"Task 1 Business Performance AnalysisInterpretation of Statement of Profit or Loss Comparative Trend Analysis (GBP in millions) Particulars2014 % change 2013 Base %Sales2630 30.07 2022 0.00Cost of Sales(2058) 36.74 (1505) 0.00Gross Margin 572 10.64 517 0.00Overheads – Admin (114) -30.06 (163) 0.00Overheads – Dist. Cost (283) 39.41 (203) 0.00Operating Profit 255 68.87 151 0.00Finance cost (25) 316.67 (6) 0.00Income tax (70) 11.11 (63) 0.00Profit 160 95.12 82 0.00Sales ? The sales revenue has increased from £2022 million in 2013 to £2630 m in 2014indicating growth of 30.07% (2013 as base year). ? The increase of sales is a positive indicator of financial performance. ? This movement has occurred due to sales of new products hybrid laptops, smart watchesand digital eyewear which has not impacted on sales of laptops and desktop computers.Raztech should geographically expand to capitalize on untapped markets. Accounting & Decision Making Page 4 Cost of Sales ? The cost of sales in 2014 has increased by 36.74% as compared to 2013. ? The increase in cost of sales is negative indicator of financial performance. This isbecause the sales have increased by 30.07 % but the cost of sales has gone up by 36.74%.This indicates that cost of raw materials have gone much higher than sales therebyaffecting profitability. ? This movement is caused due to increase in sales takings.Raztech should seek cheapersource of material or supplier. Gross Profit? The gross profit improved by 10.64% as compared to 2013. ? The movement is a positive indicator of financial performance. However, the marginratio declined from 25.57% to 21.75% due to high prices of raw materials. ? The increase in gross profit is due to hike in sales but Raztech could have improvedifraw material were not expensive. Overhead Admin ? Overheads Admin declined by 30% vis a vis 2013.? This is a positive indicator of financial performance.? This movement was caused due to decline of employees expenses, directorsremuneration, utility and legal cost & sundries cost. Raztech could have further improvedby taking legal action against default payers as can be seen from increase in bad debts. Overhead Distribution CostAccounting & Decision Making Page 5 ? The distribution cost increased by 39.41% over last year. ? This negatively impact the financial performance as it absorbs the profit to that extent. ? This movement was caused due to heavy marketing and transport cost. The distributioncost can be minimized by outsourcing to logistics firm offering corporate discounts. Net Profit ? The net profit indicates 68.87% improvement over last year 2013.? This is positive indicator of financial performance. The net profit margin ratio improvedfrom 7.4% to 9.7% as major chunk of cost (employees & director’s pay) declined. ? The increase in net profit can be attributed due to increase in sales and decline of adminexpenses netting off profit. Raztech’s net profit could have been improved by moving itsphysical outlets to digital outlets. Online shopping is growing in UK and its is a costsaving too. Finance Cost? Significance increase in finance cost by 316% against 2013? This negatively affects financial performance ? The increase is due to switch to overdraft and 150% increase in long term unsecuredborrowings. Raztech can negotiate secured loan with banks to reduce interest rate. Interpretation of Statement of Financial Position Comparative Trend Analysis (GBP in millions) Accounting & Decision Making Page 6 "