Financial Statements 2019 and 2020

Horizontal Vertical
Profit and Loss Account Vertical Analysis Analysis Analysis Comment
2019 2020
Sales 168000 100% -26% 124000 100% There has been a huge fall in sales which must be inv
Less Cost of Sales 76500 46% -15% 65000 52% Although sales fell by 26%, COGS only fell by 15%. P
Gross Profit 91500 54% -36% 59000 48% This important profitability ratio has fallen to 48% of sa
Less Expenses
Rent 12000 7% 0% 12000 10% No change to rent, but why was it not renegotiated dur
Salaries 40000 24% -38% 25000 20% We cut salaries by 38%, from 24% to 20% of sales. Th
Other 11000 7% -45% 6000 5% This expense has fallen by 45% to 5% of sales.
Total Operating Expenses 63000 38% -32% 43000 35% Operating expenses have fallen by more than sales, w
EBIT 28500 17% -44% 16000 13% There had been a large fall in EBIT of 44%, but as a %
Interest 3500 2% -71% 1000 1% This expense has fallen, but is relatively insignificant.
EBT 25000 15% -40% 15000 12% There had been a large fall in EBT of 40%, but as a %
Tax 5000 3% -72% 1400 1% Tax has fallen because profit has fallen.
Net Profit 20000 12% -32% 13600 11% Given the huge fall in sales, net profit has only fallen fr

Statement of Financial Position Vertical Analysis Horizontal Analysis Vertical Analysis Comment
2019 2020
Assets
Non-Current Assets
PPE (Net) 85000 56% -26% 63000 31% PPE fell due to the sale of assets.

Current Assets
Bank 27000 18% 334% 117100 58% Cash/bank increased hugely due to
Inventory 26000 17% -35% 17000 8% Our inventory has decreased in rea
Receivables 13500 9% -59% 5500 3% Our receivables have decreased in
Total Current Assets 66500 44% 110% 139600 69% Due to the cash increase, current as
 es which must be investigated. Covid?
S only fell by 15%. Perhaps due to an increase in transport costs. COGS as a % of sales has increased to 52%
as fallen to 48% of sales, due to changes in Sales and COGS.

t not renegotiated during Covid?

% to 20% of sales. This cost cutting was a reaction to the fall in sales.
to 5% of sales.
by more than sales, which is positive, to 35% of sales.
BIT of 44%, but as a % of sales has fallen, but by a much smaller margin.
elatively insignificant.
BT of 40%, but as a % of sales has fallen, but ny a much smaller margin.

profit has only fallen from 12% to 11% of sales.

o the sale of assets.

reased hugely due to the share issue and the lack of subsequent investment.
has decreased in real terms and as a % of assets. We may have introduced an inventiry managment system.
es have decreased in real terms and as a % of assets. We are better managing our receivables..
h increase, current assets have increased as a % of total assets.
Total Assets 151500 100% 34% 202600 100% Total assets haev increased due to

Liabilities and Equity

Liabilities
Current Liabilities
Payables 36500 24% -18% 30000 15% Payables have fallen by 18% to 15%
Short-Term Loans 3000 2% 0% 3000 1% No real change in this insignificant i
Total Current Liabilities 39500 26% -16% 33000 16% Current liabilities have decreased a

Non-Current Liabilities
Loans 15000 10% -20% 12000 6% Loan repayments decreased loans
Total Non Current Liabilities 15000 10% -20% 12000 6% Loan repayments decreased loans
Total Liabilities 54500 36% -17% 45000 22% Total liabilities have fallen by 17% to
Equity
Share Capital 93000 61% 54% 143000 71% This item has increased by 54% due
Retained Profit 4000 3% 265% 14600 7% There were previous accumulated lo
Total Equity 97000 64% 62% 157600 78% This increase is primarily due to the

Total Liabilities and Equity 151500 100% 34% 202600 100% This increase is primarily due to the

Share Price of 1€ shares at 31 December 2019 € 3.65

Dividend paid in 2019 8000

Share Price of 1€ shares at 31 December 2020 2.5

Dividend paid in 2020 3000
aev increased due to the cash received for the stock issue.

e fallen by 18% to 15% of assets. We appear to be payng our suppliers quicker.

e in this insignificant item.
es have decreased as total assets have devreased.

nts decreased loans liability by 20% to 6% of assets.

nts decreased loans liability by 20% to 6% of assets.
have fallen by 17% to 22% of assets.

ncreased by 54% due to the stock issue.

evious accumulated losses before 2019, hence the large increase arising from 2020 profits
s primarily due to the stock issue.

s primarily due to the stock issue.

Profitabilty Ratios
2019 2020 Comment
Net Margin
Given the huge fall in sales, net profit has only fallen from 12% to
Net Profit / Sales 11.90% 10.97% 11% of sales.
What is % of net income to sales?

Gross Margin
Gross Profit / Sales
This important profitability ratio has fallen to 48% of sales, due to
What is % of gross income to sales? 54.5% 47.58% changes in Sales and COGS.

Return on Equity
As profit fell and equity increased, this explains the fall in this
Net Profit / Total Equity 20.6% 8.63% ratio. 21% is an excellent return, and 9% somewhat low
How well are we using equity to generate profit?

Return on Assets
The efficiency of asset use has declined almost in half. But the
increase in assets in the cash from the share issue which has not
Net Profit / Total Assets 13.20% 6.71% been reinvested yet to increase profit
How well are we using assets to generate profits?

Earnings per Share

Net Profit / number of shares 0.2151 21.505 0.0951 9.51048951
Net Profit per share cents per share cents per share
This is an important measure for investors EPS has decreased, but there are more shares in 2020 than 2019
Number of shares (93000 share capital in 2019/ 1$ per share)

Price Earnings
Market price per share / EPS 17 26.287 Expected future growth has increased
If profits stay the same, it will take 17 years for the company to earn the investors investment.
No logical investor will accept that time frame
Therefore , investors expect profits to increase, it is the only logical expalantion of the share price
An international blue chip company with a very strong brand, has a Per of aprox 20-25
Average PE ratio for a public company aprox 15

Dividend Payout Ratio

Dividends / Net Profit 40% 22% Given the difficult trading conditions in 2020, the dividend has decreased.
What % of profits do we pay out as a dividend?

Liquidity Ratios

Current Ratio
Current Assets : Current Liabilities

Quick (Acid Test ) Ratio

Current Assets less Inventory : Current Liabilities

Cash Ratio:
Cash: Current Liabilities

Interest Coverage Ratio

EBIT / interest expense
Will the company be able to pay its interest on borrowing?

Solvency Ratios:
2019 2020
Gearing Ratio
Long Term Debt / Equity 15.46% 7.61% The trend has improved. Our long term financing is healthy
Are we financed by debt or equity? If debt is high, then interest payments will mean there is less dividend for investors.
Anything below 60% is considered acceptable
Short to Long Term Debt
end has decreased.

1667%
Short term debt : Long Term Debt
What our our short term debt payment obligations? Should we refinance to long term debt?

Efficiency Ratios:

Receivables Days
Receivables / Sales X 365
On average how quickly do customers pay us?
Payables Days
Payables / Cost of Goods Sold X 365
On average how long do we wait to pay our suppliers?
Inventory Days
Inventory / Cost of Goods Sold X 365
How long do we hold our inventory before selling it?
Inventory Turnover
Cost of Goods sold / Inventory Times
How many times do we sell (or turn) our inventoryt every year?

Operating Cycle
Inventory Days
plus Receivables days
Less Payables days
Operating Cycle

Our operating cycle has improved. Not alone do we not need short term operating financing
but we generate cash to be used elsewhere.