B120 TMA03

1105 Words Mar 14th, 2015 5 Pages
Part I

Question 1

a.) The income statement, also called the profit & loss account (P & L), is used to illustrate a company’s revenues and expenses over a particular period of time. It shows the net profit and/or loss for the given period (the difference between the business’ total income and its total costs). It also allows shareholders to see the performance of the business and if it has made an acceptable profit.

An income statement is very useful when assessing the performance of John’s Furniture as it shows what changes can be made in order for the business to be more profitable in the next financial year and what immediate areas needs to be focused on in order to save on expenses.

b.) By looking at the statement, there are a few
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b.) There are a few concerns regarding the cash flow statement. Firstly, the significantly increased overdraft will make the bank manager concerned as it will question whether the company will be able to pay the £240,000 loan back in 5 years time. Overall, this would be looked at as a negative cash flow statement as the business has spent more than it has received during 2012. The operation profit before loan is significantly lower than last year and the bank manager might question John why he has taken out drawings of £93,200 when the previous year he withdrew £67,400, bearing in mind that this years profit is far less than previous year.

Question 4
My recommendations for John’s Furniture are firstly to analyse the cost of goods sold. This year, too much money has been spent on purchasing stock without returning a great profit. One idea is to discuss the possibility with retailers about bulk buying stock to keep in store. This way the business can save money on not having to store unsold stock and would know precisely how much money to spend on purchasing stock.
When discussing the overdraft with the bank manager, John should mention that the new sewing equipment he purchased using the overdraft is a great investment for the business as it will improve the efficiency of the manufacturing process, increase production capacity and in return make the business

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