QUESTION 1: RATIO ANALYSIS (30 marks)

Use the ratios that were calculated for a retailer, DEL Company, and the Industry in which it operates.

1. Provide a brief introduction on ratio analysis and its importance.

2. Analyse these results in depth and highlight the possible strengths and/or weaknesses of DEL Company compared to Industry.

3. Explain the possible reasons for the deviations and what action should (if any) be taken to remedy the situation, in a short report to the CEO of DEL Company.

Ratio: DEL Company: Industry Average:

1. Gross Profit Margin 53% 55%

2. Net Profit Margin 11% 9%

3. ROI 13% 15%

4. Mark-up margin 75% 75%

5. Net working capital N$ 250 000 N$ 400 000

6. Quick Ratio 0,7 times 1,3 times

7. Inventory turnover 4 times p/a 6 times p/a

8. ACP (credit terms are 30 days) 34 days 30 days

9. APP (payment terms are 60 days) 75 days 61 days

10. Debt Ratio 32% 35%

11. Debt/Equity Ratio 20% 33%

12. EPS 30c 45c

13. PER 8 times 6 times