INTRODUCTION TO FINANCIAL ACCOUNTING (ACC2001) TUTORIAL SHEET UNIT 6- RATIO ANALYSIS Tutorial class 1. Miguel Coley is a trader in auto accessories. The following financial statements were presented for 2015 Condensed statement of profit or loss Condensed statement of financial position Net sales 1,450,000 Non-current assets ,000 32.000 610,000 (48,000) (594000) 856,000 Current assets Stock Debtors Receivables Total assets 48.000 140.000 22.000 210.000 1,630,000 Cost of goods sold Opening stock add Net purchases less Closing stock Gross profit Net operating expenses PBIT less interest Profit before tax less Tax PAT (310,000) 546,000 (22.000) 524.000 (170,000) 354,000 Capital & reserves Ordinary shares a $0.50 10% pref shares a Reserves Retained profits 300.000 250.000 366.000 420.000 1.336.000 Non-current liability 10% Loan 220.000 117.000 471.000 (50,000) Retained earnings b/d Total profit for the year less Transfer to reserves less Dividends Ordinary Preference Retained earnings eld Price per share Current liabilities Creditors Bank Total equity & liabilities 44.000 30.000 74,000 1,630,000 (30,000) (25.000) (55.000) 366,000 3.11 The following are some key ratios for Dean James, a main competitor Gearing ratio 38% Stock turnover period 42.12 days Times interest earned 28.48 times Current ratio 2.05:1 Debtors tumover 684 times Return on capital employed 42.15% Total assets to total liabilities 4.02.1 Net profit margin 32 5596 Required: 1. Calculate the ratios for Miguel Coley in the areas of liquidity, solvency, profitability, asset management and investment b. Using the corresponding ratios from (a), comment on the performance of Miguel Coley in comparison to Dean James c. What non-financial data would you find useful in making a more comprehensive analysis of the performance and financial position of Dean? d. State four limitations of ratios. 2 Additional questions 1. The condensed results from the books of The Green Basket for the year 2016 were as follows: Fixed assets 475,000 Capital & reserves 475,000 10% Loan 125.000 Current assets Stock Debtors Bank Current liabilities 50.000 45,000 75,000 55,000 175,000 650,000 650.000 Sales Gross profit PBIT 820.000 410,000 300.000 Additional information There are no preference shares in issue 2 Tax rate is 20% to be charged on profit before tax 3. All sales are made on credit terms Data available from the industry report included the following: Current ratio 2.73:1 Return on capital employed 32 22% Acid test ratio 1.02:1 Gearing 40 94% Debtors turnover 8.65 times Stock turnover 6.21 times Net profit margin 22.02% Total assets to total liabilities 2.23:1 Return on assets 32.86% Required: 1. Calculate the corresponding ratios to the industry for Green Basket. b. Using the industry averages stated above, comment on the performance of Green Basket in relation to the industry. 3 2. The following data was obtained from the books of The Great Gatsby: Statement of Financial Position as at December 31, 2015 2016 S $ Non-Current Assets NBV NBV Tangible assets 522,100 692.000 Goodwill 65.000 50.000 587,100 742,000 2017 S NBV 732,000 30.000 762,000 Current Assets Stock Short term investment Debtors Bank Cash 35,000 12,000 10,000 35,000 7,200 13,000 0 54,000 7,000 59,200 12,000 126,000 646,300 868,000 15,000 40,000 15,000 62,500 9.300 141,800 903,800 Capital & Reserves Ordinary shares @ $1 Preference shares @ $0.50 General reserves Retained earnings 200,000 250,000 250,000 20,000 35,000 35,000 37,000 47,000 52,000 121.000 378,000 257.000 589,000 402.000 739,000 212,300 217,000 100,000 Non-Current Liabilities 10% Debenture Current Liabilities Creditors Tax payable Dividends payable 22,000 14,000 20.000 18,000 19,000 25,000 62,000 868,000 15,300 22,000 27.500 64,800 903.800 56,000 646,300 Statement of Profit or Lons for the year ended December 31, 2015 2017 5 5 $ Sales 80% credit) 380 000 870,000 930,000 Gross profit w 350.000 375.500 Profit before tax 244,000 248.000 250,000 Tax 61.00 62.000 165.000) Profit afer tax 183.000 186.000 185,000 Dividends Ordinary 15.000 30.000 35.000 Preference 10.000 25.000) 100 (40,000) 10.000 (45.000) Transfer to reserves (2000 DALLA SOLO Profit for the year 121.000 136.000 145,000 Retained earnings ba 121.000 237,000 Retained earnings old 121.000 257.000 402.00 Market pricepet share 52:30 $295 Required: 1. Calculate appropriate ration for the firm in the areas of liquidity, shey. profitability, asset management and investment. Comment on the performance of the firm over the years. 