Financial Statement Analysis

Read through the requirements below, and then complete all parts of the assessment and then save your work as either a Word document or a PDF file. Once you have saved your work click on the Assessment submission link within this topic and upload your completed assessment to your tutor for marking.

Required

Question 1

A. Identify and discuss the benefits and limitations of Ratio Analysis

B. In your own words explain the difference between Horizontal Analysis and Vertical
Analysis.

Question 2

You have been provided with a summary of the Profit & Loss data and Balance Sheet data
for the past three years for Cooks & Cleans Limited (CCL).

CCL are a home handy service that are called into people’s homes to cook and clean for
them. CCL uses their own ingredients and cleaning equipment which is managed under a
Periodic Inventory System.

In the past three years CCL have invested significant funds into marketing both in print and
online to increase their customer base and therefore boost income. They are wanting to
employ more staff to ensure they are able to meet the demand when the expected demand
for their services increase.

Cooks & Cleans Limited: Profit and Loss Statement

Cooks & Cleans Limited: Balance Sheet

Part A

Using the Horizontal analysis approach, you are required to analyse the data and then
highlight three areas that the owners need to look into in more detail. You must also
provide a brief explanation to support each of the three areas you highlight that need to
be investigated.

Part B

Using the financial information provided for Cooks & Cleans Limited, you are now required
to use ratios to analyse the financial statements.

You may find it useful to know the following 20X4 balance sheet figures:

• Total Assets – 44,880
•  Accounts Receivable – 2,745

• Task:

  Using the following table, you MUST state the formula and provide the ratio calculations for
  20X5, 20X6 and 20X7. Your final answer should be stated in the green box. In the grey box
  you MUST provide an evaluation and recommendation based on your findings: