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- Module
- Unit 2 - Business Resources
- Institution
- PEARSON (PEARSON)
Btec level 3 Business studies extended diploma, I achieved a distinction with this unit and I never had to submit rework.
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Unit 2: business resourcesP5: Interpret the contents of a trading and profit and loss account and balance sheet
for a selected business
From the trading account of business Alpha i can see that they are making more sales
revenue than business beta this is because business is making £3,057,000 in sales revenue
when compared with business b’s £1,628,000. When comparing both businesses we can
see that business alpha has a gross profit of £410,000 whereas for business beta they
commanded a gross profit of £717,000 showing that they made a lot more profit than
business but there costs of sales are huge when compared to the sales cost of business
beta in comparison the cost of sales in business A is £2,647,000 and the cost of the sale of
business b is £911,000 which leaves them with a smaller gross profit than business b.
Then they have less expenses than business b with their expenses sitting at £366,000 and
business b’s expenses at £648,000 nearly double than business A this means that they are
paying less on their outgoings but it still leaves them as the less profitable business than
business b as they have a net profit of £44,000 compared to business beta net profit of
£69,000.The profit and loss sheets of these two businesses are different as we can see that
one business is making more than double profits than another business this shows that beta
is very successful when compared to alpha. To calculate the gross profit you must take away
costs of goods from the revenue made this can be seen in the trading account where
business Alpha had a gross profit of £410,000 and business Beta had a gross profit of
£717,000 this shows that they were operating at a higher capacity utilization than business
Alpha as their costs of goods were lower. And to calculate the net profit you would have to
take away expenses from the gross profit and this left business Alpha with a net profit of
£44,000 and beta with a net profit of £69,000. As you are taking away expenses from the
gross profit to make the net profit and the expenses of business a and b are £366,000 and
£648,000 respectively.
Furthermore from the balance sheet we can see that business beta is the more profitable
business as we can see that they have almost double the current assets of business alpha.
As the current assets of business b stands at £507,000 meanwhile the current assets of
business A stands at £251,000, From this we can see that they are working at a higher
profitability as there net assets come to an amount of £850,000 compared to business Alpha
whom has a total is £400,000 this shows that they are making less yearly profit meaning that
investors would be more likely to invest in business B as they can receive more money back
in dividends and may feel as they are earning this amount of money it can be less risky to
invest than investing in business Alpha. There net assets stands at these numbers due to
business A owing £195,000 to creditors which when calculating there working capital they
have to take away their fixed assets from creditors leaving them with a working capital of
£56,000. While business b has a higher working capital that sits at £295,000 due to their
huge current assets which sits at £507,000 leaving their working capital at £295,000 due to
them owing creditors £212,000 this means that they owe more money to businesses or
suppliers and has to be paid back within a certain period of time. Also within the balance
sheet we can see that Alpha has fixed assets resulting in the amount of £344,000 this
means that the have money stored in assets in the long term such as land,equipment or
, buildings whereas, Beta has fixed assets of £550,000 this also helps to work out the net
assets as them having more means that they are making more than double of business A.
To calculate the working capital of a business you need to take away the current liabilities
from the current assets. In doing this you would find that business Alpha has the current
working capital of £56,000 and business B has the current working capital of £295,000 this
means that this money can be used for expansion of upgrading facilities which business
Beta can do more of. Last to calculate the net assets you have to minus all the businesses
liabilities from all their current assets, this means that business alpha has a lower net assets
than Beta as their net assets is £400,000 whereas the net assets of alpha is £850,000
showing that they manage their assets very well. The capital section includes the capital and
net profit also the closing capital which is the money that the business made at the end of
the year. The net profit came from the trading account and the capital is the funds that they
obtained. The closing capital of business Alpha is £400,000 showing that they are operating
at a profit as they have a closing capital of £356,000 and a net profit of £44,000 and a big
one but when compared with business Beta there closing balance sits at £850,000 due to
the closing capital of the year sitting at £781,000 and their net profit sitting at £69,000 thus
showing that they are operating at a higher level than the other business.
P7: Illustrate the financial state of a given business.
Business Alpha Business Beta
Gross profit % Gross profit/ 410,000/ Gross profit/ 717,000/
of sales sales x 100 3,057,000 x 100 sales x 100 1,628,000 x 100
=13.4% =44%
Net profit % of Net Profit ⁄ Total 44,000/ Net Profit ⁄ Total 69,000/
sales revenue x 100 3,057,000 x 100 revenue x 100 1,628,000 x 100
= 1.44% = 4.2%
Return on Operating 410,000/400,00 Operating 717,000 /
capital profit/capital 0 x 100 = profit/capital 850,000 x 100 =
employed employed x 100 102.5% employed x 100 84.4%
Current ratio Current assets/ 251,000/195,00 Current assets/ 507,000/
current liabilities 0 = 1.3 : 1 current liabilities 212,000 = 2.3 :1
Liquidity/ acid (Current assets - 251,000- (Current assets 507,000-
test ratio closing stock) / 242,000 = 9,000 - closing stock) / 237,000 =
current liabilities 9,000/ 195,000 current liabilities 270,000
= 0.05 : 1 270,000/
212,000 =
1.3 : 1
Debtors’ (Trade debtors/ (6,000/ (Trade debtors/ (269,000/1,628,
payment revenue) x 365) / 3,057,000) x revenue) x 365 000) x 365 =
period sales 365 = 0.72- 72 60.31- 60 days
days
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