Problem 4. Towards the end of 2004 the directors of Wholesale Merchants Ltd. decided to expand their business. The annual accounts of the company for 2004 and 2005 may be summarised as follows: Table. Wholesale Merchants Ltd Financial statements (Rs.) Year 2004 Year 2005 Sales: Cash Credit 42,000 3,78,000 44,800 4.78,800 5.23,600 Cost of sales 4.20,000 3,30,400 89,600 4.17,200 Gross margin 1.06.400 t19 W. Expenses ; Warehousing 18.200 19,600 Transport 8.400 14.000 Administration 26,600 26,600 Selling 15.400 19.000 Debenture interest 2,800 68.600 82.600 Net profit 21.000 22.800 Fixed assets (Less depreciation) 42,000 56,000 Current assets Stock 84.000 1.31.600 Debtors 70,000 1.14.800 Cash 14,000 1,68,000 9,800 2,56,200 Less: Current liabilities 70,000 1,06,400 Net current assets 98,000 1.49.800 Net assets 1,40,000 2,05,800 Share capital 1,05,000 1,05,000 Reserves and undistributed profit 35,000 58.000 Debenture loan Capital employed 1.40,000 2,05,800 You are informed that: (a) All sales were from stocks in the company's warehouse. (b) The range of merchandise was not changed and buying prices remained steady throughout the two years. (c) Budgeted total sales for 2002 were Rs. 3.90,000. (d) The debenture loan was received on 1 January 2002, and additional fixed assets were purchased on that date, You are required to state the internal accounting ratios that you would use in this type of business to assist the management of the company in measuring the efficiency of its operation, including its use of capital. Your answer should name the ratios and give the figures (calculated to one decimal place) for 2004 and 2005, together with possible reasons for changes in the ratios for the two years. Ratios relating to capital employed should be based on the capital at the end. Ignore taxation. 42.000