Accounting Introduction

Analysis and interpretation was completed on the financial reports for the two years ending 30 June 2009 and 2010. The reports used include the Income Statement and the Balance Sheet. Horizontal analysis and ratio analysis were completed using profitability ratios. Ratios were compared with relevant industry averages. The report will present an analysis of the income statement, analysis of the balance sheet, analysis of ratios, draw conclusions and recommend changes to the management of the business. It is recognised that Cosmos is in the process of expanding and this will have impacted performance.
Analysis of Income Statement
Cosmos earned $17 084 000 in net sales in 2010 which was an increase of $404 000 from 2009. Cash sales decreased by 27.7% while credit sales increased by 3.8%. No other revenue sources were achieved during the period.   The increase in credit sales may be a future concern and should be monitored to ensure debts are effectively collected and does not recruit in any pressure on the cash flow of the business.   Meanwhile the expenses increased to $9 730 000 which is a charge of 20.8% from 2009. Significant changes in expenses occurred with Insurance decreasing by 68% to $400 000 and Display Village Rent increasing to $5 000 000(a change of 56.2%). The decrease in Insurance is not expected as the business has expanded by purchasing new delivery vehicles, land and buildings. A review of Insurance Policies is required to ensure the business is adequately covered from risk. Also it is noted that Bad Debts has increased by 29% which is a concern considering the growth in credit sales. Overall Cosmos had a decrease in Gross Profit of $68 000 to $15 168 000 in 2010, while Net Profit decreased by $1 749 000 to $5 438 000(a change of 24.3%). While the business is still profitable, it is obvious the expansion has impacted temporarily on the business’s earning capacity.
Analysis of Balance Sheet
The business is to be congratulated on its...