ABC Pty Ltd: Income statement & Balance Sheet



ABC Pty Ltd: Income statement & Balance Sheet

Significance of Financial Statements

Accounting, which is a summary of data about the financial system and financial condition of the enterprise and the results of its financial activities, is one of the main sources of information for financial analysis and thus the basis for management decisions. Managers of companies use accounting data, along with internal information sources, including the nature of accounting. Much of this inside information is confidential and therefore not available for management decisions concerning the organization of external users. For the latest financial statements, which are public under the laws of the Russian Federation, is sometimes the only source of information about a particular company. In this sense, accounting financial reporting is a means of communication between the different actors of the market.

The scope and general nature of the information contained in financial statements, limits the analysis. However, the ability to read reports, knowledge of methods and techniques of analysis can adequately and objectively evaluate the financial condition of many areas of the organization, to see the reasons for their change, to predict the future and to make appropriate management decisions.

Balance Sheet and an Income Statement at 30 June 2011 for the ABC Pty Ltd

ABC Pty Ltd.

Income Statement at 30 June 2011

 

2011

Sales

$900,000

Direct Cost of Sales

550,000

Gross Margin

350,000

Gross Margin percent

38.89%

Operating Expenses

Interest Expense

10,000

Operating Expenses

280,000

Total Operating Expenses

$290,000

Profit Before Interest and Taxes

60,000

 

Profit before tax

60,000

Tax expense (20%)

18,000

Net Profit

$42,000

Net Profit Margin

4.67%

ABC Pty Ltd.

2011

Assets

Current Assets:

Cash

$90,000.00

Accounts Receivable

150,000.00

Other Current Assets

110,000.00

Total Current Assets

350,000.00

Changes in Current assets

350,000.00

Fixed assets

Machinery & Equipment

464,000.00

Total Fixed assets

$464,000.00

Total Assets

$814,000.00

Liabilities and Owner's equity

Short-Term Liabilities

Accounts Payable

$90,000.00

Short-Term Notes

90,000.00

Total Short-Term Liabilities

$180,000.00

Long Term Liabilities (10%)

160,000.00

Total Liabilities:

$340,000.00

Equity

Paid in Capital

320,000.00

Retained Earnings

112,000.00

Total Equity

432,000.00

Add: Net Income

42,000.00

Total Liabilities and Owner's Equity

$814,000.00

Balance Sheet at 30 June 2011

Analysis of ABC Pty Ltd. Financial Statements

The income statement of the ABC Pty Ltd. shows that the company is generating the net income of $42000. Similarly, the income statement also reflects that the there are massive operating expenses which has impacted the sales and therefore, the Net Profit margin is 4.67s% which is low. The company must take initiatives to minimize its operating expenses in order to improve the revenues and Net Profit Margin.

The balance sheet of the ABC Pty Ltd. shows that the there are high levels of account receivables and inventory. Therefore, company must enhance its receivable collection policies. The inventory is the least liquid current asset; therefore, higher levels of current assets may result in high carrying and shrinkage costs. The paid up capital and retained earnings are at stable positions.

Application of Financial Statement

The income statement, also labelled the statement of operations measures a company's performance a specified period of lime. It is frequently called “profit and loss account” For this reason the statement is titled for a period of time for example, year ending June 30, 2011. The statement is different from the balance sheet because it is a cumulative record of activity for a month, quarter, multiple ...