managing finance

MANAGING FINANCEIAL RESOURCES AND DECISION

Thanh VinhFinancialPerformanceAnalysis and

Decision MakingAssignment 2

Lecturer: Sumit DhullWritten by: Nguyen Si Kien

Word count: 9100 word

Thanh Vinh Company one of the most successful companies in Vietnam, it’s one of the leading companies that specializingin design, interior decoration and manufacture furniture for

office, factory, school, hospital, and home.

1

ContentsIntroduction..............................................2

Budgets and appropriate decisions for Thanh Vinh Company. .2

Costing and Pricing Decisions.............................6

The viability of a project using investment appraisal techniques.....................................................9

1. Net present value (NPV)..............................9

2. Internal rate of return (IRR).......................12

3. Profitability index.................................13

4. Accounting rate of return...........................14

5. Payback period......................................15

The main financial statements of VS Company Ltd..........17

Formats of financial statements for different types of business......................................................21

Using appropriate ratios and comparisons, both internal and external for financial statement..............................31

1. Return on capital employed (ROCE)...................32

2. Net profit Ratio....................................33

3. Assets turnover ratio...............................35

4. Gross profit ratio..................................36

5. Current ratio.......................................37

6. Quick ratio.........................................38

7. Average age of debtors..............................39

8. Average age of stock................................40

9. Interest coverage ratio.............................41

10. Gearing ratio.......................................422

11. Price/earnings ratio................................43

Report..................................................44

Conclusion...............................................45

References...............................................45

IntroductionThanh Vinh Company one of the most successful companies in

Vietnam, it’s one of the leading companies that specializing in design, interior decoration and manufacture furniture for office,factory, school, hospital, and home. Thanh Vinh Company also has many successes in decorating for many well-known projects in the world and local client.

So now, as a financial manager, I will prepare the financialstatement at 30 November to compare with the financial statement at 30 May to see how much expenses that company has to pay, what factors are increasing or decreasing, the position of company andhow company can raise money over six months and what company has done to increase cash. All of these things, I will mention below.

Budgets and appropriate decisions for Thanh VinhCompany

Budget analysis is the process where you evaluate yourcompany budget to see if it’s working or not. When doing a budgetanalysis, you will look for the problem areas and check if youare reaching your goals or not. Remember when you first startbeginning to budget, you have to do analysis monthly to see if itgoes on the right way or not. However, when you have establishedthe budget, just need to analyze it quarterly and annually dependon the important of the budget. Because of this way, you can fixyour budget when it goes wrong before too late. However, a budget

3

also helps company find the areas that can reduce the cost likecost of the materials or administration cost or something likethat. On top of that, company can check the process again andagain to make it more perfect.

(sources: ehow [17/6/2013])

A budget can be shown each year financial and contain someinformation about the sales and cost of company. By this way, youcan see that how the coming accounting period is likely to end.On top of that, when we look at the budget of company, we canunderstand that the actual performance of this business and itcan be measured against this proposed plan.

Different types of budgets can be created depending on theparticular aspect of the business requirement. There are threepopular types of budgeting plan, Forecast Budget, PerformanceBudget, and Cash Budget. And for Thanh Vinh Company, Cash Budgetis the one that company needed.

(sources: e-conomic.co.uk[17/6/2013])

CASH BUDGET FOR THE SIXTH MONTHS ENDING 30 NOVEMBER 2011 (£000).

June July August September October November

Cash ReceiptsSales 194.3 203.6 196.5 193.2 201.4 216.1

Cash PaymentMaterial 38.5 43.7 41.2 42.4 49.6 31.4Wages 7.6 7.9 8.8 6.1 3.7 2.6

Overheads 127.4 123 119.2 131.4 91.5 59.3Surplus 20.8 29 27.3 13.3 56.6 122.8

4

OpeningBalance 12.4 33.2 62.2 89.5 102.8 159.4

ClosingBalance 33.2 66.2 89.5 102.8 159.4 282.2

Analysis: first we should know that the materials are paid two months after receipt and the customers (debtors) will be paidafter three months.

Sales: the debtors are paid of three months so when theypurchased in March, they will paid in June and just followingthis in order so we can transfer these three months into the cashbudget. And the sale in June we also do like this, after threemonths, means the sale in September are 193.2, just followingthis order until we finish the cash budget in November.

Material: paying the materials are after two months, so whenThanh Vinh Company purchased materials in April, company has topay it in June and May in July. And just continue of doing this,until the end of the cash budget in November.

Wage: company had to pay the wage in the month in which theyfall due, in other words, company has to pay right the way in themonth company purchases. So it will transfer to cash budget inthe right months.

Overheads: the overheads will be paid after one month, sohere the overheads of Thanh Vinh Company in May was 127.4 socompany will pay it in June, and the overheads in June, companywill pay it in July, just follow this order until the end of thecash budget in November.

Surplus: the surplus will be calculated by using theformula: Cash Receipts – Cash Payments. So by using this formula,we can calculate the surplus for each month.

First, we can see that, there is a good sign for Thanh VinhCompany, because the closing balance is much higher than theopening balance, this means Thanh Vinh company has a good

5

business growth. However, the materials from July to Octoberincreased very high, maybe Vinh Thanh produced more products forsales, however, the sales from July to October are not very high.So maybe Thanh Vinh Company chooses the wrong time to producemore, and I think company make the loss in these months.Furthermore, company should know how to control the cost ofmaterials, if company knows how; it will save money for company.

Next, we go to income statement of Thanh Vinh Companyaccording to the scenario.

INCOME STATEMENT

FOR THE MONTH ENDED 30 NOVEMBER 2011

Sales 1185.2Cost of goods sold (COGS) 211.8Gross Profit 973.4Operating Expenses

Wages 36.7Overhead 567Depreciation 0.74

Net Income 368.96

Analysis:

According to the scenario, I think we can easily the totalsale of six months (by sum up all the sales of each month).

Cost of goods sold (COGS): to calculate this one, thebeginning balance (F.G+R.M), for the period (R.M) and closingbalance (F.G+R.M). For the beginning balance, we sum up the rawmaterial and finished goods in current assets (142.4+91.7) ofBalance Sheet as at 30 May 2011, then we have the result is 234.1for beginning balance. For the period, we just sum up all thematerials in 6 months, and then we have 205.6. For the closingbalance, we sum up the raw materials and the finished goods in

6

current assets (91.7+136.2) of balance sheet as at 30 November2011, and we have 227.9. After that, we sum beginning balance andfor the periods together and minus the closing balance and wehave the cost of goods sold are 211.8.

Gross profit: we can use this formula to calculate the grossprofit

Sales – Cost of Goods Sold (COGS) = 1185.2 – 211.8= 973.4

Wages and overheads: thing we should do is to sum up thewage and the overheads in 6 months.

