List the main advantages of ratio analysis. (5 marks) 1.Helps in forecasting and planning by performing trend analysis. 2. Helps in estimating budget for the firm by analysing previous trends. 3. It helps in determining how efficiently a firm or an organisation is operating. 4. It provides significant information to users of accounting information regarding the performance of the business. 5. It helps in comparison of two or more firms. 6. It helps in determining both liquidity and long term solvency of the firm.

(b) Munyah Ltd. is an expanding company and the following accounts relate to its operations for the years 1999 and 2000:

Profit statement for the year ended 30 June

1999 2000

Sh. Sh.

Sales 3,000,000 4,800,000

Less: cost of goods sold 1,650,000 2,700,000

Gross profit 1,150,000 2,100,000

Less: trading expenses 675,000 825,000

Trading profit 675,000 1,275,000

Less: Debenture interest 37,500 37,500

Net profit before taxation 637,500 1,275,000

Less: Corporation tax 240,000 480,000

Net profit after taxation 397,500 757,500

Less: Ordinary share dividend 187,500 262,500

Undistributed profit for the year 210,000 495,000

Balance sheet as at 30 June 1999 2000

Sh. Sh. Sh. Sh.

Fixed assets at cost 1,500,000

2,100,000

Less: Depreciation 300,000 1,200,000 375,000 1,725,000

Current assets:

Stock 600,000

825,000

Debtors 375,000

525,000

Cash 120,000

1,350,000

Less: current liabilities

1,095,000

Creditors 217,500

300,000

Taxation 240,000

480,000

Proposed dividend 187,500

262,500

Bank overdraft _______

97,500

(645,000)

(1,140,000)

1,650,000

1,935,000

Financed by:

Ordinary share capital (Authorised and issued)

750,000

750,000

Undistributed profits

525,000

1,020,000

10% debentures

375,000

165,000

1,650,000

1,935,000

Required: (i) Compute six accounting ratios for both 1999 and 2000 ( which you feel would be of particular value in assessing the Profitability and Liquidity of Munyah Ltd. (12 marks) (ii) Comment on the current position of the company with the aid of the accounting ratios computed in (i) above and any other information that you consider to be relevant. (3marks)