3 The following information was obtained from the books of De Ville Last Condensed statement of profit or loss for the year ended September 30, 2009 2010 SM SM SM SM Tume 490.00 585.00 Gross profit 17.50 21.10 Interest 1.98 L.95 Profit before tex 15.52 19.12 Tax 5.743 Profitiertas 1087 133 Dividends Ordinary 2.30 2.40 Preference OLCI 003 Profit for the year 849 10.90 Retained earningsbild 2290 29.70 Retained earnings old 3139 40.00 Market price per share 1.50 175 SM Condensed statement of financial position as at September 30, 2009 2010 SM Non-current sets 792 1422 Net current assets 54.17 570 Total assets less current liabilities 62.00 7130 Capital and reserves Ordinary shares 50.25 8% Preference stures u Si each Retained earnings Non-current liabilities 9.90 1.000 31 39 9.90 100 40.60 19.80 62.09 19.80 7130 Required: Calculate and comment on the following ratio (n) gearing. (b) return on equity. (c) EPS, (d) times interest earned, (el market to hook value ratio 4 The trading account for Sweet Pea Ltd for the year ended December 31, 2017 is set out below $ Sales (all credit) 860,000 Opening stock 100,00 Purchases (50% on credit) 25.00 725,000 Closing stock (76.000) (649,000 Gross profit 211.000 The following amounts have been extracted from the company's balance sheet at December 31, 2017 Trade debtors prepayments Cash in hand Bank overdraft Trade credits Acas Proposed dividends 120.000 8.000 12.000 16,000 80.000 6.000 10,000 Required: a) Calculate the stock turnover period in days b) Calculate the debtor collection period in days c) Calculate the creditor payment period in days d) Calculate the current ratio at December 31, 2017 6) Calculate the acid test ratio at December 31, 2017 INTRODUCTION TO FINANCIAL ACCOUNTING (ACC2001) TUTORIAL SHEET UNIT 6- RATIO ANALYSIS Tutorial class 1. Miguel Coley is a trader in auto accessories. The following financial statements were presented for 2015 Condensed statement of profit or loss Condensed statement of financial position Net sales 1,450,000 Non-current assets 20.000 Cost of goods sold Opening stock add Net purchases less Closing stock Gross profit 32.000 610.000 (48,000) (594000) 856,000 Current assets Stock Debtors Receivables Total assets 48.000 140,000 22.000 210,000 1,630,000 Net operating expenses (310,000) PBIT less Interest Profit before tax less Tax PAT 546,000 (22.000) 524.000 (170,000) 354,000 Capital & reserves Ordinary shares @ $0.50 10% pref shares a si Reserves Retained profits 300.000 250.000 366.000 420.000 1.336.000 Non-current liability 10% Loan 220.000 117,000 471.000 (50,000) Retained earnings b/d Total profit for the year less Transfer to reserves less Dividends Ordinary Preference Retained earnings eld Price per share Current liabilities Creditors Bank Total equity & liabilities 44.000 30.000 74,000 1,630,000 (30,000) (25.000) (55,000) 366,000 3.11 2. The following data was obtained from the books of The Great Gatsby Statement of Financial Position as at December 31, 2015 2016 S $ Non-Current Assets NBV NBV Tangible assets 522,100 692,000 Goodwill 65.000 50.000 587,100 742,000 2017 S NBV 732,000 30.000 762.000 Current Assets Stock Short term investment Debtors Bank Cash 35,000 12,000 10,000 35,000 7,200 13,000 0 54,000 7,000 59,200 12,000 126,000 646,300 868,000 15,000 40,000 15,000 62,500 9.300 141.800 903,800 Capital & Reserves Ordinary shares @ $1 Preference shares @ $0.50 General reserves Retained earnings 200,000 250,000 250,000 35,000 35,000 37,000 47,000 52,000 121.000 378,000 257.000 589,000 402.000 739,000 20,000 Non-Current Liabilities 10% Debenture 212,300 217,000 100,000 Current Liabilities Creditors Tax payable Dividends payable 22,000 14,000 20.000 18,000 19,000 25,000 62,000 868,000 15,300 22,000 27.500 64,800 903,800 56,000 646,300