BBF 222 FINANCIAL MANAGEMENT

CAT

Q.1

CUYOU Ltd started by a group of students in 2018, the owners of the business have had problems interpreting their financial statements more still they want to attract investors to the company.

The following information relating to the financial performance and position for the financial year 2018:

Income Statement for the year ended 31/12/2018

ParticularsShs (millions)

Turnover720

Cost of sales432

Gross profit288

Distribution and administration costs138

Operating Profit150

Interest45

Profit before tax105

Taxation42

Retained profit63

Statement of Financial Position as at 31/12/2018

AssetsShs (millions)

Land and building600

Plant and equipment

555Inventory115

Debtors89

Prepayments10

Bank6

Total Assets 1,375

LiabilitiesShs (millions)

Creditors45

Taxation42

Proposed dividends30

Accruals812%

Debentures375

Ordinary shares500

Retained pr of its375

Total Capital & Liabilities1,375

Required:

a) With the knowledge you have acquired in class, educate the management and owners about, the term ratio analysis? (2 marks)

b) Explain the five categories into which financial ratios can be classified. (15marks)

c) Why is ratio analysis an important tool in financial analysis?................. ..(4 marks)

d)What are the limitations of ratio analysis...................................( 3 Marks)

e) Carry out an analysis of the profitability, liquidity and efficiency of Modern TechnologiesLtd for the financial year 2018. .........................................................(6 marks