Part 3: Analysing Financial Statements (12%) You prepared the following financial statements for David Smith. David Smith Trading as MicroSystems Income Statement for the Month Ended 31 July 2021 Sales $58,750 Less: Cost of goods sold 30,650 Gross profit 28, 100 Less: Operating Expenses Advertising expense $2,800 Cleaning expense 140 Depreciation expense 375 Doubtful debts expense 1,714 Electricity expense 1,900 Insurance expense 350 Maintenance and repairs 230 Rent expense 5,000 Telecommunications expense 850 Training expense 120 Wages expense 2,850 16,329 Operating profit 11,771 Less: Interest expense 300 Net profit $11,471 Balance sheet on next page Page 2 of 6David Smith Trading as MicroSystems Balance Sheet as at 31 July 2021 Assets Current Assets Accounts receivable $34,280 Less: Allowance for doubtful debts 1,714 $32,566 Inventory 21,860 Prepaid insurance 3,850 Prepaid rent 25,000 Total Current Assets (a) 83,276 Non-Current Assets Office equipment 890 Fixtures and fittings 12,000 Less: Accum. Dep'n - Fixtures and fittings 125 11,875 Motor vehicles 24,000 Less: Accum. Dep'n - Motor vehicles 250 23,750 Total Non-Current Assets (b) 36,515 Total Assets (a + b) 119,791 Liabilities Current Liabilities Bank overdraft 520 Accounts payable 27,000 Accrued expenses 2,750 Interest payable 300 Wages payable 950 Total Current Liabilities (c) 31,520 Non-Current Liabilities Loan 60,000 Total Non-Current Liabilities (d) 60,000 Total Liabilities (c + d) 91,520 Net Assets (Total Assets - Total Liabilities) $28,271 Equity Contributed capital (as at 01.07.2021) $24,000 Add: Net profit (for month ended 31.07.2021) 11,471 Less: Drawings (for month ended 31.07.2021) 7,200 Equity (as at 31.07.2021) $28,271 Page 3 of 6David is grateful for the financial statements that you have prepared for him and wants to know if you could provide a further analysis and explanation of these statements. He is also curious how his new business is doing compared to his main competitor in the industry. You suggest that you could calculate some key financial ratios from his financial data and compare that with his competitor JB Ltd. You have sourced the following ratios for JB Lid for the year ended 30.06.2020: - Gross profit margin = 21.4% Operating profit margin = 5.1% Return on shareholders' funds = 25.9% Current ratio = 1.1 times Acid test ratio = 0.3 times Interest cover ratio = 21.2 times Gearing ratio (%) = 38.8 % You return with your analysis, prepared to answer any questions. REQUIREMENTS for Part 3 (100 marks total): b) Calculate the following ratios for MicroSystems for the month ended/as at July 2021 based on the above financial statements. Convert your figures to a percentage (%) where specified or express you answer as "times" when needed. Round your answers for these ratios to one decimal place. You will need to record your numerator and denominator for each ratio in addition to your answer. Round your numerator and denominator to the nearest dollar. - Gross profit margin (per cent) - Operating profit margin (per cent) - Return on shareholders' funds (per cent) - Current ratio (times) - Acid test ratio (times) - Interest cover ratio (times) - Gearing ratio (per cent) 52 marks Please follow the formulas in your core textbook (Atrill, 8th ed.) Chapter 8, Analysis and Interpretation of Financial Statements. No other variation will be accepted. c) Sixteen (16) multiple choice (MCQ) on the material from Weeks 6-8 (questions will be visible upon opening FLO quiz). 48 marks NOTE: Competitor, JB Ltd.'s financial ratios for the year ended 30 June 2020 are relevant for some of the MCQ questions. Do not ignore these figures. Continued on next page Page 4 of 6