The following financial statements relate to Charity plc:

Income statement (profit and loss account)

for year ended 30 September Year 4

£000s £000s Revenue 2,480 Cost of sales (1,100)

Gross profit 1,380 Administration and selling expenses (678)

Operating profit 702 Debenture interest (31)

Profit before taxation 671 Taxation (154)

Profit for equity holders 517 Note: The directors have recommended a dividend of 11.4 pence per share in total in respect of Year 4, to be paid following approval at the next annual general meeting.

Statement of financial position (balance sheet)

as at 30 September Year 4

£000s £000s £000s Non-current assets, net of depreciation 785 Current assets:

Inventories (stocks) 341 Trade receivables (debtors) 801 Cash 110 1,252 less: Current liabilities Trade payables (creditors) (90)

Other payable and accruals (654) (744)

Net current assets 508 Total assets less current liabilities 1,293 Non-current liabilities 7% debentures (440)

Total net assets 853 Share capital and reserves Issued share capital

(1,360,000 ordinary shares of 25p nominal value) 340 Retained earnings 513 853 Required

(a) Calculate ratios which measure:

(i) liquidity and the use of working capital;

(ii) management performance; and

(iii) gearing.

(b) Explain how each ratio would help in understanding the financial position and results of the company.

(c) The market price of one share is 800 pence. Calculate ratios which will be of interest to investors.

366 Part 4 Analysis and issues in reporting AppendixLO1