Depreciation: to calculate this, we take the plant andmachinery, fixtures and fittings of the balance sheet at as 30May 2011 in order 9.4 and 1.25. Then we have to divide 10%,because here we just use for half of the year then we multi it to9.4 (9.4x10%/2), we have 0.47. And then, we minus the book valueof fixtures and fittings of two balance sheet together (1.25-0.98), we have 0.74. Finally, we sum 0.47 to 0.27 equal 0.74, andthis is depreciation.

Net income: we can calculate the net income base on thisformula

Gross Profit – Operating Expenses = 973.4 – 604.44 = 368.96

Looking at the net income, we can see that, Thanh VinhCompany is working very well, I think company should invest moreand expand their company, because if company has too much money,it’s really not a good idea. Because it shows that, Thanh Vinhdoesn’t know how to invest to expand their company, in thefuture, company is very easy to lost their position.

BALANCE SHEET AS AT 30 NOVEMBER 2011 (£000).

Fixed assets Cost AggregateDepreciation Book Value

Land and buildings 134 0 134

7

Plant and machinery 9.4 4.23 5.17Fixtures and fittings 2.3 1.32 0.98

145.7 5.55 140.15Current assetsStock: Raw materials 91.7 Finished

goods 136.2

Debtors 574.5Bank 282.2 1084.6Less: CurrentliabilitiesCreditors: Rawmaterials 41.0

Overheads 42.6 -83.6

Working capital 1001.01141.15

Financed by:Share capital 500Profit and loss account 641.15

1141.15Analysis:

As you do know, the closing balance of one balance sheetwill be the opening balance of another balance sheet. So most ofthe information in this balance sheet will take from the Balancesheet as at 30 May 2011.

The cost of land and buildings, plant and machinery,fixtures and fittings are the same as balance sheet as at 30 May2011. The aggregate depreciation, land and buildings is zero,plant and machinery, fixtures and fittings, we sum the Aggregatedepreciation of the balance sheet as at 30 May 2011 to thedepreciation that we have calculated for the income statement,plant and machinery (3.76+0.47), fixtures and fittings(1.05+0.27), then for the book value we minus cost to theaggregate depreciation.

8

According to the additional information the finished goodsat 30 November 2011 are to be £136,200 and raw materials are tobe kept at £91,700. For the debtors, we sum up the sale fromSeptember to November equal 574.5. For the bank, we can calculatefrom the cash budget (closing Balance-November). Then we sum upall the things that I mention in this part, we will have thecurrent assets.

For the current liabilities, the raw materials will becalculated by summing the raw material from October to November(21.2+19.8). For the overhead, it’s the overhead in November.After that, we sum all the parts in current liabilities; we willhave 83.6, because it’s liabilities, so we put the minus beforeit. Then we sum the current assets to the current liabilities tohave the working capital (1001). To check our balance sheet rightor wrong, we can sum the working capital to the total book value(140.15), and it equals 1141.15, we will use it later.

According to the scenario, the share capital is 500, and theprofit and loss account is calculated by sum the beginningbalance to the profit for period (272.19+368.96). It equals1141.15. Compare to the one that we have calculate above, theyare the same, so I can say, our balance sheet is right.

As you look to the balance sheet as at 30 November, thancompare with the balance sheet as at 30 May, you can see that theworking capital of Thanh Vinh Company has been increasing from£772.19 to £1001; it shows that company is going on the rightway. On top of that, you can see that the current liabilities areless than current assets, this means company had been run bytheir own money, reduce the bank loans, it’s good for company. Inshort, when shareholders of company look at this balance sheetthey will very happy and may want to invest more in Thanh VinhCompany and company also attract more potential shareholders toinvest in company.

9

Costing and Pricing DecisionsThanh Vinh Company has been asked to make a table that

listed all the costs and prices for the special order. Here, Iwill summarize all of these things with a table below:

50,000 100,000 150,000Direct materials 2.00 2.00 2.00Direct labor 12.00 12.00 12.00

Production Overhead 24.00 24.00 24.00Non-Production Overhead 12.00 12.00 12.00

Distribution costs 10.00 10.00 10.00Additional Overhead (non-

production) 3.50 2.00 1.33Full cost per unit 63.50 62.00 61.33

Profit margin 12.70 9.30 6.13SELLING PRICE 76.20 71.30 67.47

As you can see from the table, Thanh Vinh Company has threespecial levels with different number of unit, the first level is50,000 units, the level is 100,000 units and the third level is150,000 units. For each order the cost of direct material will be£2.00 per unit and for direct labor, it is £12.00 for each unit.For Production Overhead and Non-Production Overhead they will becharged in order 200% and 100% of the direct labor cost, so wecan see that, for Production Overhead, the cost of it is £24.00for each unit of each level, and the cost will be calculated likethis Direct Labor × 200%, so we will have £12.00×200% = £24.00.Non-Production Overhead, the cost of it is £12.00 for each unitof each different level, we can calculate the cost like thisDirect Labor × 100%, so we will have £12.00 × 100% = £12.00. Forthe Distribution cost Thanh Vinh Company is expected to be £10.00for each unit at any level.

Additional Overhead (non-production) will be calculated likethis:

10

For 50,000 units: for this level, because it is below100,000 units, so we can take £200,000-£25,000 and then we divideit to 50,000 units, so we can see the cost of Additional Overhead(non-production) per unit is £3.5.

For 100,000 units: at this level, because it is equal100,000 units, so we do not minus £25,000. We just take £200,000and divide it to 100,000 units and we can get the result of thecost of Additional Overhead (non-production) per unit is £2.

For 150,000 units: at this level, the same as with 100,000units level. Because it’s over 100,000 units, so we just divide£200,000 to 150,000 units and we get the cost per unit is £1.33.

After calculating all the cost per unit of three differentlevel, we can see the full cost per unit of each level. £63.5 perunit for 50,000 unit level, £62.00 per unit for 100,000 unitslevel and £61.33 for £150,000 units level. To calculate the fullcost unit of each level, we sum up all the costs that we havejust calculated above.

For the profit margin, Thanh Vinh Company decides that itwill be 20% of the full cost, however, the percentage will reduceto 15% for the order 100,000 units and 10% for 150,000 units. Sothe profit margin will be followed as £12.7 for 50,000 units(£63.5×20%), £9.3 for 100,000 units (£62×15%) and £6.13 for150,000 units (£61.33×10%).

Before decide the selling price for the products, we have toknow some pricing strategies. There are three types of pricingstrategy; they are floor price, ceiling price and the optimumprice.

