Introduction
Green Leaf Industries is regarded as a mid-sized enterprise in the eco-friendly packaging solutions sector, and currently, it will expand into new markets and is seeking additional funds to support its growth and development. For this, the top management and prospective investors needed a clear examination of the company’s existing financial position and productivity.
The primary objective of this report is to examine the economic health of the given firm by applying the various concepts of financial management principles and financial data analysis. It will also assess the significance of financial management and evaluate the main statements, financial ratios, and compare them with the industry averages. This comparison will facilitate informed decision-making related to the expansion of the firm in the coming years.
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Section 1 – Financial management and Financial statements
1.1 Financial management theory and significance
Financial management is the process of planning, organising, directing and controlling financial resources in the enterprise to attain its objectives and goals effectively and efficiently (Strutner 2025). Further, it emphasises that the entity uses its financial resources in a way which maximises value while maintaining wealth maximisation for shareholders, maintaining stable liquidity and ensuring long-term solvency.
This process is highly significant as it helps in informed decision making as efficient financial management assists the enterprise in utilising the resources appropriately. It also helps in optimising the cost and evaluating the opportunities of investment. Through this examination managers can identify the strength and weakness of the firm which can be improved by taking appropriate action.
Moreover, effective financial management also helps in business sustainability by ensuring that obligations such as wages, supplier payments and loan repayments are met. Apart from that, it also assists in increasing the confidence of the investors and lenders, preparing and presenting efficient financial control and accountability (Sampson 2023). At the end, this process is highly significant for accomplishing the organisational growth, stability and long-term success of the firm.
1.2 Usefulness of financial statements in decision-making
Financial statements are regarded as a significant tool that provides structured economic and monetary information related to the firm’s productivity and financial standing, which directly facilitates effective decision-making for management and external stakeholders (Schmidt 2026). Further, the primary statements which are prepared by the firm are the income statement, the position statement and the statement of cash flow, and each of them varied objective and purpose.
Moreover, the income statement facilitates the decision makers to examine the profitability of the firm through the demonstration and presentation of revenues, expenses and net profits over a particular period (Schmidt 2026). In addition, this statement helps in assessing the operational efficiency, cost control and overall financial standing of the firm. While the statement of financial position offers valuable information about the resources, obligations and equity at a certain point in time, which facilitates the users to examine the liquidity, solvency and financial stability of the firm. Moreover, this is specifically significant for investors and lenders while examining the ability of the firm to attain the short-term as well as long-term obligations.
Apart from that, these statements also supported the strategic planning and investment decisions. Moreover, by examining the trends and financial ratio which directly obtained from these statements, the higher authorities can determine the strengths, weaknesses and prospective risks. External stakeholders, like investors and creditors, will use these statements to examine the feasibility of providing the funds. These statements contributed to facilitating the informed, evidence-based decisions which positively supported the growth and sustainability of the business over the period.
Section 2 – Financial statements and ratio analysis
2(A) Income statement preparation
An income statement has prepared and presented for the firm for the year ended 31 March 2025 by using the information mentioned in the trial balance of the firm. Further, this statement summarises the revenue and expenses of the firm for the period and identifies the complete profitability of the enterprise for the period (Lee and Lee 2023).
Moreover, the statement suggested that the firm has total revenue of £ 93,500 from which the cost of goods sold has been subtracted, worth £ 42,750; as a result, the firm has a gross profit of £ 50,930. After that, the components of operating expenses such as salaries and wages, sales and admin expenses, marketing, overheads and general expenses worth £ 29,110 have been deducted from the GP to reach the operating profit of £ 21,820. Along with that, the firm has paid £ 1,000 in interest in the past year, with the tax amount of £ 3,500, and the total net proceeds of the firm from their operations in the last year were £ 17,320 (See Appendix 1).
The results of this statement provide useful insights related to the cost structure and profitability of the given firm. Moreover, it facilitates the management and investors to evaluate the operational efficiency, expense control and overall financial productivity of the firm in the last year.
2(B) Vertical analysis
This examination of the income statement has been conducted to examine the proportion of every component of the statement in relation to the total revenue. Further, in this examination, total revenue is considered as the base item and presented as 100%, and all other components are presented as a proportion of the total revenue (Kulwizira Lukanima 2023). Moreover, this approach facilitates the effective comparison of the cost structure and profitability of the firm.
The calculation of the vertical analysis suggested that the cost of the goods sold is 45.53% of the revenue, and the firm has a GP of 54.47% in the last reporting year. In addition, it also suggested that the total operating expenses are 31.13% of the revenue, with the highest contribution by salaries and wages with 18.07% and the least by general expenses with 1.34%. The firm has paid around 1.07% of the revenue as interest and 3.74% as tax in the last fiscal year. The net profit margin of the firm is 18.52% in the last reporting year, as per the examination (See Appendix 2).
This examination is primarily significant for determining the high-cost area of the operations. Further, it also facilitates the comparison with the industry benchmarks, which facilitates the improvement in the overall efficiency, cost management and informed decision making.
