Balance Sheet for the Year Ended $31$ December $2022$

Non$-$Current Assets $11000001150000$

Buildings $800000750000$

Equipment $300000400000$

Current Assets $700000500000$

Inventory $250000200000$

Debtors $300000200000$

Bank $150000100000$

Total Assets $18000001650000$

Equity and Liabilities

Equity $750000650000$

Share Capital $200000100000$

Retained Earnings $550000550000$

Liabilities $10500001000000$

Non$-$Current Liabilities

Long Term Loans $700000600000$

Current Liabilities

Creditors $350000400000$

Total Equity and Liabilities $18000001650000$

Required:

Used the information above to calculate and evaluate the following ratios for both the

Companies and answer the questions that follow. Where applicable, round off answers

correctly to two decimal places$)$:

$2\mathrm{.}1$ Calculate the current ratio $(2)$

$2\mathrm{.}2\mathrm{.}1$ Calculate the quick $/$ acid test ratio $(4)$

$2\mathrm{.}2\mathrm{.}2$ Upon evaluating the quick ratio, what is your opinion on the level of inventory

holdings in both companies? $(2)$

$2\mathrm{.}3\mathrm{.}1$ Calculate the net profit margin $(2)$

$2\mathrm{.}3\mathrm{.}2$ If the industry average of similar sized companies is a net profit margin of $15\%$ and

using this ratio as an indicator would you invest in either of these companies? $(2)$

$2\mathrm{.}3\mathrm{.}3$ In general, what can be done to improve this ratio? $(2)$

$2\mathrm{.}4$ Calculate the debt to equity $(2)$

$2\mathrm{.}5\mathrm{.}1$ Calculate the interest cover $(2)$

$2\mathrm{.}5\mathrm{.}2$ Using interest cover as a single data point which company is riskier to invest in and

why? $(2)$Income Statement for Year Ended $31$ December $2022$

ABC Ltd XYZ Ltd

R R

Sales $500000450000$

Cost of sales $300000280000$

Gross profit $200000170000$

Operating expenses $10000090000$

Operating profit $10000080000$

Interest expense $2500015000$

Profit before tax $7500065000$

Tax $2100018200$

Profit after tax $5400046800$