Floor price is the lowest price that company decide to sellproduct, in other words, when company decide to use the floorprice strategy, company just cares about the cost of producingproduct, company just want to make up the cost. Take an example,when Thanh Vinh Company goes to new market, it’s hard for new

11

company to compete with other companies have already been therefor a long time, so Thanh Vinh needs to offer a cheap price tocompete with other companies. At that time, the only hope forThanh Vinh Company is not making any loss.

Ceiling price is the highest price that company decidesfor the product, they want to maximize the profit. Some ofcustomers think that expensive things are better than cheapthings so Thanh Vinh Company want the customers think that ourproducts is good so it’s expensive, so it focuses on thepsychologist of the customers.

Optimum price is the flexible pricing strategy; it willdepend on the current situation of c company or competitivecompanies. If company wants to increase the sales, company willreduce the price, but when company wants to maximize the profitthey will increase the price. Example, when Thanh Vinh Companyare now competing with another company, if competitive companyincreases the price, Thanh Vinh Company will increase the pricetoo, because Thanh Vinh does not want to lost the profit. Butwhen competitive company reduce the price, Thanh Vinh alsoreduces too, because they don’t want to lose their customers.

After calculating all the things, it’s time to calculate theselling price, to do this we sum up the full cost per unit andthe profit margin, and then we have the selling price per unit atfor 50,000 units is £76.2, for 100,000 units is £71.3 and thelast one 150,000 units is £67.47.

12

- 50,000 100,000 150,000 200,000 62.00

64.00

66.00

68.00

70.00

72.00

74.00

76.00

78.00

Selling Price

Selling Price

As you can see for both chart, the two trend lines are going down. In the selling price chart, you can see the trend is going down, this means if customers have big order; this total price will decrease. So it will attract more customers to buy, atfirst you may think if the selling price is going down, Thanh Vinh company will not make a profit, however, it you look at the second chart, you will see the trend of Full Cost Per Unit is also decreasing, this means if Than Vinh company has a big offer they will have lower costs and this is also the reason why company reduce the selling price for big order and company also makes profit.

13

-

50,000

100,000

150,000

200,000

60.00

60.50

61.00

61.50

62.00

62.50

63.00

63.50

64.00

Full Cost Per Unit

Full Cost Per Unit

The viability of a project using investment appraisal techniques

Investment appraisal is an evaluation of the attractivenessof an investment proposal, using methods such as average rate ofreturn, internal rate of return (IRR), net present value (NPV) orpayback period.

(sources: businessdictionary[11/6/2013])

Like I have mentioned above, investment appraisal techniquesconsist of five main methods, they are Payback Method, AverageRate of Return, Net Present Value (NPV), Internal Rate of Return(IRR), Profitability Index.

For Thanh Vinh Company, it has three projects that will helpcompany develop, but their resources are limited so Thanh VinhCompany can’t launch three projects. So by using the investmentappraisal techniques, they will show which project is better andwhat Thanh Vinh should choose. Below here is the table whichshows the cash inflow in five years of these three projects.

ProjectCost of capital: 10%

M N P£ £ £

Initial Investment £10,000 £10,000 £10,000Year 1 3,000 5,000 4,000Year 2 6,000 5,000 5,000Year 3 4,000 2,000 3,000Year 4 0 1,600 1,000Year 5 0 0 1,400Total 13,000 13,600 14,400

1. Net present value (NPV)The Net Present Value will be calculated by the following

formula:

14

The present value = S× 1(1+n)r

With S is the sum to be received after r time period

n is the rate of return

r is the number of time period

Project M

ProjectN

15

yearcash flows

(000) formula

presentvalue(000)

0 -10,000 -10,000

1 3000 2727.27

2 6000 4958.67

3 4000 3005.25

4 0 0

50

0(1+10%)5

0NPV 691.19

6000(1+10%)2

−10,000(1+10%)0

3000(1+10%)1

4000(1+10%)3

0(1+10%)4

yearcash flows

(000) formula

presentvalue(000)

0 -10,000 -10,000

1 5000 4545.45

2 5000 4132.23

3 2000 1502.62

4 1600 1092.82

50

0(1+10%)5

0

NPV 1237.12

−10,000(1+10%)0

5000(1+10%)1

5000(1+10%)2

2000(1+10%)3

1600(1+10%)4

Project P

As you can see the result, the NPV of the project P is thehighest number compare to other project M and project N. So here,we can see the project P will bring more profit to Thanh VinhCompany than other two projects that I have just mentioned above.

16

yearcash flows

(000) formula

presentvalue(000)

0 -10,000 -10,000

1 4000 3636.36

2 5000 4132.23

3 3000 2253.94

4 1000 683.01

51400

1400(1+10%)5

869.28NPV 1574.82

−10,000(1+10%)0

4000(1+10%)1

5000(1+10%)2

3000(1+10%)3

1000(1+10%)4

2. Internal rate of return (IRR)Next, we use another method to calculate and giving answer

which project is better, we can use IRR to do that, the formula of IRR will follow as:

IRR¿A+[ aa+|b|

× (B−A )] With A is the discount rate that provides positive NPV.

B is the discount rate that provides negative NPV.

a is the amount of positive NPV.

b is the amount of negative NPV. (with IRR > rmin)

We can choose whatever A, or B that we want and make a is a positive NVP and b is negative NPV.

Project M

I will choose A=12% and B=14%

NPV(A=12%) = 308.86

NPV(B=14%) = -51.73

Then we calculate the IRR of the project M:

IRR = 0.12 +[ 308.86308.86+|−51.73|

× (0.14−0.12 )]=¿13.7%

Project N

I will choose A= 16%, B= 18%

NPV(A=16%) = 191.14

NPV(B=18%) = -129.27

Then we calculate the IRR of the project N

17

IRR= 0.16+ [ 191.14191.14+|−129.27|

× (0.18−0.16) ] = 17.2%

Project P

I will choose A= 15%, B= 18%

NPV(A=15%) = 499.33

NPV(B= 18%) = -65.61

Then we calculate the IRR of the project B

IRR = 0.15 + [ 499.33499.33+|−65.61|

× (0.18−0.15 )] = 17.6%

As you can see the IRR of the project P has the highestpercentage of three project, so this means the project P is verygood, because the it has a very high chance of success, as wellas it will bring a better return for Thanh Vinh Company.

3. Profitability indexNext to compare the costs and the benefits of these three

project, we can use Profitability Index method to calculate it, we can calculate it by using the following formula:

Net Present Value

Profitability Index = -----------------------------

Initial Capital Cost

Project M

P.IM = 1+NPV(M)

Initialcapitalcost= 691.1910000 = 1.069

18

Project N

P.IN =1+NPV(N)

Initialcapitalcost=1237.1210000

=1,12

Project P

P.IP = 1+NPV (P )

Initialcapitalcost=1574.8210000 =1.15

As you can see here, the P.I of the project P is highest soI can see that, project P is a very good project that can helpThanh Vinh Company develop, and Thanh Vinh Company should focusesthe resources to the project P.

