Managing Financial Performance and Managerial Finance

The work is to be 8 pages with three to five sources, with in-text citations and a reference page. When the income statement is considered, the items of income and expenses are expressed as percentages of total sales. Considering the balance sheet, the items of assets and liabilities are expressed as percentages of the total assets and total liabilities respectively (Pratt, 2010, p.189). In common size statements, the monetary amounts are converted and expressed in percentages. These statements arranged for one company for a few years “highlight the relative changes in each group of income, expenses, assets, and liabilities” (Khan & Jain, 2007, p.6.38). Appendix 1 shows the vertical analysis of the items of the income statement for the company from the year 2008 to 2010. The revenue has been considered as 100 percent and the other items have been expressed over the revenue. From the figures, it can be understood that the percentage of net profit has been increasing over the three years from 8.59% in 2008 to 11.04% in 2010, which can be considered as a symbol of improvement for the company. If the gross profit is considered, the percentages are very high being 44.61% in 2008 and increasing over the years to 46.79% in 2010.&nbsp.Appendix 2 represents the vertical analysis of the balance sheets from which it can be analyzed that the total non-current assets have increased in the three years particularly with respect to plants and equipment from 51.32% in 2008 to 54.94% in 2010. On the other hand, current assets have shown a decrease in the inventories from 39.31% in 2008 to 31.89% in 2010, which may indicate that the company’s sales are improving which have lessened the inventory level. The cash level has however reflected a fluctuation over these three years moving up from 1.84% in 2008 to 12.83% in 2009 and again declined to 7.84% in 2010. Thus the company should have its focus on the cash level. Considering the liabilities, loans and borrowings fell to 0% in 2009 and 2010 from 14.40% in 2008, which reflects lesser dependency of the company on external funds. However, the total current liabilities of the company have shown an increase over the years from 84.60% in 2008 to 99.82% in 2010 which may be owing to increasing trade payables and taxations. Appendix 3 and 4 represent the horizontal analysis of the income statement and balance sheet that reflects the improvement of the company over the three years considering 2008 as the base year, reflecting increases in net profits, incomes, and assets, although liabilities have also increased over the three years. Ratio Analysis: Appendix 5 shows the calculations of ratios for ratio analysis. Networking capital is the difference between the current assets and the current liabilities (Gallagher & Andrew, 2007, p.479). This is a measure of a company’s liquidity. It can be analyzed from the financials of the company that the networking capital that was ?16,769,000 in 2008 increased to ?18,285,000.

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