Question 2 - (Total 25 marks) Cool Ltd produces fridges and freezers, which are sold to retailers. The financial statements for the last three years are as follows: Income Statement 2018 2019 (000) 269,000 -104,690 164,310 (000) 336,250 -126,675 209,575 2020 (000) 427,038 - 190,012 237,025 Sales revenue Less: Cost of goods sold Gross profit Less: Operating expenses Rent & rates Insurance Lighting & Heating Marketing expenses Wages & alaries Sundry expenses Total operating expenses Profit before Interest and tax (PBIT) Interest at 10% Profit before tax Taxation at 20% Profit after tax 12,600 2,275 5,480 8,250 35,700 3,424 -67,729 96,581 - 10,000 86,581 -17,316 69,265 15,000 3,550 6,240 10,350 48,500 4,528 -88,168 121,407 -8.750 112,657 -22,531 90,126 17,100 4,200 8,995 12,420 65,500 6,879 - 115,094 121,931 -11,250 110,681 -22,136 88,545 Dividends Retained Profit 13,853 55,412 18,025 72,101 22,136 66,409 Market price of shares at the end of the year 1.88 2.02 1.92 Balance Sheet 10+ 2018 (000) 2019 (000) 2020 (000) 200,000 75,000 9,500 210,000 67,500 8,750 240,000 80,000 7,650 Assets Non-current assets Land and Buildings Plant and Machinery Computer equipment Current Assets Inventories Trade receivables Cash and bank Total Assets 45,000 22,500 20,278 372,278 37,000 42,000 19,632 384,882 28,000 43,500 24,570 423,720 200,000 175,000 225,000 Liabilities Non-current liabilities Long-term loan Current liabilities Trade pavables Taxation (not paid) Accruals - Rent & rates Total liabilities Equity Ordinary shares of 1 cach Profit for the year Less - dividends Total equity and liabilities 18,500 1,050 17,316 236,866 34,000 1,250 22,531 232,781 28.750 1,425 22,136 277,311 80,000 69,265 -13,853 372,278 80,000 90,126 -18,025 384,882 80,000 88,545 -22,136 423,720 Required: i. Calculate the following financial ratios for the year 2020, show your calculation process. The ratios for 2019 have been provided in the table below (10 marks): Gross profit margin Net profit margin Return on capital employed Current ratio Quick ratio Inventory holding period (using year-end figures as the average inventory) Receivables collection period Payables payment period Gearing ratio Interest coverage 2020 2019 62.33% 26.8% 37.12% Gross profit margin Net profit margin Return on capital employed Current ratio Quick ratio Inventory holding period Receivables collection period Payables payment period Gearing ratio Interest coverage 1.71:1 1.07: 1 119 days 46 days 98 days 53.5% 13.88 times ii. Comment on the performance of Cool Ltd from the viewpoint of an investor considering investing a substantial amount of funds to Cool Ltd (11 marks) iii. Discuss Two benefits of ratio analysis (4 marks)