4. Accounting rate of returnTo make the comparison between the profit generated and the

cost of the investment, we can use the Accounting Rate of Returnto do that, it will be calculated by the following formula:

ARR = Averageannualreturn∨annualprofitInitialcostofinvestment∨cashoutlay

Project M

Average annual return: 13000 : 5 = 2600

ARRM = 260010000

=0.26=26%

Project N

19

Average annual return: 13,600 : 5 = 2720

ARRN = 2720010000

=0.272=27.2%

Project P

Average annual return: 14,400 : 5 = 2880

ARRP = 288010000

=0.288=28.8%

As you can see, the project P has the highest percentage, sothis means the profit that project P brings to Thanh Vinh Companymore than other 2 projects, at this point of view, I think,project P should be launched to help company generate profit.

.

5. Payback periodThis method can tell Thanh Vinh Company the length of time

taken to repay the initial capital cost. According to thisformula I can calculate the payback period

PaybackPeriod=(lastyearwithanegativeNCF )+( AbsoluteValueofNCF∈thatyearTotalCashFlow∈thefollowingyear )

(sources: zenwealth [15/6/2013])

Project M

Payback Period = 2 + (|-1000|÷ 4000) = 2 + 0.25 = 2.25 (Years)

20

Project N

Payback period = 1 + (|-5000| ÷ 5000) = 1 + 1 = 2 (Years)

Project P

Payback period = 2 + (|-1000| ÷3000) = 2 + 0.33 = 2.33 (Years)

As you can see, the project N helps Thanh Vinh Company repaythe initial capital cost faster than other two projects. Thiseasy to understand why the length of time taken to repay forproject N is short, because it has a great income at thebeginning of the project. So if Thanh Vinh Company wants to repaythe initial cost faster, company should choose the project M.

Here is the excel sheet that I calculate the NVP and the IRR

Below here, I will draw two charts to give you a clear lookabout the NPV and IRR of these three projects.

21

M N P$0.00

$200.00 $400.00 $600.00 $800.00

$1,000.00 $1,200.00 $1,400.00 $1,600.00 $1,800.00

NPV

NPV

As you can see here, the NPV chart, the figures of thesethree projects are very different from each other. And you cansee project M has the lowest figure and the project P has thehighest figure, so at this point of view Thanh Vinh Companyshould launch the project P.

In the IRR chart, the project M still has the lowest figure.However, the figures of project N and project P are more or less

22

M N P0%2%4%6%8%

10%12%14%16%18%20%

IRR

IRR

the same. But if you look closely, you can see that project P isthe highest figure, however, project N is also considering to belaunched depend on other methods, if other methods show thatproject N is better than project P, so Thanh Vinh Company canchoose the project N.

The main financial statements of VS Company LtdProfit and loss accounts

2011 2010£’000 £’000 £’000 £’000

Sales (Credit) 23,500 20,500Cost of sales 16,000 14,000Gross profit 7,500 6,500Distribution costs 2,000 1,900Administration costs 3,000 5,000 2,600 4,500Operating profit 2,500 2,000Interest payable 300 300Profit before taxation 2,200 1,700Taxation 1,200 1,020Profit after taxation 1,000 680Dividends paid and proposed 525 280Retained profit for theyear £475 £400

For Pontoon, the profit and loss account will tell companyhow their current business is, how company generates the money,how about the cost, does the cost increase or decrease. So thatcompany can find the solutions for the situation.

As you can see here, the sales (credit) of Pontoon isincreasing from £20,500 to £23,500. However, the cost of sale,distributing cost as well as administration cost are alsoincreasing (£2000 for cost of sales, £100 for distributing cost,

23

£400 for administration cost). In my opinion, there are tworeasons to explain for these increasing, first because theinflation that happens all around the world so they value ofmoney is decreasing, so company has to use more money to maintainthe normal situation of Pontoon. The second reason the price offuel is also increasing so it leads to other prices are alsoincreasing. But the operating profit in 2011 is still higher than2010, £500 more. The interest payable is still the same becausethe rate of interest when company borrows money from back doesnot change, so it’s still £300 for the interest payable. Thetaxation is also increasing because the sale of Pontoon isincreasing, because the Government will base on the sale ofcompany too decision how much tax that company have to pay, it isincreasing £80 more. And finally the Dividends Paid and Proposedis also increasing because when the sale increase, Pontoon has topay more dividends for their shareholders. And the retainedprofit for the year in 2011 is higher than 2010, £75 more, it’snot much but it also reflect the development of Pontoon, however,company should control their costs better so that company canincrease their retained profit. In short, most of the factors inprofit and loss accounts are increasing.

Balance sheet 2011 2010

£’000 £’000 £’000 £’000Tangible fixed assets 7,315 8,550Current assetsStock 5,100 3,200Debtors 2,900 1,900Prepayments 100 100Cash at bank 600 590

8,700 5,790Creditors – amounts falling due within one year

24

Trade creditors 2,025 1,100Proposed dividends 275 280Taxation 1,300 1,020

3,600 2,4005,100 3,390

Total assets less currentliabilities 12,415 11,940Creditors – amounts falling due after more than one year10% debenture stock 3,000 3,000NET ASSETS 9,415 8,940Capital and reservesShare capital – ordinary shares of £1 each 3,000 3,000Profit and loss account 6,415 5,940

9,415 8,940The balance sheet will help people who use it understand

about the assets, the liabilities, the debtors, creditors,expenses from that people can know what is the position ofcompany how company can raise money.

The tangible fixed assets are tend to decrease about £1000,maybe Pontoon sell some of their stuff to increase the capitaland prepare the cash for future investment. In the currentassets, most of the factors are increasing and stock has thecritical increasing with £2100 more, and other things, they arealso increasing but not much. Overlook the current asset, in 2011it’s £3090 more than in 2010, it shows that company is going inthe right way that helps company develops. The creditors are alsoincreasing but it’s not much, just about £1200. After that, wecan minus the current asset to creditors to see that, how muchmoney company has left and then summing the tangible fixed assetsto know the total asset less current liabilities. Then wecalculate the net assets by minus the total assets less currentliabilities that I have mentioned above to 10% debenture stock,so we have the result of the net assets is £9415. However, the

25

net assets must be equal with the sum of share capital and theprofit and loss account. As you can see here, both in 2011 and in2010 they meet the requirement that I mentioned above.

