David Johnson started this business with the aim of making a good living. However, to date he has not paid himself wages or dividends because the business is new and growing. Ultimately the business must generate sufficient profits to pay wages to David and possibly another employee. The business has completed two periods of trading, with one period as a merchandising company.

Required

(a) Calculate the following ratios using the data in the worksheet based on August financial reports (ignore GST):

• Gross profit

• Operating expenses to sales

• Profit margin

• Inventory turnover

• Days in inventory (Hint: divide into 31, not 365)

(b) Comment on your findings. Remember to bear in mind that the information gleaned from the relevant ratios used to evaluate profitability will be fairly limited because they are for only a short period.