Financial Statement Analysis - Cooks & Cleans Limited

Financial Statement Analysis of Cooks & Cleans Limited

Financial Statement Analysis

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Question 1

Identify and discuss the benefits and limitations of Ratio Analysis.
In your own words explain the difference between Horizontal Analysis and Vertical Analysis.

Question 2

You have been provided with a summary of the Profit & Loss data and Balance Sheet data for the past three years for Cooks & Cleans Limited (CCL).

CCL are a home handy service that are called into people’s homes to cook and clean for them. CCL uses their own ingredients and cleaning equipment which is managed under a Periodic Inventory System.

In the past three years CCL have invested significant funds into marketing both in print and online to increase their customer base and therefore boost income. They are wanting to employ more staff to ensure they are able to meet the demand when the expected demand for their services increase.

Cooks & Cleans Limited
Profit and Loss Statement
	20X7	20X6	20X5
Sales income
Cooking & Cleaning Income	187,718	188,189	177,743
Total Income
Less Cost of Goods Sold
Opening Inventory	628	562	210
Purchases – Ingredients & Cleaning Supplies	10,895	20,365	15,585
Less Closing Inventory	(345)	(628)	(562)
Cost of Goods Sold	11,178	20,299	15,233
Gross profit	176,540	167,890	162,510
Other Income
Interest income	472	588	510
Dividend income	6,900	4,890	5,970
Total Income	183,912	173,368	168,990

Expenses
General administration expenses	2,036	1,850	1,069
Advertising	17,890	16,400	10,540
Wages	128,280	115,450	113,600
Printing, postage & stationery	263	204	198
Telephone	2,388	1,788	1,512
Rent	13,520	13,000	11,960
Vehicle expenses	4,978	3,669	3,458
Total Expenses	169,355	152,361	142,337

Net Profit Before Tax	14,557	21,007	26,653
Less Taxation Expense (12.5%)	1,820	2626	3332
Net Profit After Tax	12,737	18,381	23,321

Cooks & Cleans Limited
Balance Sheet
	20X7	20X6	20X5
Current Assets
Cash	1,807	2,050	2,063
Accounts receivable	6,578	3,604	2,613
Inventory	345	628	562
Total Current Assets	8,730	6,282	5,238

Non-current Assets
Property, plant and equipment	12,917	13,460	12,790
Term Deposit	30,000	30,000	30,000
Total Non-current Assets	42,917	43,460	42,790

TOTAL ASSETS	51,647	49,742	48,028

Current Liabilities
Accounts payable	1,616	1318	1,142
Accrued expenses	380	314	298
Tax payable	1820	2626	3332
Total Current Liabilities	3,816	4,258	4,772

Non-current Liabilities
Rolling overdraft	2,090	2,100	2,500
Finance Lease - Vehicle	13,150	13,300	13,500
Total Non-current Liabilities	15,240	15,400	16,000
TOTAL LIABILITIES	19,056	19,658	20,772

NET ASSETS	32,591	30,084	27,256

Equity
Opening balance	30,084	27,256	14,500
Funds introduced	-	-	-
Profit / Loss	12,737	18,381	23,321
Drawings	(10,232)	(15,553)	(10,565)
CLOSING EQUITY	32,589	30,084	27,256

Using the Horizontal analysis approach, you are required to analyse the data and then highlight three areas that the owners need to look into in more detail. You must also provide a brief explanation to support each of the three areas you highlight that need to be investigated.

Using the financial information provided for Cooks & Cleans Limited, you are now required to use ratios to analyse the financial statements.

Using the following table, you MUST state the formula and provide the ratio calculations for 20X5, 20X6 and 20X7. Your final answer should be stated in the green box. In the grey box you MUST provide an evaluation and recommendation based on your findings:

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