Cash flow statementPontoon Ltd

Statement of cash flows for the year ended

31st

March 2011

£'000

£'000

Cash flows from operating activities

Profit before taxation 2200Adjustments for:

Depreciation 0Amortization 0Investment income 0

2200Increase in trade receivables/debtor

-1200

Increase in inventories

-2600

Increase in short termborrowings 0Increase in trade payables 925

Cash generated from operations -675Interest paid -300

Tax paid-

1200

Net cash from operating activities-

2175

Cash flows from investing activitiesPurchase of property, plant and equipment

-5050

26

Purchase of intangible assets 0Proceeds from the sale of tangible fixed assets 1235Proceeds from sale of intangible assets 0Interest received 525

Net cash used in investing activities-

3290

Cash flows from financing activitiesProceeds from issue of share capital 3000Proceeds from long term borrowings 3000Dividend paid -525Net cash used in financing activities 5475

Net increase in cash and cash equivalents 10Cash & cash equivalents at startof the period 590Cash & cash equivalents at end of the period 600

The cash flow statement will tell you the cash inflow andthe cash outflow of the company from three different activities.They are operating activities, investing activities, financingactivities. In operating activities, it consists of producing,sale, purchase, buying materials, expenses or we can say it’sabout the cash inflow and outflow of company. In investingactivities, it’s about bank investment, selling and buying fixassets. Finally about financing, it’s about issuing share ordebenture. Because of all of these things, so I can say, the cashflow statement will tell us how company increase cash in company.Below here, I will make a cash flow statement of Pontoonstatement.

As you can see the profit before tax of Pontoon is £2200,you can see it from the profit and loss account and for Pontoonthere are no depreciation, amortization, investment income in

27

this case. As you can see the debtors is increasing £1200 socompany has to pay for that. On top of that, Pontoon also buymore £2600 (£5100-£2500), Pontoon doesn’t have a short termborrowing so it’s zero. As you can see from the balance sheet,the trade creditor is increasing £925 so we can transfer it toincrease in trade payables of the cash flow statement. After thatPontoon has to pay the interest pay for banks, £300, and pay thetax for the Government, £1200. After all of these we cancalculate the net cash from the operating activities, it’s minus£2175, so this means Pontoon does not generate any money, butPontoon has to spend more than what they earn. Next we go to theinvesting activities, Pontoon has bought a piece of land cost£5,050,000 so we can transfer this into cash flow statement, andbecause the fix assets of Pontoon in 2011 less than 2010, soPontoon has sold some of their fix assets so the cash inflow is£1235, Pontoon doesn’t have any intangible assets so it’s zero.As you can see the interest receive in 2011 is £525. And we havethe net cash used in investing activities, it’s minus £3290, thismeans Pontoon also can’t generate any money for this activities,same with operating activities. Finally we go to the financingactivities the share capital and long term borrowing are also£3000, and Pontoon have to pay the dividend for theirshareholders, £525. With £5475, Pontoon generates some cash topay for their expenses. After that we sum up all the net cash inoperating activities, investing activities and financingactivities, and the result that Pontoon has improved £10 from2010 to 2011. So here we have the opening balance is £590, andthe closing balance is £600, the improvement is not very much, Ithink Pontoon needs to control their expenses better so I believethat in the future, Pontoon can have more profit. To help youeasy to understand, I will draw a chart below here:

28

Formats of financial statements for different types of business

First to understand the format of financial statements fordifferent types of business(in this case I will mention threetypes of business, they are sole trader, partnership and limitedcompany), we have to know what is the differences between thesethree businesses. Below here, I will give you some maindifferences:

Sole trader

In my opinion, this is the most straightforward structure,you just have to worry the day by day basis problems, howeverit’s just suitable with small business. You will be self-employed, there is no other stuff, you will be the employee,employer, manager, in other words, you take the responsibilitiesfrom all tasks and you have to everything by yourself. On top ofthat, when being a sole trader you won’t need to pay anyregistration fees; and record-keeping and bookkeeping. And whenthe business fails, you will be the one and just only you willpay the debts when you operate your business.

29

10

100

200

300

400

500

600

700

Net increase in cash and cash equivalentsCash & cash equivalents at start of the periodCash & cash equivalents at end of the period

Partnerships

Partnerships just like many sole trader that have the sameobjectives and purposes come together and make a bigger business.In this business, each partner is considered to be self-employed.To have the right to become partnerships, each member have tosubmit personal self-assessment tax return annually. It’s normalwhen you have a conflict with other people when you work withmany people, so the partnerships create the partnershipoutlining. They can base on this agreement to solve the problemslike the percentage of debts and profits that each member willreceive, and what they will do when a partner wants to leave ordie, the solicitor will be in charge of doing this. And it’simportant to know that, the creators can claim or even take yourpersonal assets when the debts are high even if it’s yourpartner’s debts.

Limited company

When company has the debts none will take your personalassets. On top of that, profit from the sales of company has todivide and share the profit to shareholders, it’s calleddividend. Furthermore, shareholders can leave dividend in thebusiness to increase the working capital. Company will have tosubmit accounts and corporation tax returns – and the chances arethat you will have to prepare a personal self-assessment taxreturn each year to report to HMRC on your salary (if yourcompany pays you one) and any dividends the company pays to you.

(sources: unbiased.co.uk[14/6/2013])

And below here, I will show you the financial statement likeincome statement and balance sheet of each types of business.

Sole traderIncome statement (single –step format)

Income statement30

£000£000

Revenue

Net sales xxxx

Rent revenue xxxx

Interest revenue xxxx

--------

Total Revenue xxxxx

Expenses:

Cost of Goods Sole xxxx

Salaries and wages xxxx

Advertising xxxx

Freight out xxxx

Depreciation xxxx

Taxes and licenses xxxx

Rent xxxx

Interest expense xxxx

Loss on sale of assets xxxx

Property taxes xxxx

--------

Total expensexxxx

--------

Net Income xxxx

31

Statement of owner’s capitalStatement of owner’s capital

£000Beginning balance xxxx

Net income xxxx

Withdrawalsxxxx

Ending balancexxxx

Balance sheetBalance sheet

ASSETS

£000 £000

32

Current Assets:

Cash xxxx

Short-term investments/marketable securities xxxx

Accounts receivable, net xxxx

Inventory xxxx

Prepaid rent xxxx

Office supplies on hand xxxx

Total current assetsxxxx

Fix Assets:

Long-term investments xxxx

Land xxxx

Building xxxx

Machinery & equipment xxxx

Less accumulated depreciation xxxx

Patents xxxx

Total fix assets xxxx

Total Assets xxxx

LIABILITIES

Current Liabilities:

Accounts payable xxxx

Notes payable xxxx

Interest payable xxxx

Wages payable xxxx

Total current liabilities xxxx

33

Long-Term Liabilities:

