5.5 Analysis of accounts

CPW is a private sector business which has many objectives. It sells electrical goods including kettles and ovens in its 36 shops in country X. CPW also offers a delivery service. The business buys all its inventory from local suppliers to avoid import tariffs. The Finance Director is analysing CPW’s statement of financial position. An extract is shown in Table 2.1. He has been asked to find a source of finance to purchase 10 new delivery vehicles.

c) Outline two ways the information in Table 2.1 might be useful to CPW. [4] Way 1: Way 2:

TJK manufactures candles. Contributing to sustainable development is important to TJK. The business uses batch production in its factory in country X. The target market for TJK’s products is females between 20 and 50 years of age. The Managing Director is reviewing TJK’s financial data. An extract is shown in Table 3.1. He is also considering the benefits to a business of becoming multination company.

b) Calculate TJK’s profit margin. Show your working. [2] Working: Final Answer:

JTA is a public limited company. It sells holidays in a mass market. The business has 44 shops and 200 employees. The Finance Director is considering ways a business can increase its profit. She has been asked to analyse JTA’s financial performance using ratio analysis. An extract from JTA’s financial statements is shown in Table 3.1.

a) Define ‘capital employed’. [2]

b) Calculate JTA’s return on capital employed (ROCE). Show your working. [4]

RHN is a clothing retailer. It has 50 shops and 290 employees. All RHN’s employees are provided with training. Commission is used as one method of financial reward. The business often uses internal recruitment when there is a job vacancy. Last year RHN made a profit of $1.5 million. The Managing Director, as an internal user of accounts, has been analysing RHN’s statement of financial position. ((b) Identify two external users of accounts. [2] External User 1: External User 2: (c) Identify four ways the information in a statement of financial position can be used. [4] Way 1: Way 2: Way 3: Way 4:

GTB is a business which operates in the tertiary sector. It owns 5 cafés selling food and drinks. The business uses social media as its method of promotion. The Finance Manager, Moeen, is analysing GTB’s financial statements. An extract is shown in Table 2.1. He is considering ways to improve GTB’s profit margin. Moeen knows there are other users that are interested in the accounts of a business.

b) Calculate GTB’s Return on Capital Employed (ROCE). Show your working. [4] Working: Final answer: (c) Outline two ways GTB could improve its profit margin. [4] Way 1: Way 2: (e) Do you think banks are the main external users of the accounts of a business? Justify your answer. [6]

WFH produces hats and sells them to a mass market. It holds a high level of inventory. The Managing Director is concerned about the liquidity of the business and has been analysing WFH’s financial statements. An extract is shown in Table 2.1. The Managing Director thinks that the business might fail. Other stakeholder groups might also be interested in WFH’s financial statements.

b) Calculate WFH’s acid test ratio for 2022. Show your working. [4] Working : Final answer : (d) Explain why the following two stakeholder groups might be interested in WFH’s financial statements. [6] Employees: Explanation: Suppliers: Explanation:

ACP manufactures computers. Being ethical is important to ACP. The business employs 3000 workers in its factory. ACP imports 65% of its raw materials. As internal users of accounts, the directors plan to analyse ACP’s financial performance using profitability ratios. The Finance Director thinks making a profit is more important for a business than managing its cash flow.

a) Identify two external users of accounts. [2] User 1: User 2: (b) Identify two profitability ratios.[2] Ratio 1: Ratio 2: