Question 1

The following details concern the business of A.Andreza, who is worried about the profitability and financial structure of her business at 31 March 2016, especially since the bank is requiring repayment of her overdraft.

	31 March 2015 $	31 March 2016 $
Sales (credit)	60,000	90,000
Cost of sales	39,000	63,000
All other expenses	12,000	21,000
Cash at bank	12,000	(18,000)
Inventory	18,000	33,000
Accounts receivable (net)	12,000	30,000
Non-current assets (net)	24,000	48,000
Accounts payable	6,000	9,000
A.Andreza, capital (The balance as at 1 April 2014 was $56,000)	60,000	72,000
Non-current liabilities	-	12,000
Inventory at 1 April 2014 was $15,000
Accounts receivable at 1 April 2014 were $10,000
Accounts payable at 1 April 2014 were $5,000

Required:

(a) Calculate the following ratios for 2015 and 2016 [round to one decimal place]:

i. Gross profit margin.

ii. Operating profit margin.

iii. Rate of return on owners' equity.

iv. Current ratio.

v. Acid test ratio.

vi. Gearing ratio.

vii. Accounts receivable turnover period.

viii. Accounts payable turnover period [assume all purchases on credit].

ix. Inventory turnover period.

(b) Write a short report to the owner. In your report you should:

i. Analyse profitability of the business and provide recommendations to Andreza.

ii. Analyse financial stability of the business and provide recommendations

to Andreza.

iii. Analyse asset Utilization in the business and provide recommendations to

Andreza.