The following information relates to the business of Restaurant Gigi, and the owner is concerned about the profitability and financial structure of his business at 30 June 2025, especially since the bank is requiring repayment of the business’s overdraft.

Required

(a) Calculate the following ratios for 2024 and 2025:
i. profit margin ii. return on proprietor’s capital iii. current ratio iv. quick ratio v. equity ratio vi. inventory turnover.

(b) Write a short report to the owner in relation to the profitability and financial stability of the business.

(c) Identify the cash flow ratios that would be useful to calculate to assist the owner to more fully understand the financial health of the business.

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30 June 2025 30 June 2024 Revenue (sales on credit) Cost of sales Other expenses $ 100 000 $ 77 500 39 750 26 250 48 250 39 000 Cash and cash equivalents (16000) 39 000 Inventories 57 250 43 500 Trade accounts receivable (net) 55 000 34 000 Non-current assets (net) 68 500 48 000 Trade accounts payable 39 250 34 500 G. Lovioure, capital 84 000 60 000 Non-current liabilities 41 500 25 000 Inventory at 1 July 2023 was $47 500.