HappyShopping Ltd is a food retail chain with 100 convenience stores distributed in 50 different towns and cities in England and Wales, serving a wide range of quality food and drinks. Recently, the company has started suffering from profitability decline, particularly due to losing customers to discount stores.

After several discussions, the companys directors realised that HappyShopping is experiencing financial problems, and that major changes should be applied to overcome the situation.

The following information has been extracted from the accounting records.

Income statement

	2018 M	2019 M
Revenue	79.2	57.8
Cost of sales	(42.5)	(35.1)
Gross profit	36.7	22.7
(Operating expenses)	(22.5)	(21.5)
Operating Profit	14.2	1.2
Interest	(1.5)	(1.1)
Profit before tax	12.7	0.1
Tax	(4.1)	(0)
Net profit	8.6	0.1

(QUESTION CONTINUES ON NEXT PAGE)

QUESTION 2 (continued)

Statement of Financial Position

	2018 M	2019 M
Non-current Assets	45.2	34
Current assets
Inventory	10.2	11.4
Cash	20.6	9.5
Total current assets	30.8	20.9
Total assets	76	54.9
Equity & Liabilities
Capital	15	15
Reserves	18.3	18.1
Total equity	33.3	33.1
Non-current liabilities
Long term loan	17	12
Current liabilities
Trade payables	15.1	6.4
Tax payable	9.2	2.2
Interest payable	1.4	1.2
Total current liabilities	25.7	9.8
Total equity & liabilities	76	54.9

Required

a) Using the information above, calculate the following five ratios for every year.

i) Return on capital employed

ii) Gross profit margin

iii) Current ratio

iv) Inventory turnover period

v) Payables settlement period

(10 marks)

b) Comment critically on the current status of HappyShopping Ltd using suitable classifications of performance to highlight your answers in A. Make recommendations for addressing the companys problems.

(8 marks)

c) Discuss the limitation of ration analysis

(7 marks)