Mortgage payable xxxx

Bonds payable xxxx

Total long-term liabilities xxxx

Total Liabilities

OWER’S CAPITAL

Owner’s capital xxxx

Total Liabilities and Owner’s Equity xxxx

PartnershipsFor example my partners is Jenny and Jack

Income statement Income statement

£000 £000

Revenue

Net Sales xxxx

Rent revenue xxxx

Interest revenue xxxx

--------

34

Total Revenue xxxx

Expenses:

Cost of Goods Sold xxxx

Salaries and wages xxxx

Advertising xxxx

Freight out xxxx

Depreciation xxxx

Taxes and licenses xxxx

Rent xxxx

Interest expense xxxx

Loss on sale of assets xxxx

Property taxes xxxx

-------- xxxx

Total expense

--------

Net Income xxxx

Statement of partners’ capitalStatement of partners’ capital

JennyJack Totals

£000 £000 £000

Beginning balance xxxx xxxxxxxx

35

Net income xxxx xxxxxxxx

Withdrawals xxxx xxxxxxxx

Ending balance xxxx xxxxxxxx

Balance sheetBalance sheet

ASSEST

£000 £000

Current Assets:

Cash xxxx

Short-term investments/marketable securities xxxx

Accounts receivable, net xxxx

Inventory xxxx

Prepaid rent xxxx

Office supplies on hand xxxx

Total current assets xxxx

Fix Assets:

Long-term investments xxxx

Land xxxx

36

Building xxxx

Machinery & equipment xxxx

Less accumulated depreciation xxxx

Patents xxxx

Total fix assets xxxx

Total Assets xxxx

LIABILITIES

Current Liabilities:

Accounts payable xxxx

Notes payable xxxx

Interest payable xxxx

Wages payable xxxx

Total current liabilities xxxx

Long-Term Liabilities:

Mortgage payable xxxx

Bonds payable xxxx

Total long-term liabilities xxxx

Total Liabilities xxxx

PARTNER’S CAPITAL

Jack, Capital xxxx

Jenny, Capital xxxx

Total Partners’ Capital xxxx

Total Liabilities and Owner’s Equity xxxx

37

Limited companyBalance sheet

Balance sheet

2012 2011

£000 £000 £000£000

ASSETS

Tangible fixed assets xxxxxxxx

Current assets

Cash xxxx xxxx

Accounts receivable xxxx xxxx

Deposits and prepaid expenses xxxx xxxx

Inventory xxxx xxxx

Property, plant and equipment xxxx xxxx

Investment xxxx xxxx

xxxx xxxx

LIABILITIES

Current

Bank overdraft xxxx xxxx

Bank loan xxxx xxxx

38

Accounts payable and accrued liabilities xxxx xxxx

Long-term debt - current portionxxxx xxxx

Income tax payable xxxx xxxx

Due to shareholder xxxx xxxx

Long term debts xxxx xxxx

Shareholder’s equity xxxx xxxx

Stated capital xxxx xxxx

Retained earning xxxx xxxx

xxxx xxxx

Statement of income and retained earningStatement of income and retained earning

2012 2011

£000 £000

REVENUE

Cost of sales xxxx xxxx

Opening inventory xxxx xxxx

Delivery xxxx xxxx

Purchases xxxx xxxx

Closing inventory xxxx xxxx

Gross profit xxxx xxxx

Operating expenses xxxx xxxx

Income from operating xxxx xxxx

39

Other income

Loss on disposal of property, plant and equipmentxxxx xxxx

Gain on sale of investment xxxx xxxx

Miscellaneous xxxx xxxx

Net income before tax xxxx xxxx

Income tax expenses xxxx xxxx

Net income xxxx xxxx

(Deficit) - Beginning of Year xxxx xxxx

Dividends xxxx xxxx

Retained earnings (Deficit) - End of Year xxxxxxxx

Below here, I will summarize the similarities and the maindifferences of these formats.

Similarities

The income statement of all these formats is recording theincome and expenses for the operating activities.

The balance sheet of all the formats is showing the assets,the liabilities and the capital in the specific time.

Differences

For sole trader, the financial statement for sole trader iskind of simple, because the report is just used by the owner. Theprofit and loss account and the balance sheet just need to show acomparison to public limited liability company that base oninternational financial reporting standard (IFRS) and generallyaccepted accounting principle (GAAP). On top of that, in thisfinancial statement, to be exact, in balance sheet, it’s doesn’thave dividend because sole trader doesn’t have shareholders.

40

For partnership, the financial statement has the relation tothe interest to each partner. The main things that the financialwill show in this business are the balance sheet, profit, income,outcome and the loss statement. When making financial statement,company should make the income statement first because the netincome and the loss will become a part of partner’s capital. Justlike the sole trader, balance sheet of partnership doesn’t havedividend because this type of company just have the relationbetween partner to partner, doesn’t have manager to shareholder.

For limited company, the financial shows the current andnon-current assets, liabilities, sales, profit, cost of incometax payable and earning per share, and the dividend because theyhave shareholders.

(sources: http://www.studymode.com/essays/The-Different-Between-The-Formats-Of-729498.html[15/6/2013])

Using appropriate ratios and comparisons, bothinternal and external for financial statement

2011 2010Profit and lossaccounts £’000 £’000 £’000 £’000Sales (Credit) 23,500 20,500Cost of sales 16,000 14,000Gross profit 7,500 6,500Distribution costs 2,000 1,900Administration costs 3,000 5,000 2,600 4,500Operating profit 2,500 2,000Interest payable 300 300Profit before taxation 2,200 1,700Taxation 1,200 1,020Profit after taxation 1,000 680Dividends paid andproposed 525 280Retained profit forthe year

£475 400

41

Balance Sheets £’000 £’000 £’000 £’000Tangible fixed assets 7,315 8,550Current assetsStock 5,100 3,200Debtors 2,900 1,900Prepayments 100 100Cash at bank 600 590

8,700 5,790Creditors – amountsfalling due within oneyearTrade creditors 2,025 1,100Proposed dividends 275 280Taxation 1,300 1,020

3,600 2,400WC 5,100 3,390Total assets lesscurrent liabilities 12,415 11,940Creditors – amountsfalling due after morethan one year10% debenture stock 3,000 3,000NET ASSETS 9,415 8,940Capital and reservesShare capital –ordinary shares of £1each 3,000 3,000Profit and lossaccount 6,415 5,940

9,415 8,940

Capital employed 12,415

11,940

Share price(31/3/2010) N/A 0.7Number of shares

42

3,000 3,000Earnings forshareholders

578

350

Earnings per share 0.1925 0.117P/E N/A 6.0

1. Return on capital employed (ROCE)The return on capital employed can be understand like this

it’s a ratio that indicates the efficiency and profitability of acompany's capital investments.

