Exercise 2: Read the comparative balance sheets and the income statements of the firm 'Imaginary Computers Limited'. Use the techniques of financial statements analysis as explained in the chapter to do the following: 1. Complete the missing values (titles, formulas and numerical values in the table below. Note that some ratios could not be calculated as relevant data are not available. 2. Comment on the financial strengths and weaknesses of the firm (trends of the ratios and its comparison with industry average) Imaginary Computers Ltd. 2002 2001 53 6.7 Share capital Reserves and surplus 75 2003 85 7.4 5.7 Papelord Long-term debt Notes payable - Short term Accounts payable Totalliinilities and Net fixed assets Cash at bank Receivables Inventory Total Assets 4.1 5.6 3.4 25.11 17.4 2.6 35 1.6 32 5.2 6.5 28.1 218 0.8 28 2.7 221 42 72 5.6 322.9 26.1 12 2.9 2.7 3229 Income statement for the year ending 31 December 15 000) 2001 2003 2002 34.9 26.2 574 24.5 53 3.7 LE 02 45.8 16 7.0 4.5 0.1 Net Sales Cost of goods sold Gross Profit Operating Expenses Operating profit Non-operating surplus/deficit ERIT Interest Profit before tax Tax Net Profit Dividends Retained earnings 0.4 50 2.0 10 0.6 0.6 0.6 22 20 11 19 Answer: Ratio Formula 2001 2002 2003 Comments Industry Average Ratio Formula 2001 2002 2003 Industry Comments Average Current 0.85 0.54 1.2 ratio Liquidity ratios 0.68 0.31 Quick assets Current liabilities Page 2 of 4 0.6 Inventory turnover 18.6 129 --- 20.5 ratio 29 . 45 Receivables Aversales per day 0.18 0.25 ... 0.45 Gross Profit/sales Profitability ratios 0.03 0.08 ...... 0.15 Net profit Net sales Debt to 1.09 1.13 1.9 equity ratio 0.18 0.25 0.45 Gross Profit/sales Profitability ratios 0.03 0.08 0.15 Net profit Net sales . Debt to 1.09 1.13 1.9 equity ratio Page 3 of 1 1.8 5.11 EBIT Interest Payabable on loan