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Introduction to Accounting & Finance Assignment Sample


The report is divided into tasks where the first task is related to the Secret Holidays' business. It provides the trial balance and additional information of the entity to calculate various elements of financial statements of the business. The second part deals with the interpretation of the financial ratios and provides the data for two companies namely, The Restaurant Plc and Whitbread and demands for the comparison of the companies concerning various aspects. The task is further extended to identify the financial and non-financial elements that impact the businesses.

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Task 1

Cost of Sales

Cost of sales is the amount incurred in developing the items of sale to their saleable condition. It is determined by adding all the cost of manufacturing the items sold (Markiewicz et al., 2016). It is also calculated by adding opening inventory to the purchase and subtracting the value of the closing stock.

            Purchase + Opening stock - closing stock

            7500000 + 600000 - 800000

            7300000 £      

Gross Profit

The profit earned by the entity by selling the products or services provided by the entity. It is a measure of profit which is calculated by subtracting the cost of sales from sales revenue (Himick and Ruff, 2019). It is a result of the trading account of the business as shown in the appendix.

            Revenue - Cost of sales

            11610000 - 7300000

            4310000 £

Operating Profit

Operating profit is the amount of gain earned by the business after deduction of operating expenses but before the deduction of interest and taxes. It is measured by reducing the operating expenses from the gross profit of the entity (Hamdi, 2016).

            Gross profit - operating expenses

            4310000 - (1021000+ 310000+ 20000+ 7000)

            2952000 £

Profit for the year

Profit is the earnings of the business for the period net of all the expenses incurred. It is the result of the Profit and Loss statement of the business for the year as shown in the appendix. It can also be determined by reducing interest and tax figures from operating profit (Hamdi, 2016).

            Operating profit - Interest & Taxes

            2952000 - 1125000

            1827000 £

Net Book Value of Property on 31 December 2019

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It is the amount of carrying value of the property for the next year which is determined by reducing the accumulated depreciation and current year depreciation from the cost of the assets.

            Cost - Depreciation

            25500000 - (620000+ 310000)

            24570000 £

Total Current Assets

Current assets are the sum of all the assets of the business which are receivable or due within one year (Markiewicz et al., 2016). Secret Holidays' have inventory and cash balance as their current assets. Therefore, total current assets are;

            800000+ 675000

            1475000 £

Net Assets

Net assets mean the value of the business which is determined by deducting all the outside liabilities from the total assets of the business. It can also be determined as the sum of share capital and retained earnings of the entity.

            Total assets - Outside liabilities

            40708000 - (14850000+ 1350000+ 1000)

            24507000 £

Retained Profit c/f (as at 31 December 2020)

For determining the carry forward amount of retained earnings the balance of net profit for the year should be added to the brought forward balance (Himick and Ruff, 2019).

            Retained profit b/f + Profit for the year

            10080000 + 1827000

            11907000 £

Total Capital

It is the sum of an organization's non-current liabilities and shares capital which is used to determine the number of funds invested in the company irrespective of the sources. It can also be calculated using net assets less current liabilities formula.

            Shareholder's Funds + Long-term debt

            (12600000+ 11907000) + 14850000

            39357000 £

Task 2


The comparison of the companies is interpreted by the financial ratios of both the entities. These ratios are categorized and summarized in the table attached in the appendix.

Profitability: It is the element that decides the profit earning capacity of the company. Different ratios namely, gross margin, net margin, and return on capital are provided for both the companies. These ratios provide variables for identifying the profitability of the business (Bhatt and Verghese, 2018).

Whitbread has a higher gross margin, net margin and returns on capital as compared to The Restaurant Plc. It establishes that Whitbread has a higher amount of gross profit, net profit and the higher return for its investments in the business. Therefore, Whitbread is a better company in terms of profitability in comparison to The Restaurant Plc.

Liquidity:Liquidity is the measurement of the cash convertibility of the business. It defines the entity's ability to convert its assets into the cash element. The ratios provided for the comparison of liquidity are current and quick (Bhatt and Verghese, 2018). The current ratio is determined by dividing the current assets with current liabilities whereas quick ratio shows the fraction of quick assets (current assets- inventory) by current liabilities. The higher the ratio, the higher is the liquidity position of the business.

The Restaurant Plc has a higher liquidity ratio, both current and quick as compared to the Whitbread which means The Restaurant Plc is in a better liquidity position than Whitbread.

Capital Structure:Capital structure is comprised of the sources of the capital invested in the business namely, internal or shareholders' capital and external/ outside or debt capital. Gearing ratio has been provided which determines the debt funding ratio of the company in comparison to the total capital. It is calculated by dividing the debt capital with total capital of the business.

The Restaurant Plc has 80% gearing ratio whereas the Whitbread has 33% of the gearing ratio. It means The Restaurant Plc is more depended on the outside funds for the capital requirements of the business while the Whitbread has an average balance of both capitals. Therefore, Whitbread is better than The Restaurant Plc in the context of capital structure.

Investment Potential:It is the analysis made by the investors before investing in a business. For analysing the investment potential in the companies' interest coverage ratio and dividend per share is provided. The interest coverage shows the ability of the firm to pay interest expenses in the number of times to the earnings before interest. Dividend per shares shows the earnings distributed to the shareholders by the company against one share unit (Gabric, 2018).

Whitbread has a higher interest coverage and dividend per share in comparison to The Restaurant Plc. It depicts that the Whitbread has a better investment potential than The Restaurant Plc.


Financial Factors:The individual factors are operational elements including such liquidity, debt, usage of assets, business size and profit growth. The response variable of financial success in the analysis is the defined performance measures to calculate asset return (ROA) and capital return (ROC). The financial factors that affect the performance of these companies are analyzed in the above section which defines the calculation and measurement of various financial ratios or elements to defines the performance of the businesses.

Non-Financial Factors:Apart from the financial factors, several other factors may impact the performance of the companies. These factors are:

  • Good management: The direct effect on the performance of the company if the owner has a good management group. Easier to educate the owner from a regular point of view on the internal operations of the firm is the survival of the company if key personnel remain with the company (Ahmad and Zabri, 2016). In specific, businesses must take time to assess this sooner. In certain situations, the owner can have to take in people who have the necessary experience: members of the board, accounting professionals or individual contacts.
  • Diversified risk of human capital: If a business relies on one of its customers, employees or suppliers, it can also be harmful. For example, when a customer provides over half of the revenue of an owner, the owner becomes a contracting party more than a commercial owner. It also poses an enormous risk if a customer does not need the services of the company for any reason. A significant concern is that an organization depends heavily on a couple of main workers. As a proprietor, reduce the employee, customer or provider's reliance. Consider diversifying this dependence between a group of providers, clients or employees.
  • Customer, market and product growth potential: Although the accounts that show the growth performance of the company, there is a range of non-financial factors which can show a clear understanding of (or lack) its potential. Interested investors or customers want to see in the business strategy a consistent development strategy including consumer base development, markets and even goods (Ahmad and Zabri, 2016). Then they would like to see how sales and the result will be affected.


The report has calculated the various financial information required for the business of Secret Holidays'. It has also compared and analyzed the financial of ratios of the companies to identify the better company in the defined particular aspect. The financial and non-financial factors that affect the business efficiencies have also been identified in the report.


Ahmad, K. and Zabri, S.M., 2016. The application of non-financial performance measurement in Malaysian manufacturing firms. Procedia Economics and Finance35, pp.476-484.

Bhatt, S. and Verghese, N., 2018. Influence of Liquidity on Profitability: Evidence from Nepalese Banks. Int. J. of Multidisciplinary and Current research6.

Gabric, D., 2018. Determination of Accounting Manipulations in the Financial Statements Using Accrual Based Investment Ratios. Economic Review: Journal of Economics and Business16(1), pp.71-81.


Himick, D. and Ruff, K., 2019. Counter accounts of profit: outrage to action through "just" calculation. Accounting, Auditing & Accountability Journal.

Markiewicz, K., van Til, J.A., Steuten, L.M. and IJzerman, M.J., 2016. Commercial viability of medical devices using Headroom and return on investment calculation. Technological forecasting and social change112, pp.338-346.


Task 1

Trading and P&L account of Secret Holidays' for the year ending 31 December 2019:

Balance Sheet of Secret Holidays' as on 31 December 2019:

Task 2

Statement showing differentiation of ratios:

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