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Introduction

Financial performance is the measure of financial strength of a company which can be analysed with the help of annual report or final accounts. For shareholders and stakeholders it is very important to get exact information of the business entity so that they may examine that their money is effectively utilised or not. In situation of weak financial performance managers and accountants of the company should take immediate actions like recover owed amount from customers, reduce unnecessary expenses, formulation of new marketing strategies etc. so that organisation may improve its performance (Boyd and et. al., 2017). This project report aims at the measure of financial performance of Aston Villa PLC. Various topics are discussed under this assignment such as nature and significance of non current assets, equity and non current liabilities, effect on profit of variation in depreciation, interpretation of cash flow statement of the company, ratio analysis to analyse financial statements, the way in which financial statements and income statements of the company differs from sole proprietorship and partnership.

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Nature and significance of equity, non current assets and liabilities of the company

Non current assets: These are the long term assets that are acquired by Aston Villa PLC in order to operate business effectively. Company is having three different types of non current assets that are tangible fixed assets. These assets are plant and equipments that are used top provide services to the visitors, motor vehicles used for the same purpose and freehold building is used operate all the operational activities and to execute business.  All of them have been changed with the time. In year 2015 they were £9979713, in 2016 they have decreased up to £9034013 and in 2017 increased up to £9083217. Organisation have suffered financial crisis which has resulted in decreased value of assets in year 2016 (Camerinelli, 2016).

Non current liabilities: These are also known as long term liabilities that needs to be repay after a long period in future. Aston Villa PLC is not having such type of liabilities in its balance sheet.

Equity: It refers to the investment of shareholder in the company. Aston Villa PLC is having equity in the form of called up share capital. Equities are vary important for the company because it is required to run business and also execute all operations. In year 2015 equities were £84938182 which has not been changed in three years and remain constant (Edwards, 2014).

Effect on profit of 10% variation in depreciation

Depreciation: It is total decrement in the value of an asset on yearly basis. Changes in depreciation of Aston Villa PLC is shown in below table:

Year

Depreciation

10% increase

10% decrease

2015

3023518

3325870

2721166

2016

2032922

2236214

1829630

2017

1602283

1762511

1442055

If the depreciation increases in 2015, 2016 and 2017 than profits will be decreased for Aston Villa PLC. In situation of 10% decrement in the depreciation company may increase its profits because of the reduction in expenses of Aston Villa PLC.

Interpretation of cash flow statement

Cash flow statement: While an organisation needs to analyse sources and application of funds than cash flow statement is an helpful tool to get the exact information. The organisation is not preparing any cash flow statements that leads the organisation toward problems because thee are no proper records of cash inflows and outflows. Aston Villa PLC is exempted from formulating cash flow statements according to revised financial reporting standard 1 (Epstein, Buhovac and Yuthas, 2015). Consolidated cash flow statements are generated by its parent company Reform Acquisition Limited.

Analysis of performance of company with the help of ratios

Financial ratios: Ratios are calculated to analyse that organisational is performing well or not and invested money is utilised effectively or not. To measure financial strength of Aston Villa PLC few financial ratios are calculated that are as follows:

Current ratio: It is used to analyse ability of an organisation to pay back all the long term and short term debts. For Aston Villa PLC the ratio is calculated to examine that what amount of current assets organisation is having to deal with current liabilities.

Formula: Current assets/ current liabilities

Particulars

2015

2016

2017

Current assets

83980983

88341585

115404008

Current liability

120493462

149201547

156808011

Current ratio

0.70

0.59

0.74

Quick ratio: It is calculated to determine relation between current liabilities and quick assets. For Aston Villa PLC the ratio is as follows:

Formula: Quick assets/ current liabilities

Particulars

2015

2016

2017

Quick assets

83387204

88015444

115404408

Current liability

120493462

149201547

156808011

Quick ratio

0.69

0.59

0.74

Debt equity ratio: This ratio is used to evaluate organisation's financial leverage and health. In Aston Villa PLC it is calculated by the accountants to examine that organisational equities are able to repay long term debts or not (Galy and Sauceda,  2014).

Formula: External liabilities/ internal liabilities

Particulars

2015

2016

2017

External liabilities

110513749

140167534

147724794

Internal liabilities

84938182

84938182

84938182

Debt equity ratio

1.30

1.65

1.74

Return on asset ratio: Ability of a company to manage all its assets is measured with the help of this ratio that helps to assess performance of company. For Aston Villa PLC it has been calculated as follows:

Formula: Net profit/ Total assets

Particulars

2015

2016

2017

Net profit

-57345809

-29653785

-7557260

Total assets

83980983

88341585

115404008

Return on assets ratio

-0.68

-0.34

-0.07

Debtor turnover ratio: It depicts the way in which an organisation manage all the debtors and in what time all the amount recovered from them.

Formula: Total turnover/ debtor

Particulars

2015

2016

2017

Total turnover

112450205

106752215

71122179

Total debtors

83304308

87917892

115287525

Debtor turnover ratio

1.35

1.21

0.62

Net profit margin ratio: This ratio is calculated to identify relationship between organisational turnover and total profit or loss for a particular financial year (Mahto and Khanin, 2015).

