The financial statements for Harridges Limited are given below for the two years ended 30 June 2004 and 2005. Harridges Limited operates a department store in the centre of a small town.

Required:

(a) Choose and calculate eight ratios that would be helpful in assessing the performance of Harridges Limited. Use end-of-year values and calculate ratios for both 2004 and 2005.

(b) Using the ratios calculated in

(a) and any others you consider helpful, comment on the business’s performance from the viewpoint of a prospective purchaser of a majority of shares.

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Harridges Limited Profit and loss account for the years ended 30 June 2004 2005 000 000 000 000 Revenue 2,600 3,500 Cost of sales (1,560) (2,350) Gross profit 1,040 1,150 Expenses: Wages and salaries (320) (350) Overheads (260) (200) Depreciation (150) (250) (730) (800) Operating profit 310 350 Interest payable (50) (50) Profit before taxation 260 300 Taxation (105) (125) Profit after taxation 155 175 Dividend (approved, but unpaid at the year end) (65) Profit retained for the year 90 (75) 100 Balance sheet as at 30 June