Question 3:

Beverley Ltd recently posted the following balance sheet and income statement.

Balance sheet
Cash	$100 000		Accounts payable	$235 000
Accounts receivable	125 000		Notes payable	125 000
Inventories	225 000		Long-term debt	115 000
Net plant and equipment Total assets	525 000 $975 000		Ordinary share	350 000
			Retained earnings	150 000
			Total liabilities and shareholders equity	$975 000

Income statement

Sales		$500 000
Cost of goods sold		(215 000)
Depreciation		(65 000)
Earnings before interest and taxes		220 000
Interest expense		(35 000)
Net profit before taxes		185 000
Taxes (@ 30%)		(55 500)
Net income		$129 500

Required:

Calculate the following ratios for Beverley Ltd. And comment on its profitability, liquidity, and solvency position if the figures inside brackets beside each ratio indicate comparative benchmarks.

Use end of year figures instead of average figures as only one years figures are available.

Net profit margin (19%)

Debt-to-equity ratio (0.40)

Return on assets (15%).

Inventory turnover ratio (3.1).

Return on equity (31.3%).

Current ratio (1.8)

Quick ratio (0.86)

Times interest earned ratio (5.2) (4 marks)