Financial Analysis Report Shell Cluster 7531 - Joe Bloggs

Introduction:
This report provides an analysis and evaluation of the current and prospective profitability, liquidity and financial stability of Shell Cluster 7531. I have used my finance knowledge gained from my accounting & finance degree from London South Bank University and on site Shell experience to analyse this financial statement. Also Microsoft Office is a necessary part of the analysis of financial information.

Findings: A. Performance Summary

Volume Analysis Overall, Total Fuel volume drops by 12.60% in Q2, 5.71% in Q1 and 9.30% YTD compare to forecast. VPower volume drops by 10.28% in Q2, 3.20% in Q1 and 4.24% YTD compare to forecast, good think is VPower penetration performing well compare to forecast. Regular fuel volume drops by 12.87% in Q2, 6.53% in Q1 and 9.77% YTD compare to forecast. V-Power Diesel sales volume has favourable variance against the forecast while all other grades show a negative variance against budget. Retailer still takes extra effort to increase the fuel volume. Sales Analysis During Q2, Shop sales is drop by 0.40% compare to forecast and overall YTD has dropped by 4.41% compare to forecast (Q1 has dropped by 8.41%. Retailer takes extra effort to increase the shop sales through good stock availability, participating all Shell promotion campaigns and frequent product margin checks. Fuel Commission is drop by 11.60% in Q2, 4.92% in Q1and 8.18% YTD due to Total fuel Volume drop. A fair Share Adjustment figure (variances) doesnt make sense for me, because it is contractual payments to Shell according GRBA agreement (not match with forecast.). Carwash Analysis Cluster didnt have forecast for carwash, but it is performing well. During Q2, carwash made profit of 7900. I didnt understand why Shell charges higher royalties than sales in Q1. The reason may last years royalties which charged in Q1, but it is not right to account in Q1. Cost Analysis During Q2, Labour cost is increase by 13.27% compared to forecast and overall YTD has increase by 7.64 %( 1.98% increase in Q1). This cost may reduce by proper multi task training in future. Shell royalty payment on shop sales is almost same although the sales has increased in Q2, it is better to find out why it has happened, may be errors in the reports. Overall YTD, other cost increase by 46.65%, but suddenly increase by 46.25% in Q1 (7.05% in Q2). This is may be accounts input error because of reasonability. Profitability Analysis During Q2, Gross profit is increase by 7.04% compare to forecast, but gross profit is decrease by 17.82% in Q1. The reason may cost of sales increase and higher taxes. Overall YTD, Net profit has dropped by 93.91% compared to forecast because account input error of other operating cost in Q1 (net profit dropped by 172.63% in Q1 and 11.54% in Q2)

B. Trading Account
Considering the Trading Account, Gross profit margin seems to be acceptable figures for Q2 and YTD. That means the shop sales has increased in the higher margin product and which can be seen on the trading account that tobacco and beverage sales increased by 10% and 47% respectively. He should have pushed more in food, non-food and grocer items to achieve the forecasted level. It seems he did job on promoting Promotion items such as Counter Active Selling Promotions throughout the period. But he still takes extra effort to increase the fuel volume.

C. Profit and Loss Account

If we take into account his Profit & Loss Account, Net profit margin is very low in both periods and Overheads seems to be quite higher percentage of revenue for example %Wages to operating cost is 81% in Q2, 71% in Q1 and exceed the forecast. Even though his staff cost is higher than forecast, Site Consumables, Cash handling fee, water bill and drive off are also higher amount. He should find the way to mange his cost accordingly. There are some figures does not make sense for me. Say an example, Q2 till difference figure is 2547 but YTD figure is 1566 and News delivery charge is -9111. Also, other operating cost figures in Q1 dont make sense for me compare to Q2. My knowledge YTD figure must be more than or equal to Q2 figure. Also the the vehicle expenses figure cant negative unless if he received any credit note or re-fund from previous period. Net profit margin is low even though pretty good Gross profit margin compare to the similar industry.

D. Balance Sheet
According to the Balance Sheet, net current assets ratio and liquidity ratio are seemed to be lower than expected norms. Current liability is higher than current assets and retailer has not enough working capital to meet short term creditors. His stock availability is not bad (stock holding is high) and high cash in transit amount due missed collections but his way of cash flow seems very poor. He took 24K/quarter from his business as Drawings and this amount seems bit higher to his business and affect his business cash flow and Net Worth of business become negative of -44671. Also, I noticed that cluster keeps high amount of suspense a/c which should less or minimum. Why accruals are high? What consists of accrual? VAT creditor shows a negative figure?

Limitation:
The reports also investigate the fact that the analysis conducted has limitation. Only data provided for Q2 period and six month ending YTD. This is not sufficient to analysis the business past performance properly. I need to have at least last 2 years monthly figures with details to analysis. Also I have no details that what basis the forecast figures workout. Also I have to take in to account other factors such as inflation, interstate and other economic conditions before arrive to the conclusion.

Recommendation:
Retailer should mentor his business financial position quite often and take appropriate action accordingly. He should review his operating costs regularly and find the way to cut the unnecessary overheads. He should tidy up his cash flow and should bring the working capital positive. Also he should follow the Shell business advice and train and motivate his staff to achieve the target.

Conclusion:
Overall YTD, the shop is making a profit of 8K after all expenses. Although Q2, perform well in relation to sales and profit but the negative figures in Q1 reduces the overall profitability. Therefore it looks this cluster has more potential customer who buys shop item alone. So we may have to do more promotion to increase the fuel sales and which indeed will help the shop sales too and the profitability. Based on the available information, the report find the prospective of the business in its currents position are not positive. Q1, Q2 and YTD, data express a contradicting picture of the business as variation in key variables is very high. This is highly unlikely in a real business world unless some exceptional events such as site closure or partly opened. If this is not the case then the reliability of the data is questionable. It is understandable that there will be some arithmetic error in any accounting data and it can be minimized by continues monitoring of the data.The major areas of weakness require further investigation and remedial action by retailer. If the retailer put extra effort and take appropriate actions as I recommend above, there would be tremendous improvement on this business.

Over Look Performance