Question 3: Read the comparative balance sheet and the income statements of the firm 'Imaginary Computers Limited'. Use the techniques of financial statements analysis as explained in the chapter to do the following: 1. Complete the missing values (titles, formulas and numerical values in the table below. Note that some ratios could not be calculated as relevant data are not available. 2. Comment on the financial strengths and weaknesses of the firm (trends of the ratios and its comparison with industry average) Imaginary Computers Ltd. Balance sheet as at 31 December ($ 000) Share capital Reserves and surplus Long-term debt Notes payable - Short term Accounts payable Total Net fixed assets Cash at bank Receivables Inventory Total 2001 5. 3 7 6.7 4.1 5.6 3.4 25. 1 1 17.4 2.6 3.5 2002 .5 5.7 3.2 5.2 6.5 28.1 21.8 0.8 2.8 2.7 28.1 1 2003 8.5 7.4 4.2 7.2 5 .6 32.9 26.1 1.2 2.9 2.7 32. 91 16 Page 2 of 4 Income statement for the year ending 31 December ($ 000) 2001 29.8 24.5 5.3 3.7 1.6 0.2 1.8 1.0 0.8 2003 57.4 45.8 11.6 7.0 46 0.4 Net Sales Cost of goods sold Gross Profit Operating Expenses Operating profit Non-operating surplus/deficit EBIT Interest L Profit before tax Tax I Net Profit Dividends Retained earnings 2002 34.9 26.2 8.Z 4.2 4.5 0.1 4.6 0.9 3 .5 0.6 2.9 0.6 2.3 1 5.0 2.0 3.0 0.8 0. 6 0.2 1 3.0 1.1 1.9 1 Answer: Ratio Formula 2001 2002 2003 Comments Industry Average Current ratio Liquidity ratios 0.68 0.31 0.6 Quick assets Current liabilities Inventory turnover ratio 20.5 Page 3 ord | 43 29 Receivables Aver sales per day - 0.18 0.25 ...... 0.45 Gross Profit/sales Profitability ratios 0.03 0.08 . 0.15 Net profit Net sales | " Debt to 1.9 . ili / . 1 equity ratio EBIT Interest Payaballo on loan Fixed charges ratio