Assignment Sample on FINA1135 Financial Management
Introduction
Financial statements analysis is quite necessary for the business as it reflects the financial position of a business. A company’s various decision-making processes are based upon it. Financial statement analysis provides essential information which assists top-level managers to make decisions for business sustainability. The following assignment is based on an evaluation of AVIVA PLC which is a UK based insurance company. The aim of the business is to achieve people’s potential within a diverse and customer-focused organization. This study sheds light on the analysis of financial statements to reflect their performance and to provide strategies through which financial position can be strengthened.
Evaluation of income statement
The income statement of a company is a kind of financial statement which shows the total income and total expenses for a particular period. A statement by Razak, (2021), an income statement is quite necessary through which a business total profit earning ability can be measured. Managers can be able to know various expenses and income of business associated with product sales of products which assist them in the decision making process.
Based on the figures provided, it has been found that Aviva’s total income through its business activity has amounted to 46569 million Euros in which it has a gross written premium of 29015 million pounds. Apart from this, its total amount of expenses for the year 2020 stood at 43956 million pounds. Furthermore, as stated by Sri Kustono et al. (2021), the income statement provides detailed information about business total income and expenses. After deducting total expenses for total income it has been found that total profit before tax for the year 2020 stood at 2613 million pounds. Apart from this, after deducting tax business the total profit for the continuing business is 2042 million pounds and the discontinued business has a sum of 868 million pounds.
Aviva paid a total amount of tax for the year 2020 that stood at 528 million pounds (Aviva.com 2020). Based on the whole analysis, it has been found that Aviva has earned more excess profit than the previous year that stood total profit at 2663 million pounds. Moreover, business has reduced total tax expenses as compared to previous users which boost its profit earning ability. Thus, business as compared to previous year performed well. On the analysis of total expenses, it has been found that total expenses incurred in the period 2020 stood at 43956 million pounds which is quite lower than the previous year which had a total of 64160 million pounds (Aviva.com 2020). Based on it, it can be said that Aviva has reduced total expenses by eliminating unnecessary expenses which increase its total amount of profit. As opined by Lev (2018), in order to strengthen the financial position of a business it is necessary to reduce unnecessary expenses. Aviva in the current year 2020 can be able to increase profitability by focusing on cost reeducation programs.
Ratio analysis
Ratio analysis provides a business financial performance in terms of relating to various assets of a business. As opined by Andjelic and Vesic, (2017), financial ratio analysis is a significant tool by which business performance can be measured. In order to assess Aviva financial position of business in the market, various aspects of the business have been taken by which profitability, liquidity, turnover and stakeholder prospect can be analyzed.
| Calculation of ratio | amount(million pounds ) |
| Debt equity ratio | |
| debt/ Equity | 2020 |
| debt | 20667 |
| equity | 20560 |
| Debt equity ratio | 1.01 |
| Net profit ratio | |
| net profit/ sales | 2020 |
| net profits | 2910 |
| sales | 46569 |
| Net profit ratio (%) | 6.25 |
| Assets turnover ratio | |
| sales / total assets | 2020 |
| sales | 46569 |
| total assets | 479857 |
| Assets turnover ratio | 0.10 |
| Current ratio | |
| current assets/ current liability | 2020 |
| current assets | 13320 |
| current liabilities | 9684 |
| Current ratio | 1.38 |
| Proprietary ratio | |
| shareholders equity/ total assets | 2020 |
| shareholders equity | 19554 |
| total assets | 479857 |
| Proprietary ratio | 0.041 |
Table 1: Ratio Analysis
(Source: Self-Made)
On the analysis of the debt-equity ratio, it has been found that Aviva’s total amount of debt in the year 2020 stood at 20667 million pounds and total equity 20560 million pounds. The debt-equity ratio stood at 1.01 which is quite good as the company has an approximately equal amount of equity. As the debt-equity ratio shows a business ability to meet its long liability thus, a lower debt-equity ratio shows a lower amount of risk. Apart from this, the business Net margin in the year 2020 stood 6.25 which are not too good for the business (Aviva.com 2020). Thus, in order to strengthen its financial position Aviva indeed enhance business the margin on the total income.
On the other hand, asset turnover has been conducted which shows business total assets ability to generate profit for the business. Aviva has a 0.10 asset turnover ratio which is lower than standard. In this situation, a company needs to increase its ability in terms of utilising its resources which reduce cost and increase the quality of services. However, the company has maintained effective liquidity which increases business effectiveness in terms of its operation and providing services to its customers in a better way (Hussain et al. 2018). On the analysis of stakeholder aspect, it has been business has total proprietary ratio is quite lower which stood.041. Aviva plc needs to make proper strategies to enhance its proprietary ratio.
Analysis of cash flow statement
Cash flow statements of business reflect movement of cash for business and its activity. In order to assess a business liquidity position, it is quite necessary to analyze the cash flow statements of a business (Afrifa and Tingbani, 2018). The cash flow statement of a company or organization shows cash flow operating activity, which reflects the movement of cash of its day to day business acuity. Cash flow from investing activity shows business total investment expenses and income. Based on investing activity of the company investing strategies of business can be analysed. On the analysis of the cash flow statement of Aviva Plc, it has been found that cash flow from operating activity shows cash outflow of 2684 million pounds in which total amount of tax paid stood at 1040 million pounds. Apart from this, 1644 million pounds has been allocated business daily Expenses. In order to run the whole activity of business in the year, 2020 Aviva spent 1644 million pounds (Aviva.com 2020).
