Claire is a shareholder in Solutions Ltd. She wishes to assess the management effecitivness and the company liquidity in utilising the resources. She has approched you to assist her by analysing the financial statements of Solutions Ltd. for the previous two years as follows:

Required:

To help Claire analyse the performance of Solutions Ltd., you need to:

a) Calculate the following ratios for every year:

i) Return on Capital Employed

ii) Return on ordinary shareholders funds

iii) Gross Profit margin

iv) Net Profit margin

v) Current Ratio

(10 marks)

b) Debate the limitations of ratio analysis.

(7 marks)

c) Comment critically on the financial position of Solutions Ltd. and how this has changed over the two-year period.

(8 marks)

Solutions Ltd. Income Statement for the year ended 31 July 2021 000 2020 000 Continuing Operations: Revenue Cost of Sales Gross Profit 4,900 (2,597) 2,303 4,500 (2,457) 2,025 | Operating Expenses Distribution Costs Administrative Expenses (1,225) (490) (472) (675) Operating Profit 588 878 Finance Costs Profit Before Tax Tax (161) 427 (64) (56) 822 (56) Net Profit 363 766 Solutions Ltd. Statement of Financial Position as at 31 July 2021 000 2020 000 Non Current Assets: Property, Plant and Equipment 8,041 6,200 Current Assets Inventories Trafe receivables Cash 649 392 0 1,041 9,082 347 405 79 831 Total Assets 7,031 Equity & Liabilities Share Capital Retained Earnings 2,500 3,741 2,500 3,378 Total Equity 6,241 5,878 Non-Current Liabilities Bank Loan 2,300 800 Current Liabilities Trade Payables Tax Liabilites Bank Overdraft Total Current Liabilities (286) (64) (191) (541) (297) (56) (0) (353) Total Equity and Liabilities 9,082 7,031