2(C) Statements of financial position
This statement has been prepared as of 31 March 2025 by using the information directly from the trial balance of the firm. Further, this statement demonstrated the resources, obligations and equity of the firm, which provide the information about the overall standing of the firm at a particular point in time (Birt et al. 2025).
The preparation and presentation of this statement demonstrated that the firm has both long- and short-term assets and resources. The firm has fixed assets worth £ 119,820, which consist of property, plant and equipment (PPE), furniture and fittings and motor vehicles. Along with that, it also owned liquid assets such as cash, trade payables and inventory worth £ 30,500. As a result, the total assets of the firm are £ 150,320 (See Appendix 3).
On the other hand, the firm owes the obligations of £ 64,500, which consists of both long-range and short-range. The short-range dues consist of accounts payable, accrued expenses and bank O/d which combinedly are worth £ 14,500. The firm has non-current obligations such as bank loans and bonds payable of £ 30,000 and £ 20,000 respectively.
It also signified the components of total equity of the firm, such as share capital, retained earnings and net profit, and the total equity of the firm is £ 85,820 in the last reporting year. It can be said that this statement presented the overall capability and standing of the firm in the form of liquidity, stability, efficiency and profitability in the previous reporting year.
2(D) Ratio analysis
This method has been adopted to examine the overall capability of the firm by using the information from the statements, such as the income statement and balance sheet. Further, this method facilitates the assessment of profitability, liquidity and efficiency of the given organisation. In addition, this method is considered a significant tool as it helps in summarising the complex financial data into meaningful insights that positively contributed to the overall decision-making of the firm (Ali and Das 2024) (See Appendix 4).
Profitability Ratios
These ratios present the capability of the firm in generating profits and revenue from its direct and indirect operations, such as gross margin and net margin (Ali and Das 2024). Further, the calculation of the ratios indicated that the net margin of the firm is 18.50% and the return from employed capital is 16.07% in the last financial year. The results signified that the firm has a high level of profitability, which positively contributed to the expansion in the coming years.
Liquidity Ratios
These are used to assess the strength of the short-range resources of the firm to repay the short-range obligations to maintain strong liquidity over the period (Lalithchandra and Rajendhiran 2021). Moreover, the computation suggested that the firm has a CR of 2.10 and a quick ratio of 1.41. It has been observed that both the indicators are higher than the standard range, and they significantly sustain the immediate dues of the firm and help in retaining the high liquidity.
Efficiency Ratios
These indicators measure the capability of the firm in earning a significant amount of revenue and profit from its owned resources over the specific period (Ali and Das 2024). Further, the asset turnover ratio examines the usage of total assets in the process of profit-making. Moreover, the firm has an asset turnover ratio of 0.622, which reveals that the given enterprise has effectively use their assets and resources in revenue generation.
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Section 3 – Comparison with industry averages
This section of the report will compare the results of the ratio analysis with the industry benchmarks to assess the actual position of the firm in the industry and market. Further, through this comparison strength, weaknesses and improvement areas for the firm have been determined, which significantly affected the expansion of the firm in the coming years.
Profitability Ratios
The net margin of the firm is 18.50%, which is higher than the industry average of 15% this signified that the firm has covered all its indirect costs and expenses effectively, and by modifying the cost management strategies, the firm can maximise its margin in the coming years (Ali and Das 2024). Moreover, the higher margin signified the higher profitability and effective management of expenses and costs.
In addition, ROCE is also compared with the industry average of 18%, and the firm has 16.07% return on capital employed, which is lower than the industry average but has a minor variation of two per cent. But it is also an alarming position for the firm as it might affect the profitability of the long term and also reduce the confidence of the prospective investors, which adversely affects the expansion of the firm in the future.
Liquidity Ratios
The current ratio of the firm is 2.10, and the industry average is 2.0, as the firm has the upper hand, which provides them an edge in the industry and firm as compared to others over the period (Lalithchandra and Rajendhiran 2021). Further, it also signified that the firm has a strong capability to meet its short-term obligations in the coming years.
Similarly, the quick ratio of the firm is 1.41, and the industry has 1.2, which is higher than the industry average, which signifies that the firm has a strong position in the industry and market. It also indicated that the firm has enough short-term resources, which directly contributes to the attainment of the short-term obligations.
Efficiency Ratios
The given firm has an asset turnover of 0.62, but the industry average is 1.8. Further, the results indicate that the firm has a lower ratio as compared to the industry, which seems to be problematic for the firm in the coming years. It also indicated that the firm has struggled to generate substantial revenue from the assets, which also affects the operational efficiency of the firm in the coming years.
Conclusion
This report has examined the financial health of Green Leaf Industries in relation to planned expansion and investment requirements. Further, it also applied the financial management principles, examined the preparation of the financial statements, and also assessed the ratios to determine the capability of the firm in terms of profitability, liquidity and efficiency. In addition, the comparison with industry averages highlighted and suggested both strengths and weaknesses along with areas of improvement, which offered valuable insights to the management and prospective investors supporting the expansion of the firm. It was found that the firm has high net margin and liquidity ratios, while struggling in ROCE and asset turnover ratio as compared to other entities in the industry.
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Appendix
1. Income statement
2. Vertical Analysis