Moreover, on the analysis of cash flow financing activity, it has been found that there are 165 cash outflows for the year 2020 which is higher than the previous year. Increasing investment operation of business shows business strategies to generate more profit through investment. Purchase of plant and equipment and intangible assets has been made in the year of 2020 amounted to 97 and 72 million pounds respectively. This activity of Aviva provides an opportunity to enhance the financial performance of a business in terms of providing services to its customers (Li, 2020). The business also has a total cash outflow of 884 million pounds of which 1005 has been allocated for repayment of borrowing and new borrowing of 966 million pounds. Furthermore, Aviva has total cash and cash equivalent shows 16182 million pounds for the year 2020 (Aviva.com 2020). Thus, on the analysis of the cash flow statement, it has been found that Aviva has well maintained its proper liquidity by having enough amounts of cash in hand.
Strategies to boost the financial position of the company
In order to enhance the financial position of a business, it is necessary for the business to increase customer engagement strategies. Customers are a key aspect of a business on which the whole activity depends. Customers provide businesses with a wider range scope to attain sustainable growth and development (Mbama et al. 2018). Inclusion of digital media and modern technology in Aviva Plc increase customer engagement policies and areas of business in terms of providing better services to its customers. As stated by Ukko et al. (2019), modern technology such as Blockchain, AI technology and the internet of things (IoT) enables a business to learn customer prospects about business. Based on this modern technology Aviva can be able to make necessary amendments to their existing services and implant those kinds of services which they need. Furthermore, the effects of CSR strategies of business also provide an opportunity to build strong relations between stakeholders and organizations (Gangi et al. 2018). In addition, to boost the financial position in the market, it is necessary for businesses to provide better services to their stakeholders. Aviva needs to increase its properietory ratio by providing regular dividends to build strong relationships between stakeholders.
Conclusion
On the basis of the whole study, it can be concluded that Aviva’s current year financial performance is better than the previous year. There is growth in total income as well as a reduction in the total cost of the business. Apart from this, the profitability of a business in the year 2020 also increased as compared to its previous year. On the other hand, other financial ratios also obtain standard level which shows that it has performance well in the global market by providing better services to its customers. It can also conclude that technology implementation in the business module can boost its performance in the market.
References
Journals
Afrifa, G.A. and Tingbani, I., 2018. Working capital management, cash flow and SMEs’ performance. International Journal of Banking, Accounting and Finance, 9(1), pp.19-43. available at: https://repository.canterbury.ac.uk/download/b07af66cb9736109c0ebc4f662c351b74ee6f0ee4fbff6c9aeb08129dbc0b001/478460/16816_2578411036910001000%20%281%29.pdf
Andjelic, S. and Vesic, T., 2017. The importance of financial analysis for business decision making. In Book of proceedings from Sixth International Scientific Conference Employment, Education and Entrepreneurship (pp. 9-25). available at: https://vspep.edu.rs/fileadmin/user_upload/EEE/EEE_2017/eee_2017_book_5.pdf#page=9
Gangi, F., Mustilli, M., Varrone, N. and Daniele, L.M., 2018. Corporate social responsibility and banks’ financial performance. International Business Research, 11(10), pp.42-58 available at: https://pdfs.semanticscholar.org/8211/985b08b40e505edbc8358c25c9fe944bbd4b.pdf .
Hussain, J., Salia, S. and Karim, A., 2018. Is knowledge that powerful? Financial literacy and access to finance: An analysis of enterprises in the UK. Journal of Small Business and Enterprise Development. available at: https://wlv.openrepository.com/bitstream/handle/2436/621662/Is%20Knowledge%20that%20Powerful%20(1).pdf?sequence=1
Lev, B., 2018. The deteriorating usefulness of financial report information and how to reverse it. Accounting and Business Research, 48(5), pp.465-493. available at: https://www.tandfonline.com/doi/pdf/10.1080/00014788.2018.1470138?n
Li, Z., 2020. Construction and Empirical Research of Comprehensive Financial Analysis Index System Based on Cash Flow. Journal of Contemporary Educational Research, 4(10). available at: http://ojs.bbwpublisher.com/index.php/JCER/article/view/1566/1359
Mbama, C.I., Ezepue, P., Alboul, L. and Beer, M., 2018. Digital banking, customer experience and financial performance: UK bank managers’ perceptions. Journal of Research in Interactive Marketing. available at: http://shura.shu.ac.uk/22597/1/Alboul-DigitalBankingCustomerExperience%28AM%29.pdf
Razak, L.A., 2021. Value of Relevance of Other Comprehensive Income in Listing Companies in LQ 45 Index. Psychology and Education Journal, 58(1), pp.512-517. available at: https://theses.lib.polyu.edu.hk/bitstream/200/10682/3/5101.pdf
Sri Kustono, A., ROZIQ, A. and NANGGALA, A.Y.A., 2021. Earnings Quality and Income Smoothing Motives: Evidence from Indonesia. The Journal of Asian Finance, Economics, and Business, 8(2), pp.821-832. available at: http://www.psychologyandeducation.net/pae/index.php/pae/article/download/801/618
Ukko, J., Nasiri, M., Saunila, M. and Rantala, T., 2019. Sustainability strategy as a moderator in the relationship between digital business strategy and financial performance. Journal of Cleaner Production, 236, p.117626. available at: https://www.sciencedirect.com/science/article/pii/S095965261932476X
Websites
Aviva.com 2020 annual report available at: https://www.aviva.com/content/dam/aviva-corporate/documents/investors/pdfs/reports/2020/aviva-plc-annual-report-and-accounts-2020.pdf accessed on 22 November 2021]
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