Probability Plc and Netplay Tv Plc - Financial Statement Analysis - Coursework Example

Accounting work 24 November Financial ment Analysis 300 words)A. 2012                 Probability NetPlay Variance       2012                     Current Ratio 7.79 2.56 5.23     Debt to Equity 0.09 0.36 (0.27)     Net Profit (loss) Margin (0.08) 0.12 (0.20)     Return on Equity (0.11) 0.24 (0.35)     Return on Assets (0.09) 0.17 (0.26)     Rec Turnover 21.31 31.96 (10.66)     Net Working Capital 3.87 8.03 (4.16)               Table 1 shows the 2012 financial statement ratio analysis of Probability Plc and NetPlay TV Plc (Bhimani, 2009). First, Probability PLC’s current ratio (7.79) was better than NetPlay TV PLC’s current ratio (2.56). Probability PLC has more remaining current assets compared to NetPlay TV PLC. The current ratio is used to determine the company’s ability to pay its currently matured loans and other obligations. The ratio is arrived at by dividing the current assets by the current liabilities. The ratio shows the company’s liquidity. The ratio qualifies as liquidity ratio. Second, NetPlay PLC’s Debt to Equity ratio (0.36) was better than Probability PLC’s similar Ratio (0.09). Probability PLC has more funds equally sourced from both liabilities and stockholder’s investments. The debt to equity ratio shows the relationship between the company’s liabilities and the stockholders’ investments. The best debt to ratio picture requires similar liabilities and stockholders’ equity amounts. A business that is built on investments alone or loans alone is shows a less favorable financial picture compared to a company that acquires funds through debts and investments. The ratio is arrived at by dividing the company’s liabilities by the stockholders’ equity amount. Third, NetPlay PLC’s net profit margin ratio (0.12) was better than Probability TV PLC’s net loss margin ratio (-0.08). Only NetPlay PLC was able to generate the aimed net profit. The ratio shows the relationship between the company’s net profits and the total net revenues. The ratio is arrived at by dividing the company’s net profit result by the company’s total net revenue figure. Fourth, the NetPlay PLC’s return on equity ratio (0.24) was financially better than Probability PLC’s net loss return on equity ratio (-0.11). Only NetPlay was able to better maximise its equity to produce net profits. The return on equity ratio is classified as one of the profitability ratios. The ratio shows how well the stockholders’ investments were able to produce profits, if any. The ratio is done at by dividing the company’s net profits by the company’s stockholders’ equity amount. Next, the NetPlay PLC’s return on assets ratio (0.17) was financially better than Probability PLC’s net loss return on equity ratio (-0.09). NetPlay was able to better maximise its total assets to generate net profits. The return on assets ratio indicates how well the company’s total assets were used to generate the targeted net profits. A higher return on assets ratio shows a better financial picture of the company. The ratio is arrived at by dividing the company’s net profits by the company’s total assets. Comparing Probability PLC’s receivables turnover ratio (21.31 times), NetPlay PLC’s receivables turnover ratio (31.96 times) had favorably converted more times. Clearly, NetPlay PLC has a shorter receivables collection time period than NetPlay PLC’s receivables collection time period. The receivables turnover ratio shows how long the customers’ receivables were collected. Last, NetPlay PLC’s net working capital ratio (8.03) had a financially better picture than Probability TV PLC’s net working capital ratio (3.87). NetPlay PLC had more current assets available for the payment of the company’s currently maturing debts. The ratio is arrived at by dividing the net sales total by the company’s average receivables figure. The average receivable is arrived at by dividing sum of the beginning receivables amount and the ending receivables amount by two. The net working capital ratio shows whether the company is liquid. To be classified as a liquid company, the current assets amount should be higher or bigger than the current liabilities amount. The networking capital ratio is arrived at by subtracting the company’s current liabilities from the company’s current assets. B. 2011 Table 2 shows the prior year’s financial statement ratio computations of Probability Plc and NetPlay TV Plc. First, Probability PLC’s current ratio (2.97) was financially better than NetPlay TV PLC’s current ratio (1.77). Probability PLC has higher amounts of remaining current assets compared to NetPlay TV PLC.                 