019 stood at 0.9%. However, in 2020 the Net Margin is 3.5%. There is good growth in the Net Margin and this clearly indicates that the company is able to control its indirect costs and save some money for its shareholders.
DEBTOR DAYS
Debtor Days is the ratio which gauges the outstanding receivables as number of days based on the sales.
Debtor Days = (Debtors (or) Accounts Receivable / Sales) * 365
| Particulars | 2019 | 2020 |
| Debtors | £ 72.80 | £ 60.30 |
| Net Sales | £2,733.50 | £3,263.50 |
| Debtor Days | 9.72 | 6.74 |
In 2019, the company had on an average of 9.72 days sales as on outstanding. In 2020, the outstanding or the debtor days has come down to 6.74. This indicates that the company’s outstanding with respect to sales has come down significantly.
RETURN ON SHARE HOLDERS EQUITY
Return on Shareholder’s Equity is the rate of return that the company is able to earn on its shareholder’s money. If the rate of return is higher, then it means that the company is earning higher returns to the investors and if it is lower it means that the company is earning lower returns.
Formula to compute Return on Share Holders Equity
= (Net Profit / Total Shareholder’s Equity)*100
| Particulars | 2019 | 2020 |
| Net Profit | £ 24.60 | £ 113.30 |
| Shareholder’s Equity | £ 453.60 | £ 810.30 |
| Return on Shareholder’s Equity | 5.4% | 14.0% |
The Rate of Return on Shareholder’s Equity in the FY 2019 is 5.4%. The company has improved its efficiency in the FY 2020 and it has posted Return of 14% . This is a great news for the investors as the company is able to fetch a higher returns for the invested capital.
EARNINGS PER SHARE
The Earnings Per Share is also one of the measure which helps to understand the quantum of money that the company has generated or earned for each and every share in the company.
Earnings Per Share is computed by using the formulae
= (Net Profit attributable to Equity Share Holders / No of Equity Shares)
| Particulars | 2019 | 2020 |
| EPS | 29.4p | 125.6p |
The EPS for the FY 2019 stood at 29.4 pence per. The higher profits in the FY 2020 has helped the company to earn higher earnings per share. The EPS for the FY 2020 stood at 125.6 pence and it is great news for the investors. This helps in increase in the share price and thus investor will be able to get higher returns if they sell their shares in the market.
INTEREST COVERAGE RATIO
Interest Coverage Ratio is the ratio which helps to determine the company’s ability to pay off its interest obligation. If the interest coverage ratio is higher, it means that the company is well position to pay off its interest and its financial position is strong. If the interest coverage ratio is lower, it means that the company is facing some issues and any slackness or further decline might affect the company’s ability to pay the interest.
Interest Coverage Ratio = Earnings before Interest and Tax / Interest amount for the financial year
| Particulars | 2019 | 2020 |
| Interest Amount | £ 2.00 | £ 9.50 |
| EBIT | £ 35.10 | £ 151.60 |
| Interest Coverage Ratio | 17.55 | 15.96 |
From the above table, it is evident that the company’s Interest Coverage Ratio stands at was 17.55 times in the FY 2019 and it is 15.96 times in the FY 2020. Though there is marginal decline in 2020 from the year 2019, the company is financially strong in paying its interest.
CURRENT RATIO
Current Ratio is one of the liquidity ratio which helps to know the company’s short term liquidity position. Current Ratio is the ratio of Current Assets to Current Liabilities.
If the Current Ratio is higher than 1, then it means that the company is good in its short term liquidity position. In case of any requirement, the company can liquidate its current assets to pay off its current liabilities. However, if the current ratio is lower than 1, then it means that the company does not has enough current assets to pay off its current liabilities. In case of any pressure, then the company has to liquidate its long term assets to payoff its short term liabilities.
Current Ratio = Current Assets / Current Liabilities
| Particulars | 2019 | 2020 |
| Current Assets | £ 623.20 | £1,019.80 |
| Current Liabilities | £ 772.20 | £ 854.10 |
| Current Ratio | 0.81 | 1.19 |
The company has improved in its Current Ratio from the FY 2019 levels of 0.81 to 1.19 in FY 2020 level.
DEBT EQUITY RATIO
The Debt Equity Ratio helps to know the quantum of Debt in the company to the Shareholders Equity. The lower the ratio, it is good for the company. The higher the ratio then it means that company has got huge debts and it has to be very cautious.
Debt Equity Ratio = Total Debt / Total Equity
| Particulars | 2019 | 2020 |
| Total Debt | £ 90.50 | £ – |
| Total Equity | £ 453.60 | £ 810.30 |
| Debt Equity Ratio | 0.20 | – |
The Deb Equity Ratio in FY 2019 is 0.20. However, the Debt Equity Ratio in FY 2020 is 0. There is no Debt in the company in 2020.
CONCLUSION
Thus the Ratio analysis helps to understand the performance of the company year on year and with other companies. ASOS Plc has shown a good improvement in most of the measure except in Gross Margin.
REFERENCE
1) Kizil, Cevdet and Kaşbaşı, Burhan, Accounting Scandals and Eye-Catching Frauds: USA-Japan Comparison by Considering the Role of Auditing (August 24, 2018). Journal of Asian Research Vol. 2, No. 3, 2018 , Available at SSRN: https://ssrn.com/abstract=3237959
2) S Adalı, C Kızıl: A Research on the Responbility of Accounting Professionals to Determine and Prevent Accounting Errors and Frauds: Edirne Sample (2017): Emerging Markets Journal (EMAJ), volume 7, issue 1, p. 53 – 64
3) J Ashraf, The Accounting Fraud @ Worldcom: The Causes, The Characteristics, The Consequences, And The Lessons Learned. In A Thesis submitted in partial fulfillment of the requirements for Honors in the Major Program in Accounting in the College of Business Administration and in The Burnett Honors College. (2018)
4) J Barton: Who cares about auditor reputation? (2015) Contemporary Accounting Research, volume 22, issue 3, p. 549 – 586
5) Bug P., Helwig J. (2020) Current Use of Moving Images for Product Presentation in Fashion E-Commerce. In: Bug P. (eds) Fashion and Film. Springer Series in Fashion Business. Springer, Singapore. https://doi.org/10.1007/978-981-13-9542-0_12
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