QUESTION 1

HAMMAD Limited:Calculate the following ratios both 2018 and 2019.As you calculate these, consider what they are telling you about the financial performance of HAMMADLimited and what additional information could be useful for you to better understand this performance:

1. Gross Profit Margin %-
2. Operating Profit Margin %
3. ROCE % Based on (Operating Profit/Capital employed)
4. ROE % (also known as Return on shareholder funds)
5. Current Ratio
6. Acid Test
7. Gearing %
8. Inventory Turnover period (based on closing inventory not the average)

For 2019Only calculate:

1. Average Trade Payables Settlement Period (based on cost of sales)
2. Average Trade Receivables Settlement Period (based on sales)

1. Comparing 2018 and 2019 which of the following Statements are correct?

A.ROCE and Liquidity have deteriorated

B.ROCE improved but Liquidity has deteriorated

C.ROCE has deteriorated, and Liquidity has improved

D.ROCE and Liquidity have improved

Statement of Financial Position for HAMMAD LIMITED as at 30^thJune

2018

2019

ASSETS

000

000

Non-Current assets :

Property Plant and Equipment (at cost less depreciation)

Land and buildings

2000

4000

Fixtures and Fittings

1000

1000

3000

5000

Current Assets

Inventory

1500

1700

Trade Receivables

900

1000

Cash at bank

500

2900

2700

TOTAL ASSETS

5900

7700

EQUITY AND LIABILITIES

Equity:

1 ordinary shares

3000

3000

Retained Profit

868

1192

3868

4192

Non-Current Liabilities

Borrowings

1000

2000

Current Liabilities

Bank(Overdraft)

100

Trade Payables

852

1339

Tax

180

69

1032

1508

5900

7700

Income Statements Year Ended 30^thJune

000's

000's

2018 2019

Sales

4400

4000

Cost of Sales

(2800)

(2850)

Gross Profit

1600

1150

Operating Expenses

(470)

(700)

Operating Profit

1130

450

Interest Payable

(40)

(40)

Profit before Tax

1090

410

Tax

(180)

(69)

Profit for the Year

910

341

Dividend

(42)

(17)

Retained Profit for Year

868

324