Question 1: (20 marks) Wholesaler companies, Grit Ltd. and Stone Ltd. are close competitors supplying concrete and stone aggregate to retail builder merchants. Table 1 shows extracts from each company's final accounts for the financial year ended 30th April 2020. Extracts from the Statements of Comprehensive Income for year ending 30th April 2020: Grit Stone '000 '000 Sales 11,200 9,750 Cost of Goods Sold 8,460 6,825 Gross profit 2,740 2,925 Depreciation 80 60 Other overheads 2,168 2,526 Profit before interest & tax 492 339 Debenture interest 40 30 Audit fees 12 10 Net profit before tax 440 299 Taxation 140 96 Ordinary dividend 65 55 Retained profit for year 235 148 le review File Edit View Go Tools Window Help RESIT CW2 MGT5... Q Page 3 of 4 Statement of Financial Position as at 30th April 2020: V2 MG E000 '000 1,850 Stone 000 000 1000 1.430 Grit .000 Non-current assets (at cost less depreciation) Current Assets Inventory 640 Accounts Receivable 1,230 Cash 80 Total current assets 490 1,080 120 1.950 1,690 Total assets 3,800 3,120 Capital Ordinary Shares (E1 each) Capital Reserves Total Capital 800 1,245 2,045 800 875 1.675 ta Non-current liabilities 5% Debentures 800 600 2 Irk 80 Current liabilities Bank Overdraft Accounts Payable Taxation Proposed dividends 110 750 30 65 890 bly 20 55 955 845 IFIE Total Capital and Liabilities 3,800 3,120 ers IS 3 B Additional information: 1. The value of inventory held on 1st May 2019 was: Grit: 700,000 Stone. 650,000 2. All inventory is purchased on credit. 3. All sales are transacted on credit. 3. On 30 April 2020 the market share price was: Grit: 1.60 per share Stone: 1.50 per share JILIW Ib. Page 4 of 4 a 2 V2 MG. 0 PA 99 Calculate the following ratios for each company: 1: Return on capital employed (ROCE) (2 marks) Gross profit margin (2 marks) iii. Net profit margin (2 marks) Iv. Volume of trade (2 marks) V. Aclatest ratio (2 marks) vi. Inventory turnover in days (2 marks) vii. Debtors (le, trade receivables) collection period (2 marks) vill. Creditors (ie, trade payables) payment period (2 marks) Ix. Price/Earnings (P/E) ratio (2 marks) x Gearing Ratio. (2 marks) Question 2 (40 marks max 1000 words) Table 2 provides data on the average financial ratios for the wholesale sector. Table 2: Financial ratios for the Industry industry Average Return on capital employed 18.50% Net profit margin 15.00% Gross profit margin 35.23% Volume of trade 1.5 Current ratio 1.90 Acid test ratio 1.27 Debtors collection period 30 days Creditors payment period 49 days Inventory turnover 4 cycles Gearing 0.327 Net dividend 0.05 Dividend cover 6 times Interest cover 15 times 0.20 Earnings per share 6 PE ratio Tanswe 2 rks hly ONE IFIED wt ers to LE is your B 1 With reference to table 2 and to thenswers you calculated in question 1, write an evaluation in which you compare and contrast the financial performance of the two companies in the following areas: a) Profitability (15 marks) b) Management of working capital and liquidity (15 marks) c) Investment potential (10 marks) Question 3 (15 marks max 400 words) Identify additional information (e. data not contained in tables 1 and 2) which would be useful in evaluating the performance of the two companies Question 4 (25 marks max 600 words) As a financial accounting technique, ratio analysis has limitations in addition to its beneficial applications. Do you agree? Explain why, 23 MacBook Ai