In this part, you are required to read the case study provided and answer the questions that follow in Part A

Case Study

Jolfa Ltd. is an Australian retailing company. Currently, Jolfa Ltd. only operates in Australia. The Balance Sheet and Income Statement for Jolfa Ltd. are given below.

Jolfa Ltd. Balance Sheet as at 30 June, 2015
Current Assets	$ '000	$ '000
Cash	50
Accounts Receivable	80
Inventory	120	250
Non-Current Assets
Plant and equipment	950
Land and Building	1100
Goodwill	140	2190
Total Assets		2440
Current Liabilities
Accounts Payable	280
Provn for Long Service Leave	85	365
Non-Current Liabilities
Debentures	550
Mortgage loan	220	770
Total Liabilities		1135
Net Assets		$1305
Equity
Share Capital:
1,150,000 ordinary shares issued at $1.00		1150
Retained earnings		155
Total Equity		$1305

Additional information

• Current share price is $1.55
• Most recent dividend was $0.05 per share. Dividends are expected to grow by 7% per year.
• 550 Debentures were issued with a face value of $1,000 with annual interest rate of 8.5%. The Market Price of the Debentures is $950. The time to maturity is 3 years.
• The mortgage loan is currently at a variable rate of 8.9%.

Jolfa Ltd. Income Statement for the Year Ended 30 June 2015
	$ '000	$ '000
Total Sales		2310
Less cost of goods sold
Opening Inventory	220
Purchases	1620
Goods available for sale	1840
Less closing Inventory	120	1720
Gross Profit		590
Less operating expenses
Depreciation	110
Interest	90
Rent	30
Wages	150
Advertising/marketing	20
Other	40
Total Expenses		440
Net Profit before tax		150
Tax	45
Net Profit After Tax		105

Industry standards/benchmarks

Current Ratio 1.45:1

Liquid Ratio 1.06:1

Debt to Equity ratio 160%

Earnings per Share $0.45 per share

P/E ratio 15

Return on Equity 10.5%

Net Profit Ratio 22%

Times Interest Covered 4 times

Dividend Payout ratio 20%

PART A

a) From the information provided calculate the:

1. Current Ratio
2. Liquid Ratio
3. Debt to Equity ratio
4. Earnings Per Share
5. P/E ratio
6. Return on Equity
7. Net Profit ratio
8. Times interest covered
9. Dividend Payout Ratio

b) Prepare a report to the management of Jolfa Inc in which you discuss each of the ratios from above. Compare the ratios to the industry standards given.

Industry Standards are used as Jolfas agreed criteria

Provide management with some ideas as to how the company could improve the ratios so that the majority are above the industry standards. How would improving these ratios benefit the company? Keep in mind that your suggestions may improve some ratios and worsen others.