Accounting for Engineers January 2018 Question 5 ACF302-20076 The main shareholder of Prevaca Ltd wishes to assess the company's performance as reported in the financial statements for the year to 30 November 2017, which are shown below. Income statement for the year ended 30th November 2017 Turnover Opening inventory Add purchases Less closing inventory Cost of sales Gross profit Expenses Profit before tax Tax Profit after tax EOOD 156,000 3,200 120,320 (3.400) 120,120 35,880 (14,820) 21,060 (4,600) 16,460 Statement of Financial Position as at 30th November 2017 RECHT Non current assets Tangible assets 101,900 Current assets Inventory 3,400 Accounts receivable 13,700 Cash 80 17,180 119,080 Non current liabilities Long term loan Current liabilities Accounts payable Overdraft Tax Financed by: Ordinary shares of 1 each Reserves 1,200 6,480 0 4,600 11,080 106,800 60,000 46,800 106,800 Accounting for Engineers January 2018 Question 5 continued/ ACF302-20076 You have been advised that all sales and purchases were made on credit and you have obtained the following measures of performance for a competitor: Gross profit margin. 30% Net profit margin. 16% Current ratio. 1.2 iv. Acid test ratio. 0.6 V. Average inventory days. 41 days vi. Accounts receivable days. 39 days vii. Accounts payable days. 15 days viii. Return on capital employed. 22.4% Required: a) Using the formulae set out in Appendix 1, calculate the measures of performance listed above for Prevaca Ltd. b) (15 marks) Based on the measures you have calculated in (a) and the measures for the competitor, comment on the profitability, liquidity and efficiency of Prevaca Ltd. (10 marks) [Total: 25 marks]