Question 4 The financial statements of Stone Limited for the most recent two years is shown below. Extract from statement of profit or loss for the year ended 30 April 2019 2018 000 000 Revenue 224,000 195,000 Cost of sales (169,200) (136,500) Gross profit 54,800 58,500 Administrative costs (32,700) (38,040) Distribution cost (10,900) (12,680) Finance cost -loan note interest (1,900) (1,380) 9,300 6,400 Statement of financial position as at 30 April. 2019 2018 Assets 000 000 000 000 Non-current assets 37,000 28,600 Current assets: Inventory 12,800 9,800 Trade receivables 24,600 21,600 Cash balance 1,600 2,400 39,000 33,800 Total assets 76,000 62,400 Equity and liabilities Ordinary share capital 16,000 16,000 Retained earnings 26,200 18,600 42,200 34,600 Non-current liabilities: 10% loan notes 16,000 12,000 Current liabilities: Bank overdraft 2,200 1,600 Trade payables 15,000 13,800 Taxation 600 400 17,800 15,800 Total equity and liabilities 76,000 62,400 The ratios for Stone Limited have been calculated below based on the previous year financial statement and latest industry average ratios. Stone Ltd Industry 30 April 2018 Average Net profit margin 3.99% 4.73% ROCE (Capital employed =equity +loan notes) 16.69% 18.50% Asset turnover 4.19 times 3.91times Current ratio 2.14:1 1.90:1 Quick ratio 1.52:1 1.27:1 Gross profit margin 30.0% 35.23% Account receivables collection period 40 days 52days Account payables payment period 17 days 49 days Inventory turnover (Times) 13.9times 18.3times Gearing ratio 25.75% 32.71% P.

Required:

(i) Calculate the cash operating cycle of Stone Limited for the year ended 30 April 2018 and 2019.

(ii) Calculate the comparative ratio(s) for Stone Limited for the year ended 30 April 2019. (to two decimal places where appropriate).

(iii) Based on the result of the previous year-end and the industry average. Draft a report addressed to the Board of Directors of Stone Limited analysing the performance of the company for the year 2019