Probability NetPlay Variance       2011                     Current Ratio 2.97 1.77 1.20     Debt to Equity 2.55 0.46 2.09     Net Profit (loss) Margin (0.077) 0.004 (0.08)     Return on Equity (0.25) 0.01 (0.26)     Return on Assets (0.17) 0.01 (0.18)     Rec Turnover 27.62 63.72 (36.11)     Net Working Capital 1.95 3.81 (1.86)               Second, NetPlay PLC’s Debt to Equity ratio (2.55) was financially better than Probability PLC’s Debt to Equity Ratio (0.46). Probability PLC has higher funds equally sourced from both liabilities and stockholder’s investments. Third, NetPlay PLC’s net profit margin ratio (0.004) was higher than Probability TV PLC’s net loss margin ratio (-0.077). Only NetPlay PLC produced a net profit. Fourth, the NetPlay PLC’s return on equity ratio (0.01) was financially higher than Probability PLC’s net loss return on equity ratio (-0.25). Unlike NetPlay PLC, Probability PLC did not maximise its equity to reach the net profit benchmark. Next, the NetPlay PLC’s return on assets ratio (0.01) was financially higher than Probability PLC’s net loss return on equity ratio (-0.17). Unlike NetPlay, Proability PLC was not able to maximise its total assets to generate a net profit outcome. Compared to Probability PLC’s receivables turnover ratio (63.72), NetPlay PLC’s receivables turnover ratio generated an unfavorably lower receivables turnover times (27.62). When compared to NetPlay PLC’s receivables collection time duration, Probability PLC definitely produced a shorter receivables collection time duration. Consequently, Probability PLC has a shorter time period than NetPlay PLC’s receivables collection time period. Last, NetPlay PLC’s 2011 net working capital ratio (3.81) was favorably financially higher than Probability TV PLC’s generated net working capital ratio (1.95). The remaining NetPlay PLC current assets that were available for the payment of the company’s currently maturing debts were higher than Probability PLC’s remaining liability-paying current assets. C. 2010                 Proability NetPlay Variance       2010                     Current Ratio 3.52 1.09 2.42     Debt to Equity 0.44 0.61 (0.17)     Net Profit (loss) Margin (0.21) (0.70) 0.48     Return on Equity (0.52) (1.49) 0.98     Return on Assets (0.32) (0.92) 0.61     Rec Turnover 10.33 10.68 (0.35)     Net Working Capital 2.49 0.54 1.95               Table 3 offers the 2010 financial statement ratio performance of Probability Plc and NetPlay TV Plc. First, Probability PLC’s current ratio (3.70) was financially more favorable than NetPlay TV PLC’s current ratio (1.09). Probability PLC had higher current assets available for the payment of NetPlay TV PLC. Second, NetPlay PLC’s generated Debt to Equity ratio (0.61) was financially more favorable compared to Probability PLC’s lower Debt to Equity Ratio (0.44). Probability PLC had favorably sourced its funds from both debtors and investors. Third, Probability PLC’s net profit margin ratio (-0.21) was financially greater than NetPlay TV PLC’s net loss margin ratio (-0.70). Probability PLC generated a lower net loss figure than NetPlay PLC. Fourth, the NetPlay PLC’s net loss return on equity ratio (-1.49) was financially more unfavorable than Probability PLC’s net loss return on equity ratio (-0.52). NetPlay had financially more maximisation of its investments to generate a lesser net loss amount. Next, the NetPlay PLC’s performed return on assets ratio (-0.92) was financially more unfavorable than Probability PLC’s net loss return on equity ratio (-0.32). Probability PLC was able had better maximisation of its total assets to produce a lower net loss outcome. Compared to Probability PLC’s receivables turnover ratio (10.33), NetPlay PLC’s bigger receivables turnover ratio (10.68) had generated a higher conversion time. Surely, NetPlay PLC generated a shorter receivables collection time duration compared to NetPlay PLC’s receivables collection time duration. Finally, Probability PLC’s net working capital ratio (2.49) showed a better liquidity picture than Probability TV PLC’s net working capital ratio (0.54). NetPlay PLC was able to generate a higher current assets amount for the paying of its maturing current liabilities. Critical Analysis of Above Task (700 words) The above financial analysis report would be done differently to fill the needs of diverse financial statement users (Bhimani, 2009). For the current and future investors of Probability PLC and NetPlay TV PLC, the focus of the report is on return on investment issues. The investors are interested to know if they will be able to generate profits or returns from their investments. For this type of financial statement reader, relevant ratios are