NO RATIO 1 2 3 4 5 Financial statements of Phoenix Textile for the years 2020 FORMULAE 6 Current ratio Acid-Test. ratio Gross profit margin Net profit margin Inventory turnover ratio Current asset/ Current liabilities (Current asset- inventory) / current liabilities (Gross profitet sales) x 100 (Net profitet sales) x 100 Cos of goods/ average stock Account (Account receivable receivable/sales) collection period x 100 ANSWER RM175813/ RM 35100 = 5:1 (RM175813-RM161213)/ RM35100 = 0.42: 1 (RM72043/RM125780) x 100% = 57.28% (RM15043/RM125780) X 100% =11.96% The profit margin for the company is 11.96% which means the company is able to generate RM0.12 net profit from its sales during the current accounting year The company replaced its Average stock =(RM158750+RM161213)/2 | stock 3 times during the current financial year. =RM159981.50 Inventory turnover ratio RM53737/RM15998.50 = 3.36 =3 Times (RM12300/RM125780) x COMMENTS The current ration of the company shows it has 5 times more current asset compared to its current liability. Whereas RM5 current asset, to pay RM1 current liability. Therefore, the company is able to pay its short-term debt. 365days =35.70 =36 days The firm has RM0.42 liquid asset to cover RM1 current liability. Therefore its liquid asset is unable to cover its current liabilities The 57.28% shows the profit left after subtracting cost of goods sold (COGS) from sale 36 days is the average numbers of days that Phoenix Textile took to sell the average inventory during the year. NO RATIO 1 2 3 4 5 Financial statements of Phoenix Textile for the years 2021 6 Current ratio Acid-Test ratio Net profit margin FORMULAE Inventory turnover ratio Current asset Current liabilities Gross profit (Gross profitet margin sales) x 100 (Current asset- inventory) / current liabilities (Net profitet sales) x 100 Cos/average stock ANSWER 100 RM110250/ RM 28163 = 4:1 (RM110250-RM65750)/ RM28163 = 1.6:1 (RM79537/RM345000) x 100 % = 23.05% (-RM27,413/RM345000) X 100% =-8% Average stock =(RM161213+RM65750)/2 =RM113481.50 Inventory turnover ratio RM265463/RM113481.5 =2.34 =2 Times Account (Account receivable receivable/sales) x 365days collection period (RM20500/RM345000) x =21.69 =22 days COMMENTS The current ratio of the company shows that it has 4 times more current assets as compared to its current liabilities. Where RM4 current assets, pay RM1 of its current liabilities. Therefore, the company is able to pay off its short term debt. The firm has RM1.6 liquid assets to cover RM1 current liability. Therefore its liquid assets is able to cover its current liabilities. The 23.05% shows the profit left after subtracting cost of good sold (COGS) from sale. The net profit margin for the company is -8% which means the company is able to generate less than RM0.08 net profit from its sales during the current accounting year. The company replaced its stock 2 times during the current financial year. 22 days is the average number of days that it took to sell the average inventory during the year. iii. Discuss FOUR (4) strategies that Phoenix Textile can consider to improve its profitability. (4 marks)