(sources: investopedia[17/6/2013])

Returnoncapitalemployed(ROCE)=Netprofitbeforetaxation∧interestCapitalemployed

In 2010

2,0008,940+3,000

=0.17=17%

In 2011

2,5009,415+3,000

=0.2=20%

So here, we will calculate this ration by divide theOperating profit to Capital employed, in 2010 in Pontoon Ltd it’sabout 0.17 (17%) and in 2011 it’s about 0.2 (20%).

For the internal comparison, Pontoon Ltd has improved a lotafter one year. If you look closely, you can see that Pontoon in2011 has increased in two figures, both in Operating profit andCapital employed. This means Pontoon has increased the sales,producing on decreased the cost of buying materials and expenses.

43

On top of that, the capital employed also increases, so companyhas generated more capital than 2010 or more shareholders areinvesting in Pontoon Ltd.

With another company the same industry, in 2011, the ratiois 15% and Pontoon is 20%, it’s much more higher than anothercompany. The high profit earned for £1 each invested in Pontoon’sstock. Below here, I will draw a chart that helps you to see thedifferent easier.

2. Net profit RatioTo calculate the net profit ratio we can divide the

operating profit to the sale to the sale because the operatingprofit has a link to the sale of company, if the sales are high,operating profit is high because the money of selling products ispart of operating profit. We can calculate by using this formula:

NetprofitRatio=Netprofitbeforetaxation∧interest

Sales

44

Industry2011

Pontoon Ltd2011

Pontoon Ltd2010

0%

5%

10%

15%

20%

25%

ROCE

ROCE

In 2010

2,00020,500

=0.1=10%

In 2011

2,50023,500

=0.11=11%

So here, we can see that, the net profit ratio is 2010 is10% and in 2011 is 11%. Internal comparison we can see that, in2011 the net profit ratio is higher than net profit ratio is 2010because in 2011 the sales as well as the operating profit isincreasing, maybe Pontoon has used some promoting strategies toincrease the sales.

Comparing with another company, Pontoon is also higher, 10%for another company (same as Pontoon Ltd in 2010). At this time,it looks like Pontoon is going on the right way and earning more

45

8%

10%

12%

Net profit before tax and interest to sales

Same firm Pontoon 2011 Pontoon 2010

profit in sales than another company. Here, I will show you thechart that presents these figures.

3. Assets turnover ratio

To calculate this ration, we can calculate by this formula SalesAssets

In 2010

20,5008,940+3,000

=1.7

In 2011

23,5009,415+3,000

=1.9

We can divide the sales to the total of the assets ofcompany, so here, we can calculate the assets turnover ratio in2010 is 1.7 times and in 2011 is 1.9 times. As you can see, themain reason that help assets turnover ratio in 2011 higher than2010 is about the sales, the sale much more higher than 2010,like I say above, Pontoon may use some strategies to increase thesales, but whatever it is, it works very well.

With another company, Pontoon has higher figure, this meansthat this will be help Pontoon makes higher return on capitalemployed than similar company. This chart bellows will show it.

46

4. Gross profit ratio

Grossprofit¿sale=Grossprofit

Sales×100%

In 2010

6,50020,500

×100%=31.71%

In 2011

7,50023,500

×100%=31.91%

Although the sales in 2011 is increasing but this ratiodoesn’t change because the cost of sales also increasing too, soI can say that, Pontoon Ltd still can’t improve itself to reducethe cost of sales like raw materials, labor cost or somethinglike that.

Compare with another company, another company, this ratio is35%, higher than Pontoon Ltd, this means another company control

47

Industry2011

Pontoon Ltd2011

Pontoon Ltd2010

0.00 0.50 1.00 1.50 2.00

Assets turnover Ratio

Assets turnover Ratio

the cost better than Pontoon. I think if Pontoon doesn’t know howto control the cost soon, company will have a big trouble in thefuture.

5. Current

ratio

Currentratio= CurrentassetsCurrentliabilities

In 2010

5,7902,400

=2.4

In 2011

8,7003,600

=2.4

At you can see, in 2010, this ratio is about 2.4, samefigure in 2011, because the current assets and the currentliabilities in both years are increasing so it can maintain thefigure. For this figure, it’s kind of high because Pontoon has

48

Industry2011

Pontoon Ltd2011

Pontoon Ltd2010

30% 31% 32% 33% 34% 35% 36%

Gross Profit to Sale

Gross Profit to Sale

2.4 current assets to pay for 1 current liabilities, so it cancreate a competitive advantage for Pontoon in future.

Comparing with other company, another company has 2.2current assets to pay for 1 current liabilities, with Pontoon Ltdthis figure is higher, and in the future, if there are someproblem about the economy, Pontoon will have advantages comparewith another company.

6. Quick ratio

Quickratio=Currentassets−StocksCurrentliabilities

In 2010

5,790−3,2002,400

=1.08

49

Industry2011

Pontoon Ltd2011

Pontoon Ltd2010

2.05 2.1 2.15 2.2 2.25 2.3 2.35 2.4 2.45

Current Ratio

Current Ratio

In 2011

8,7000−5,1003,600

=1

For the quick ratio, in 2011 it reduces a little bit than2010 because the current liabilities are kind of high, it’s showthat Pontoon Ltd has used more than what they have in 2011, ifcompany don’t know how to control the liabilities, they will havea big trouble about paying the liabilities.

Compare with another company, Pontoon Ltd is lower. As I sayabove, Pontoon has used more than what they reduce, and if theyjust do like this, and keep decreasing, although the sales inincreasing compare with other companies, but still Pontoon don’thave much profit.

Industry2011

Pontoon Ltd2011

Pontoon Ltd2010

0.94 0.96 0.98 1 1.02 1.04 1.06 1.08 1.1 1.12

Quick Ratio

Quick Ratio

50

7. Average age of debtors

Averageageofdebtors=Debtors×365

Sales

In 2010

1,900×36520,500

=34

In 2011

2,900×36523.500

=45

As you can see, from 2010 to 2011 debtors are their debtslater, it’s not good for Pontoon Ltd, because late in receivingmoney from debtors mean that company will not have enough moneyto pay for the expenses. On top of that, if Pontoon doesn’t knowhow to control the average age of debtors the bad debts mayincrease, it’s a bad impact to company.

