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Unit 6 - Financial Accounting D2
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- PEARSON (PEARSON)
Unit 6 - Financial Accounting D2 D2 evaluate the changes in the financial position of a limited company using a cash flow statement.
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By: Abdulalahaljobore • 3 year ago
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Abdulalah Al-JoboreUnit 6: Financial Accounting
D2
D2 evaluate the changes in the financial position of a limited company using a cash flow
statement.
In this task, I will be evaluating the changes in the financial position of Jones Haulages Ltd using a
cash flow statement as well as making suggestions/recommendations on how the business could
improve the financial positions of the business.
A cash flow statement is a great place to first look when initially analysing and evaluating the
financial position of Jones Haulages Ltd, as it is indicative of how well the company can convert net
income into cash; it also helps to determine if the company is a in a negative or positive position. By
using the Trading, Profit and Loss accounts and the balance sheet of Jones Haulage business, we can
see that these two statements show the account figures of the business in 2015 and 2016 which can
help to compare both figures from the two years ,as well as showing you the financial positions of
the business and how well they are.
The financial position of the business looks really healthy as the figures has changed too much since
2015. The sales in 2015 were £55,250, however, in 2016 it had a total of sales of £863,000 which
seems that the business’s sales has increased too fast since the last year. Therefore, the gross profit
has increased doubles times in 2016, therefore now they have a net profit of 53,340 in 2016 which
shows how profitable company they are. These figures in the profit and loss account shows a huge
increase in the profit, therefore, these two statement shows business’s financial position is healthy
due to the fact that are making more profit than last year in 2015. However, this does not mean that
the business is healthy and doing well as an overall view with analyse of its cash flow statement.
The working capital of Jones Haulage shows whether the business have enough short term assets
(such cash and bank) to pay back the short term debts (such loan and creditors). Therefore, when we
calculating the working capital of Jones Haulage for 2015, we can know that they have a positive
working capital (£19160) which means that they was able to pay the short-term-debt obligations.
However in 2016, the working capital was -£27680, which shows a negative working capital, and
therefore they are not able to able to pay their short-term-debt obligations.
Moreover, these the working capital figures shows that the liquidity positions of the business has
deteriorate from 2015 to 2016 as it indicated by the table above. We can see that the current asset
in 2015 was more than the current liabilities, which shows that they are able to pay back their short-
term-debt obligations. However in 2016, the current assets was less than their current liabilities
which means they do not have enough available cash to pay back their short-term-debt obligations.
Although the business’s current assets in 2016 was higher than the last year in 2016, but their
liabilities has increased due to the changes in their short-term-debt obligations. For example, you
can see that the business has a loan of £61840, however in 2015 they has had a loan. This change in
the figures lead to have negative working capital in 2016, therefore they did not have enough
available cash to pay back their short-term-debt obligations.
Jones Haulage Ltd have used their funds to purchase assets new assets. For example, they used the
funds to purchase assets in 2015, these purchases include the purchases of machine and vans at the
total of £32,000. In addition, in 2016, the business’s purchases include: purchase of the premises at
£100,000, the purchase of the machine at £30,000 and the purchase of the vans at 60,000.
Moreover, the business borrow a massive loan of £61,840 in 2016 as a source of finance for the
company. Therefore, the company needs to pay the interest of the loan back as the cost of finance
for the company. Overall, the balance sheet of Jones Haulage Ltd shows that the company has a lot
of money going out in 2016 as their liabilities (£78,700) was much higher than their assets (£51,020).
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