The primary purpose of this program report is to understand and analyze the accounting and financial information in the form of reports and documents that are used for the purpose of evaluating the financial health of a business. It is studied so far that there are mainly two types of accounting information or resources and these are financial and management accounts. The business accounts are comprised of documents that are used for recording financial and accounting transactions. The financial accounts are mainly prepared to exhibit the financial performance of a business. There are five elements or forms of financial accounts that have been examined and analyzed in this report as well as a learning outcome of this program and these are profit and loss statement that is also referred to the income statement and is showing the business performance for a particular accounting period Balance sheet statement that is comprised of allocation and value of assets and liabilities for a particular time period and cash flow statement that shows the cash inflow and outflow for a specific period of time Notes to financial statement shows the compliance and details of financial records as per the accounting standards and lastly director's report that is comprised of director's comments and analysis of the company's performance along with disclosures of many financial plans and records, compensation, shares etc. (Broadbent and Cullen, 2012, pp. 22-324). There are many tools and techniques used by financial and accounting managers in an organization to evaluate and assess the future and current performance of the corporation. These tools may include ratio analysis, pro forma income statement and balance sheet. This report is aimed at evaluating the financial and accounting performance of a hypothesized company named as Blue star private limited.
Discussion
Forecasted financial statement for Blue Star
The financial statements of the Blue sky company are as follow for the year 201X:
Blue Star Private Limited
Income Statement for the year ended 201X
Item
$ in millions
Sales
16
Cost of Goods sold
10.88
Gross Profit
5.12
Expenses from operating activities
1.44
Profit before tax and interest
3.68
Interest expenses
0.8
Profit before taxes
2.88
Taxes
0.6336
Net profit
2.2464
Blue Star Private Limited
Balance Sheet for the year ended 201X
Item
$ in millions
Non current assets
22
Current assets
Inventory
2.4
Trade receivables
2.2
4.6
Total Assets
26.6
Equity Finance
ordinary shares
5
Reserves
7.5
12.5
Long term Bank Loan
10
22.5
Current Liabilities
Trade Payables
1.9
Overdraft
2.2
4.1
Total equity & Liabilities
26.6
The financial ratios that have been estimated for the next year are as follow
Gross profit margin30%
Operating profit margin20%
Dividend payout ratio50%
Inventory turnover period110 days
Trade receivables period65 days
Trade payable period75 days
We know that these ratios are calculated as follow
Gross profit margin =Gross profit / sales
Since, sales of the company are expected to grow by 8.4% then the sales for the next year becomes as follow:
16 m * 8.4% + 16 m = 17.344 m
Now, we know that sales = 17.344 m and gross profit margin = 30% then the Gross profit for the next year becomes: