Financial Performance And Position Analysis Of Buzzard Ltd

Vertical Analysis of Income Statement and Balance Sheet for 2009 and 2010

1. Prepare a vertical analysis of the income statement and balance sheet of Buzzard Ltd based on revenue and net assets respectively, for 2009 and 2010.

2. Prepare a horizontal analysis of the income statement, balance sheet, and the segmental analysis from note 1 to the accounts, using 2009 as base 100.

3. Prepare a value added statement for the income statement for 2009 and 2010 and a vertical analysis of the value added statement for both years.

4. Prepare a report on the financial performance and the financial position of Buzzard Ltd that makes extensive use of the analyses that have been prepared in (i), (ii), and (iii) above. In your report, you must interpret and consider the organisations practices with respect to complying with corporate governance requirements, organisational policy, and financial delegations and accountabilities.  Describe how the organisation meets policy and relevant financial legislation.

5. Create one internal control procedure based on the financial performance of Buzzard. Develop a corresponding implementation timeline.

Vertical analysis can be defined as the method of analysing the financial statement in which each entry for each of the category of accounts namely the assets, liabilities and equities in the balance sheet representing as the proportion of total account. The vertical analysis is used as the measure of analysis the financial statement in terms of percentage (Shaitiet et al., 2014). As evident from the vertical analysis performed on the income statement it is noticed that that gross profit reported by the firm during the year 2010 stood 13.08 where as in 2009 the company reported relatively higher gross profit. Simultaneously, the operating profit during the year 2009 stood 4.09% while in the subsequent year of 2010 the operating profit for the firm stood relatively lower at 1.76%. On the overall basis, the profit for the firm stood 3.07% in 2009 while in 2010 the same declined to 1.01%.

The vertical analysis of the balance sheet represents that the percentage of tangible assets in terms of revenue stood 89.34% during 2009 while in the subsequent year increased significantly to 123.34%. The total assets represent a rising trend as well with 68.08% represents the proportion of total revenue generated from this asset. The non-current liabilities represent 8.74% in 2009 while in 2010 the non-current liabilities increased to 25.19%.

To further understand the trend in financial statement Horizontal analysis has been performed of Buzzard Ltd. The horizontal analysis represents the analysis of the financial statements to reflect the changes in the corresponding amount of items in financial statement over the particular time period (Dirnagl, 2016). The horizontal method is an effective method of assessing the trend for two or more periods. As evident from the horizontal analysis the revenue of the company increased by 120.66% whereas the operating profit declined to 52.04%. Simultaneously, the profit from operations stood 39.74%. On the other hand, the non-current assets represent a percentage increase of 142.94% while the inventories peaking at north-end of 137.60%. The cash and cash equivalent for the period stood at 33.33%. The total asset for Buzzard Ltd represents an increasing trend at 115%.

Horizontal Analysis of Income Statement, Balance Sheet and Segmental Analysis

An important consideration can be paid towards the borrowings, finance lease expenses as the company reported a rise of 6000% since borrowing, and finance leases stood 6000. Furthermore, a horizontal segmental analysis has been performed to gain an in depth understanding of the segmental performance of the organization (Scott, 2015). The automotive component business of Buzzards Ltd represents a rise of 120.66% with revenue increasing from 95,766 to 115554 in 2010. With increase in the revenue for automotive components, the profit before tax for the same also increased to 39.74%.

The vertical analysis of the value added statement represents that the wealth created by the firm in 2009 stood 10530 while in the subsequent year it stood 9832 representing 93.37% creation of wealth. The wealth distribution represents 114.41% among employees’ salaries and wages with 112.79% in finance cost. Overall, the distributed and retained wealth stood 93.37%.

Commenting upon the corporate governance practices it is noticed that a diversified board of directors with wide range of expertise is prevalent in Buzzards Ltd. The boards have included the diversified expertise that hold each other responsible for offering board duties with the sufficient time to thoughtfully address the relevant matters for decision making (Schaltegger & Burritt, 2017). The internal policies highlights that the board collaborates with the management by making use of their expertise to widen the perspectives and analysing the decision making. The board also undertakes the evaluation of financial report as the strategic planning procedure.

The evidences gained from the study suggest that the corporate bylaws include the description of duties and accountabilities of the vital role. The bylaws clearly outline the accountabilities and responsibilities for every position of the organization (Warren & Jones 2018). The board members evidently review the reports and perspective in order to expand the scope for discussion with the expert qualification and diversified board structure.  The company usually implements the organizational policies of good corporate governance, fairness, accountability and transparency in order to assist the financial growth of the organization. The structure of corporate governance complies with the organizational policies of control and offers guidelines that directs the organization in the direction of satisfying the needs of the stakeholders.

As evident from the current situation, it is noticed that management of the organization are accountable for the each aspect of its financial health. The management upholds the responsibilities of understanding the unit’s financial situation and does not allows unintended deficits to take place (Henderson et al., 2015). The evidences obtained from the study suggest that the resources are entrusted to them that includes funding, facilities and staffing even though the board have delegated the accountabilities to their staff.

The budgetary funds are required to spend in compliance with the policy of organization and operating requirements that meet with the available budgets. Evidences has been obtained suggest that company does not conducts a separate budget to cover the deficits (Ge et al., 2014). Therefore, there is a need for alternative resources that should be offered such as departmental budgets. Buzzards Ltd are accountable for internal financial management and creating a budgeting financial reporting and management practices becomes necessary. Simultaneously, organizations are encouraged to create an oversight of procedure that are based on the best practices.

Value Added Statement and Vertical Analysis for 2009 and 2010

The financial department of Buzzards Ltd responsibly delegates the management of the organization the cash flow and makes sure that there are sufficient amount of funds are available to meet the regular payments (Feng et al., 2014). The accounting policies of the organization encompasses the credit and collection policies for the customers of company to make sure that the organization collects its accounts receivable on time. In addition to this, the accounting policies of Buzzards Ltd ensures that payment policies are in line with the credit terms of the organization suppliers. The accounting policies accompanies the regular assessment of cash to determine the needs of the working capital and ongoing cash requirements.

Internal controls policies and procedure are regarded as the important process in ensuring that reliability of accounting are maintained. In the current business world, it requires accuracy and reliability. Without the correct accounting records managers fail to undertake correct financial decisions (Vovchenko et al., 2017). Considering the current financial reports evidences can be drawn by stating that the there is a need for Budgetary control to regulate the increasing costs. The budgetary planning procedures would help in formalizing the objectives of the firm.

The budgetary planning for Buzzards is stated below;

The budget assist planning: By formalizing the goals and objective through budget the business will be able make sure that their plans are attainable. It will enable the managers of each department to make a decision on what is required to generate the output and goods and to make sure that everything is available at the right time.

Communication of budget and co-ordination: As the budget is agreed by, the business, all the necessary managers and staff will be working in the direction of the same end. At the time of setting the budget any form of expected problems must be resolved and eliminating the confusion (Ogneva et al., 2014). All the department must be in the position of delegating the part in attaining the overall objectives.

Implementing monitoring and control through budget: One of the important reason for implementing budgetary procedure is to produce a budget for the managers that are able to use the budget as the tool for measuring the actual result from the budgeted results to determine the budget variances (Feng et al., 2014). As a result of this appropriate actions can be undertaken to modify the business operations with the passage of time to possibly change the budget when it becomes attainable.

Budget as the source of motivating managers: The budget forms the part of the techniques for motivating the managers and other members of staff to attain the objectives of the business. The degree to which this will take place is reliant on the agreement and criteria set and determining whether it is fair or attainable.

Periodic reconciliations: Budgets are subjected to periodic reconciliations that helps in making sure that the balances in the accounting system matches up with the balances in the accounting system that are held by the suppliers and credit terms of customers (Ge, et al., 2014). Discrepancies among the complementary accounts can reveal the error or discrepancies in their accounts.

Obtaining the authority approval: Needing the specific managers to authorize the certain types of transactions can add a layer of accountability in the budgetary procedure by making sure that the transactions have been analysed and approved by the proper authorities.

Reference List:

Dirnagl, U., (2016). Quality Control and Standard Operating Procedures. In Rodent Models of Stroke (pp. 291-300). Humana Press, New York, NY.

Feng, M., Li, C., McVay, S.E. & Skaife, H., (2014). Does ineffective internal control over financial reporting affect a firm’s operations? Evidence from firms’ inventory management. The Accounting Review, 90(2), pp.529-557.

Ge, W., Koester, A. & McVay, S., (2014). Assessing the Accuracy of Small Firms’ Internal Control Disclosures. Working paper, University of Washington and Georgetown University.

Henderson, S., Peirson, G., Herbohn, K. & Howieson, B., (2015). Issues in financial accounting. Pearson Higher Education AU.

Ogneva, M., Subramanyam, K. & Raghunandan, K., (2014). Internal control weakness and cost of equity. The Accounting Review, 82(5), pp.1255-129.

Schaltegger, S. & Burritt, R., (2017). Contemporary environmental accounting: issues, concepts and practice. Routledge.

Scott, W.R., (2015). Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.

Shaiti, H., Duan, Y. & Rasaratnam, S., (2014). An examination of the role of Enterprise Resource Planning (ERP) systems in supporting the effectiveness of internal control procedures: a contingency approach.

Vovchenko, G.N., Holina, G.M., Orobinskiy, S.A. & Sichev, A.R., (2017). Ensuring financial stability of companies on the basis of international experience in construction of risks maps, internal control and audit. European Research Studies Journal, 20(1), pp.350-368.

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