QUESTION Ben is the managing director of Bentley, a small, family-owned company that manufactures home furniture. The latest issue of the Furniture Magazine contains a very brief article based on the analysis of the accounting statements published by the 40 companies that manufacture this type of product. The article contains the following table:

Average for all companies in the industry

Return on shareholders equity 33%

Return on total capital employed 29%

Gross profit percentage 30%

Current ratio 1.9:1

Inventory turnover 37 days

Receivables turnover 41 days

Gearing (debt/capital employed) 40%

Bentleys latest financial statements are as follows:

Statement of comprehensive income for the year ended 31 October 20X3

K000 K000 Sales 900 Cost of goods sold 720 Gross profit 180 Selling and administrative expenses 55 Interest 15 70 Net profit 110

Statement of financial position as at 31 October 20X3 K000 K000

Non-current assets 500 Current assets Inventory 96 Receivables 120 Bank 5 221 Current liabilities Payables 147 74 574 Long-term liabilities 10% debentures 150 424

Share capital 100 Reserves 324 424 ___________________________________________________________________________

(a) Identify the five (5) key areas that are used for assessing the health of an organisation through financial ratio analysis (10 Marks) (b) Calculate each of the ratios listed in the magazine article, using Bentleys financial statements, and comment briefly on Bentleys performance in comparison to the industry averages. (20 Marks)

(c) Explain any five (5) reasons why it could be misleading to compare Bentleys ratios with those taken from the magazine article. (10 Marks)