Compare with another company, Pontoon still has a good ageof debtors, so Pontoon should maintain the competitive advantagesof company

51

Industry2011

Pontoon Ltd2011

Pontoon Ltd2010

0 10 20 30 40 50 60 70 80

Average Age of Debtors

Average Age of Debtors

8. Average age of stock

Averageageofstock= Stock×365Costofsales

In 2010

3,200×36514,000 = 83

In 2011

5,100×36516,000

=116

As you can see, the number of days that stock can convertinto cash is increasing. Maybe it takes the impact from the

52

economy so people as well as other companies reduce theirexpenses, so it’s hard for Pontoon to convert stock into cash.

Compare with another company, Pontoon still have a positivenumbers. I think Pontoon should maintain this competitiveadvantage to increase company’s profit.

Industry2011

Pontoon Ltd2011

Pontoon Ltd2010

0 50 100 150 200 250

Average age of Stock

Average age of Stock

9. Interest coverage ratio

Interestcoverage=Netprofitbeforeinterest∧taxation

InterestchargesIn 2010

2,000300

= 7

In 2011

2,500300

=8

53

As you can see that, the interest coverage ratio of PontoonLtd has increased with a good sign. This number has two meaning,first Pontoon has increased the sales so the profit alsoincreases too, so it can cover the interest charges with highernumber, the second meaning is Pontoon Ltd reduces the loan forbanks or some things like that, or the interest charges alsodecrease. But whatever Pontoon has done, it’s still very good.

Comparing with another company, Pontoon Ltd has the interestcoverage ratio much more higher than another company at the sameindustry. This also means after paying the tax, Pontoon Ltd hasmore profit than other companies, so company can take some ofprofit and put it to the retained earning so Pontoon can investfor bigger project in the future.

10. Gearing ratio

Gearingratio=Long−termloancapitalShareholders'funds

54

Industry2011

Pontoon Ltd2011

Pontoon Ltd2010

0 1 2 3 4 5 6 7 8 9

Interest Coverage Ratio

Interest Coverage Ratio

In 2010

3,0008,940

=0.34

In 2011

3,0009,415

=0.32

Comparing two year of Pontoon Ltd, we can see that thegearing ratio of two years are more or less the same. But you caneasily see that, the long term loan capital if two years are nochange, however, the shareholders’ fund is slightly increasing.If the situation of Pontoon Ltd just likes this, long term loancapital is no change but shareholders’ funds is increasing,company will have use the retained earnings or profit of companyto pay for shareholders’ funds.

Comparing with another company, we can see that, the numberof gear ratio of Pontoon Ltd, it’s very small compare to anothercompany’s ratio, so Pontoon needs to increase the long term loan,because in the future it’s will help company to purchase some fixassets easier.

Industry2011

Pontoon Ltd2011

Pontoon Ltd2010

1.00

0.32

0.34

Gearing RatioGearing Ratio

55

11. Price/earnings ratio

Priceratio=Shareprice

Theearningspershare=

SharecapitalNumberofshares

EarningsforshareholdersNumberofshares

In 2010

3,000+(−700)+(−200)

3,0001280

680×(1,700−1,700×50%)3,0001

=

2,1003,0003503000

=0.7

0.117=6.0

In 2011: Not AvailableBecause the price/earnings ratio in 2011 is not available so

here, I will compare about my forecasting price/earnings ratio in2011. In my opinion, this ratio is 2011 will be increasing because as you can see the Earnings from shareholders is increasing from 350 to 578. So company is going on the right way.

Comparing with other company, Pontoon will be more or less the same with other company. However, Pontoon has to try harder to become a successful company and attract more shareholders to help Pontoon increases the number of shares as well as earnings from shareholders.

56

According to these ratio that I have done above, I can seethat, Pontoon has a very good sign to develop in the future. ButI think Pontoon should improve their gearing ratio, because asyou can see, it’s low than the last year and with anothercompany. So company should increase the long term loan so it canhelp to improve Pontoon’s gearing ratio. And with other ratios, Ithink, they are very good.

Report

S. Smith

Director of Pontoon Ltd

Nguyen Si Kien

Financial Manager

Subject: Summarizing the financial statement

Dear Sir,57

Industry2011

Pontoon Ltd2011

Pontoon Ltd2010

0 1 2 3 4 5 6 7 8

Price/Earnings Ratio

Price/Earnings Ratio

As you can see, our sales are increasing at very good sign,however you can see in the profit and loss account the retainedprofit for the year is just £75,000 more than the last yearalthough the sales increasing £3,000,000 more than the last year,so I can that the cost of our company is kind of high especiallythe cost of sales and materials cost. And when you look at thebalance sheet you can see that our current assets and currentliabilities are both increasing, but current assets areincreasing better than current liabilities. Next, we move to thecash flow statement, you may not be happy when how know that, theoperating activities and investing activities are not bringingprofit to our company, but company has to spend more for twothese activities, but luckily, the financing activities bring tous a lot of profit so we can pay for the loss above. And this isa reason that, the closing balance is just improving £10,000compare to the opening balance. By the way, I think I have asolution for that problem, company should issue some additionalshare to increasing the gearing ratio and have more capital topay for the materials cost of company because it’s very hard tocontrol the materials cost at this time. For more details, I canmeet you at your office and say more about these things.

Signature

Kien

ConclusionWith budgeting decision, costing and pricing decision,

investment decision, and financial of Thanh Vinh Company as well

58

as Pontoon Ltd, it shows that Thanh Vinh is a very successfulcompany, this company increasing their sales with a great number.I can say, most of things like income statement, profit and lossaccount and balance sheet of Thanh Vinh Company is show thatThanh Vinh Company is a potential company that can develop more,and the decision of the top managers is to invest in differentfields is a right choice, it’s help company expand their marketso this means more profit will come, sales increase and moreshareholders will company. However, the financial statement alsoshows that Thanh Vinh Company is in problem with controllingmaterials, the cost of materials are too high, so top managersshow know that and giving some solutions that help Thanh VinhCompany improves in the future.

References"Business Structure." Unbiased.co.uk. N.p., n.d. Web. 14 June 2013.

<http://www.unbiased.co.uk/business-structure>.

C, Miriam. "What Is Budget Analysis? | EHow." EHow. Demand

Media, 29 Dec. 2010. Web. 17 June 2013.

<http://www.ehow.com/info_7760085_budget-analysis.html>.

"Payback Period." Payback Period. N.p., n.d. Web. 15 June 2013.

<http://www.zenwealth.com/BusinessFinanceOnline/CB/PaybackPe

riod.html>.

59

"Return On Capital Employed - ROCE." Return On Capital Employed (ROCE)

Definition. N.p., n.d. Web. 17 June 2013.

<http://www.investopedia.com/terms/r/roce.asp>.

"Simply the next Logical Steponline Accounting System." What Is a

Budget? N.p., n.d. Web. 17 June 2013. <http://www.e-

conomic.co.uk/accountingsystem/glossary/budget>.

60