Formula: Net profit/ Net turnover

Particulars

2015

2016

2017

Net profit

-57345809

-29653785

-7557260

Net turnover

112450205

106752215

71122179

Net profit margin ratio

-0.51

-0.28

-0.11

Interpretation of ratios: All the above calculated ratios depicts that organisation is not in a good situation it is facing losses from last few years. Financial performance is also not good as there are no specific sources of funds. Current ratio for all the three years are 0.70, 0.59, 0.74 respectively. In year 2015-16 Aston Villa PLC have faced financial crisis which has resulted in decreased current ratio. Organisation is not having stock or prepaid expenses in year 2017 hence quick ratio will be same as current ratio for the same year for 2015 and 2016 quick ratio was 0.69 and 0.59. Debt equity ratios for Aston Villa PLC are 1.30, 1.65, 1.74 respectively for 2015, 2016 and 2017. return on assets ratios for three years are -0.64, -0.34 and -0.07. Debtor turnover ratios are 1.35, 1.21 and 0.62 for a period of three years.  Net profit margin ratios are as -0.51, -0.28 and -0.11 for year 2015 to 2017. According to these ratios organisation's performance is not good and organisation is financially weak.

Difference between financial statements of limited company and sole proprietorship partnership

Limited Company

Sole proprietorship

Partnership

Income statement is prepared in vertical format.

Horizontal format is followed by the sole proprietors to create income statements.

Income statements are formulated in horizontal format which is a traditional method.

It is very important for limited companies to conduct audit of financial statements every year to analyse financial performance of the company.

According to law it is not compulsory for sole proprietor to conduct an audit of financial statements every year to analyse financial performance.

For partnership firm audit of financial statements is not mandatory but some of them conduct it to evaluate that company is having profits or not.

Tax is paid on the total net profits of the company which is calculated in income statements.

Owner of the company is liable to pay tax on the total income which has been acquired in an accounting year according to income statements (Przychodzen and Przychodzen, 2015).

Tax is paid on the total profits gathered from income statement of the firm before distributing it among partners.

Proper format is followed to prepare financial statements in limited companies because all of them are presented in front of stakeholders.

There is not a specific format for sole proprietors which is required to be followed while creating financial statements.

In partnership firm a specific format is followed by the accountant which is hired by the partners of the company.

Financial statements of limited companies, sole proprietorship and partnership are different form each other because there are various regulation like compulsion of audit are made for limited companies that are not required for other businesses. In limited companies all the profits are distributed to the stakeholders who have invested their money in the company for the purpose of getting share in profits.  In sole proprietorship al, the profits are acquired by the owner of the firm who is running the business. In partnership firms profits are distributed among the members on the pre decided rate (Su and Tsang, 2015).

Commitments of Aston Villa PLC

According to a statement of Aston Villa PLC that it has been in an agreement with HMRC and the club ids going to continue to fulfil all its obligations. It has also been declared that there are no insolvency practitioners in the club. The club is not willing to continue all its activities for this purpose it requires various equipments, motor vehicle, investments, loans and etc. this commitment of the club is going to affect the equities, non current assets and liabilities of Aston Villa PLC because it is required to fulfil the commitment. In future the organisation need various equipments for all its players who are currently playing for the club, it also requires to hire more players in future so that it may participate in different leagues of football to overcome from all its financial crisis.

If the club is having experienced players that there is a high possibility for Aston Villa PLC to overcome all its issues that has been faced while loosing a foot leagues. As to the owner is willing to continue the club than investments and loans are required so that all the activities can b performed effectively. Increased investments will result in enhancement in non current liabilities. An increment in equipments and motor vehicle will increase the amount of non current assets of the club. Equities will also be increased of Aston Villa as new shareholder are required to enhance monetary resources that are required to pay to the players whoa re going to play for the club in future. For the continuation purpose various new players are going to be acquired by club and it is very important to pay them satisfactory amount (Commitments of Aston Villa PLC, 2018).

Continuation statement of the owner of club will affect the equities, non current assets and liabilities as in business new fixed assets are going to be purchased, investments and loans are going to be enhanced and number of share holders will also be increased in the future period.

Conclusion

From the above project report, it has been summarised that financial performance of a company can be analysed with the help of final accounts or annual report in which all the finance related information is recorded by the accountants. There are various situation in which organisation is facing crisis related to monetary resources that may affect its operational efficiency. Some of them are unnecessary expenses, increased debts form clients, ineffective financial management system. All of the crisis can be dealt with the help of proper planning and effective policies that are required to be implemented by the owner of the company.

References

  • Boyd, B. and et. al., 2017. Hybrid organizations: New business models for environmental leadership. Routledge.
  • Camerinelli, E., 2016. Measuring the value of the supply chain: linking financial performance and supply chain decisions. Routledge.
  • Edwards, D., 2014. The Link Between Company Environmental and Financial Performance (Routledge Revivals). Routledge.
  • Epstein, M. J., Buhovac, A. R. and Yuthas, K., 2015. Managing social, environmental and financial performance simultaneously. Long range planning. 48(1). pp.35-45.
  • Galy, E. and Sauceda, M. J., 2014. Post-implementation practices of ERP systems and their relationship to financial performance. Information & Management. 51(3). pp.310-319.
  • Mahto, R. V. and Khanin, D., 2015. Satisfaction with past financial performance, risk taking, and future performance expectations in the family business. Journal of Small Business Management. 53(3). pp.801-818.
  • Przychodzen, J. and Przychodzen, W., 2015. Relationships between eco-innovation and financial performance–evidence from publicly traded companies in Poland and Hungary. Journal of Cleaner Production. 90. pp.253-263.
  • Su, W. and Tsang, E. W., 2015. Product diversification and financial performance: The moderating role of secondary stakeholders. Academy of Management Journal. 58(4). pp.1128-1148.

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