Hello please can i have a detailed response to this question in order to understand it. thank you in advance for your help

1. Briefly explain the general purpose ofeachof the three financial statements (the income statement, the balance sheet and the cash flow statement)andthe usefulness ofeachof them for Improve Ltd.
2. Analyse the financial statements that have been prepared by Improve Ltd. In particular, comment on the following aspects of the company: in total)

• Areas of concern in financial performance, focussing mainly on information from the income statement.
• Areas of concern in financial health, focussing mainly on ratios dependent on the income statement and the balance sheet.
• Areas of concern in cash flow management, focussing mainly on information available from the cash flow statement.

1. Using the analysis in your answer to question 2, assess the validity of the concerns raised by Uncle Dave in relation to the business. What practical steps should Susan and Chris now undertake in order to improve the financial performance and financial health of the business?

Case study

Improve Ltd

Susan and Chris established a company together in 2010, Improve Ltd, to provide a home and garden improvement service. This involved hiring out equipment to customers to help them undertake their own home and garden improvements as well as offering a service covering home and garden renovations and repairs such as home decoration and the construction of conservatories. As part of the renovation service, the company offers credit for items such as conservatories.

The company has a series of shops where customers can come to hire equipment. Customers can also obtain quotes for any work they wish to have undertaken. Susan and Chris have noticed that the hiring of equipment is becoming less popular than customers asking for work to be carried out on their behalf.

Susan and Chris's work has a reputation for high quality and a loyal customer base locally. This has been done through a combination of recommendations by satisfied customers and by marketing and advertising. Both Susan and Chris are concerned with how they will respond to increased economic uncertainty.

80% of the shares of the company are owned by Susan and Chris and the rest by Susan's Uncle Dave. The shareholders have not been taking dividends out of the business in order to increase funds for investment by the company.

Over the past few years, the return on equity has been around 42%.

Uncle Dave is concerned about how the business has been doing recently, its profitability and financial health. Uncle Dave wishes to understand more about the latest financial statements, any trends indicated by an analysis of the financial statements and any future plans as to how any concerns may be addressed. He has suggested that one option is for the business to consider paying back some or all of the bank loan.

Improve Ltd income statements for the years ended 31 December 2020 and 31 December 2019 Year to 31 Dec 2020 Year to 31 Dec 2019 k k k k Sales revenue 39,000 37,000 Less cost of goods sold: Opening inventory 5,800 6,200 Purchases 11,500 9,900 17,300 16,100 Less closing inventory 6,700 5,800 Cost of goods sold 10,600 10,300 Gross prot 28,400 26,700 Less expenses: Salaries 14,500 12,300 Insurance 700 550 Delivery costs 300 400 Marketing and advertising expenses 900 1,200 Energy and other utilities 700 600 Depreciation 1,100 650 Architects' fees 5,100 4,300 Total Expenses 23,300 20,000 Operating Prot 5,100 6,700 Less Interest cost 120 120 Prot before taxation 4,980 6,580 Less Corporation tax 996 1,316 Prot after taxation 3,984 5.264 Improve Ltd balance sheets at 31 December 2020 and 31 December 2019 At 31 Dec 2020 At 31 Dec 2019 Ek EK EK EK Non-current assets Property and equipment for hire 15,712 14,062 Vehicles 800 650 Total non-current assets 16,512 14,712 Current assets Inventory 6,700 5,800 Receivables 2,990 1,100 Cash at bank 700 1, 126 Total current assets 10,390 8,026 Current liabilities Payables 2,700 2,200 Corporation tax 996 1,316 Total current liabilities 3,696 3,516 Net current assets/working capital 6,694 4,510 Total assets less current liabilities 23,206 19,222 Long-term liabilities Bank loan 1,500 1,500 Net Assets 21,706 17,722 Equity Share capital 11,000 11,000 Reserve: retained earnings 10,706 6,722 Total Equity 21,706 17,722Improve Lid cash flow statement for the years ended 31 December 2020 and 31 December 2019 Year to 31 Dec 2020 Year to 31 Dec 2019 EK Ek Operating activity: Operating profit 5,100 6,700 Corporation tax paid ( 1,316) ( 2,520) Non-cash expenses: Depreciation 1,100 650 Changes in cash invested in working capital: (Increase)/Decrease in inventory ( 900) 400 (Increase)/Decrease in receivables ( 1,890) 800) Increase/(Decrease) in payables 500 ( 2,500) Net cash inflow from operating 2,594 1,930 activities Investing activity: Purchase of non-current assets ( 2,900) ( 1,584) Net cash outflow from investing ( 2,900) ( 1,584) activities Financing activity Interest paid on bank loan 120) ( 120) Net cash outflow generated by ( 120) ( 120) financing activities Change in cash balances ( 426) 226 Opening cash balance at 1st 1,126 900 January Closing cash balance at 31st 700 1126 December