Comparative balance sheets and income statements for E-Worths Limited are given as follows.

E-WORTHS LIMITED BALANCE SHEETS AS AT 30 JUNE 2022 2021

$000 $000 Current assets Cash 41 43 Receivables 79 74 Inventories 210 203 Other 4 5 Total current assets 334 325 Noncurrent assets Property, plant and equipment 160 141 Total assets 494 466 Current liabilities Creditors and borrowings 77 64 Provisions 40 30 Total current liabilities 117 94 Noncurrent liabilities Loan 140 140 Total liabilities 257 234 Net assets 237 232 Shareholders’ equity Share capital 90 90 Reserves 115 115 Retained profits 32 27 Total shareholders’ equity 237 232 E-WORTHS LIMITED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2022 2021 $000 $000 Sales 790 773 Less: COGS (494) (456)
Gross profit 296 317 Less: Administrative and selling expenses (220) (241)
Less: Interest expense (15) (14)
Operating profit before income tax 61 62 Income tax expense (30) (32)
Operating profit after income tax 31 30 During the year ended 30 June 2022, E-Worths Limited declared and paid dividends of $26 000. On 30 June 2022, the market price per share was $2.70 and 90 000 shares were on issue.
1 Assume you are a banker evaluating a request for a short-term loan from E-Worths Limited. The company would like to borrow on 1 July 2022 and repay on 31 December 2022. Name and calculate three 2022 ratios that you would use to determine the likelihood that the company will be able to make the loan repayment when it falls due.
2 Assume you are a potential investor evaluating a share purchase in E-Worths Limited. You are looking for an investment that will provide a steady stream of dividend income over the years. Name and calculate three 2022 ratios that you would use to make your decision about whether to buy shares in E-Worths Limited.
3 List and briefly explain three disadvantages of basing your decisions solely on ratio analysis.
4 List other tools that analysts and other users of financial statements might use to overcome the limitations associated with the use of ratios alone.