TMA

TMA



TMA

Answer 1:

Income statement: Purpose and uses

A statement of income provides insight into a corporation's sales and expense amounts, and how they affect liquidity levels in the short term. A company usually prepares monthly income statements to assess business performance. The purpose of the income statement is to show the reader the earnings of the entity. The income statement provides an analyst important information on the financial performance of the entity over a specific period of time. It is also referred to as a profit and loss statement or earnings statement. The Income Statement is one of three important financial statements and its' analysis should be a part of value investing and fundamental stock analysis (Friedlob, 2003, pp. 46).

Revenue analysis is a business practice that helps a firm's department heads evaluate trends in sales, and how those trends affect corporate profitability. A finance manager analyzes revenues by region, segment, business unit or major customer, and she compares historical versus current data in order to detect nonperforming segments (Jordan, 2008, pp, 43).

Evaluating expenses is an important financial analysis practice because it instructs on a firm's loss management and prevention systems. Except costs of goods sold, or costs of materials, all other corporate expenses depend on internal factors. Simply put, corporate suppliers and lenders set materials prices and interest rates on loans, but top management controls internal expenses such as salaries or rent. Accordingly, senior leaders usually focus on nonperforming areas and reduce costs in those areas.

Income statement analysis

Income statement

2009

2010

Sales

1621800

100.00%

1472300

100.00%

COGS

599300

36.95%

583300

39.62%

Gross Profit

1022500

63.05%

889000

60.38%

Transport Expenses

113200

6.98%

137300

9.33%

Rent

87000

5.36%

87000

5.91%

Rates

27500

1.70%

29500

2.00%

Insurance

17900

1.10%

19300

1.31%

Wages And Salaries

311900

19.23%

345100

23.44%

Marketing Expenses

84000

5.18%

47000

3.19%

Administration Expenses

63900

3.94%

83600

5.68%

Interest On Long-Term Loan

12000

0.74%

12000

0.82%

Depreciation

33200

2.05%

45100

3.06%

Total Expenses

750600

46.28%

805900

54.74%

Net Profit

271900

16.77%

83100

5.64%

Discussion

We have done a vertical analysis of the income statement of the company. Comparison of two years shows that sales has been declined from $1621800 to 1472300 (%) in one year. Moreover, the analysis shows that cost of goods sold has been increase in 2010 about 3.33% that means the company is somewhat inefficient in inventory management, procurement and others areas that effect cost of goods sold. Consequently, gross profit has been decline since 2009. Moreover, if we look at expenses, almost all expenses have been increased since 2009. However, more concerned areas of expenses are wages and salaries, depreciation and transport expenses that have been increased up to 3%, which is a huge jump in a year. Resultantly, total expenses have increase up to 8.55 in 2010 in comparison with 2010. On the other hand only marketing expenses have been controlled in 2010.

Answer 2:

Balance Sheet

A balance sheet reports assets, liabilities and equities. Assets are the items a company owns and uses to generate profits. Liabilities represent money a company must pay other businesses for the use of items necessary to run the company. Equity is either the money shareholders or the owner invests into the company. The balance sheet's purpose is to report a company's net wealth, the difference between total assets and total liabilities, often seen as the company's true economic value. A company can use its balance sheet as a benchmarking ...