Question $2(30)$

Keorapetse plans to invest in Kago Ltd$.$ This is a chain of retail outlets. He is going to meet the Managing Director of Kago Ltd to discuss the profitability of the company. To prepare for the meeting he has asked you to compute some ratios on the company. He has given you the summarised statement of comprehensive income and the summarized statement of financial position for the last year, for Kago Ltd$.$ These are set out below:

P$000$

Revenue $4,315$

Cost of sales $(1,510)$

Gross profit $2,805$

Distribution costs $(983)$

Administrative expenses $(571)$

Profit from operations $1,251$

Finance costs $(45)$

Profit before tax $1,206$

Tax $(338)$

Profit for the year $868$

Kago Ltd Statement of financial position as at $30$ September $2021$

P$000$

Assets

Non$-$Current assets $10,663$

Current assets $3,503$

Total Assets $14,166$

Equity and liabilities

Equity

Called up share capital $8,000$

Retained earnings $3,930$

$11,930$

Non$-$current liabilities

Long$-$term loan $500$

Current liabilities $1,736$

Total liabilities $2,236$

Total equity and liabilities $14,166$

$($a$)$ State the formula used to calculate each ratio $[7]$

$($b$)$ Calculate the ratios to the nearest $1$ decimal point $[13]$

$($i$)$ Gross Profit percentage

$($ii$)$ Operating profit percentage

$($iii$)$ Return on capital employed

$($iv$)$ Current ratio

$($v$)$ Net asset turnover

$($vi$)$ Interest cover

$($vii$)$ Gearing ratio

c$)$ Explain the limitations of ratios and ratio analysis $(10)$