the return on investment ratio (return on equity ratio), return on assets ratio, net profit ratio, and debt to equity ratio. For the accounting students, the financial statements are used as training ground for their future work. Their future work includes hired as financial consultants, managers, accountants, and accounting officers. The students use the financial statements to determine how to compute the financial statement ratios. Professors explain and show the optimum way to prepare the financial statement ratios. For the managers of either Probability PLC or NetPlay TV PLC, the financial statements are used as their performance benchmark. To pass, the managers must generate net profits. A net loss performance indicates the managers failed in their task to maximize assets and investments to achieve a net profit benchmark. Possible repercussions for the lackluster managers could include termination, transfer or demotion in rank. To fill the need of the managers, the financial reports must include the net profit ratio, return on equity ratio, return on assets ratio, current ratio, receivables turnover ratio, debt to equity ratio and working capital ratio. For the employees, the use the financial statements to determine if its timely to ask for salary increases. If the financial statements show that the company’s past three years generated a net profit trend, the employees are enthusiastic. They will happily seek for their salary increases. On the other hand, the employees will postpone their salary increase petitions when the financial statements indicate the company’s past three years’ operations generated unfavorable net loss figures. When this occurs, the employees are fearful that the company may file for bankruptcy within a few years of continuing net loss operations. For the employees, the financial reports should focus on presenting the net profit ratio. The ratio is enough to serve the employees’ desire for a basis for asking or postponing their salary increase requests. For the community, the financial reports should focus on the specific needs of the community’s residents. The residents will use the financial reports as a basis for possible employment opportunities. A financial statement that shows the company is generate a continuing net profit trend will entice the community’s residents to apply for any vacant job. A net loss statement scares away job applicants. The financial statements should focus on the net profit ratios. For the London legal community, the community is interested to know if the company is complying with currently prevailing statutes or laws. The United Kingdom laws include requiring companies to paying its employees the legally prescribed minimum salaries and benefits. The financial statements should include statements that the company complies with labor laws. Including the salaries expense in the financial reports will indicate a presumed picture that the company complies with all labor laws, especially our United Kingdom’s minimum wage and benefits statute provisions. For the board of directors, the financial reports should focus on compliance with the board’s established company policies. The financial statement should show whether the entity’s managers and their subordinates did not violate the board’s policies. The policies include product diversification, labor wage policies, promotions and rewards policies. Other board policies include established standards and goals policies, and other pertinent board requirements. The financial reports should have a more detailed presentation of the amounts shown in the company’s financial reports. As voted by the company’s stockholders, the board of directors prioritizes the needs and wants of the stockholders. A detailed financial report brings out some of the irregularities and possible policy improvements. For the environmental groups, they use the financial reports to determine if any environmental policies were violated. The financial reports should show whether the company allocated amounts to protect the environment. Amounts should include installing air pollution prevention equipments. Likewise, another amount should include environmentally-friendly waste disposal budgets. References: Bhimani, Al., 2009. Management Accounting. London, Elsevier Press. NETPLAY TV PLC, 2013, Financial Statements, Available at: http://www.londonstockexchange.com/exchange/prices/stocks/summary/fundamentals.html?fourWayKey=GB0030348352GBGBXAIM [retrieved 24 November 2013] Probability Plc, 2013, Financial Statements. Available at: http://markets.ft.com/research/Markets/Tearsheets/Financials?s=PBTY:LSE&subview=BalanceSheet [retrieved 24 November 2013]. Read More