The following information has been extracted from the accounts of Witton Way Ltd:

Additional information: During the year to 30 April 2006, the company tried to stimulate sales by reducing the selling price of its products and by offering more generous credit terms to its customers.

Required:

(a) Calculate six accounting ratios specifying the basis of your calculations for each of the two years to 30 April 2005 and 2006 respectively which will enable you to examine the company’s progress during 2006.

(b) From the information available to you, including the ratios calculated in part

(a) of the question, comment upon the company’s results for the year to 30 April 2006 under the heads of ‘profitability’, ‘liquidity’, ‘efficiency’ and ‘shareholders’ interests’.

(c) State what additional information you would require in order to assess the company’s attempts to stimulate sales during the year to 30 April 2006.

Transcribed Image Text:

Turnover (all credit sales) Less Cost of sales Gross profit Other expenses Loan interest Profit before taxation Taxation Profit after taxation Profit and Loss Account for the year to 30 April Note: Dividends paid in 2006 were 300,000 (2005: 300,000). 2005 2006 000 000 7,650 11,500 (5,800) (9,430) 1,850 2,070 (150) (170) (50) ( 350) 1,650 1,550 ( 600) 550) 1,050 1,000