Question Two

The following financial statements relate to MonteCarlo limited

Statement of financial position at 31 December (sh 000)

	2014	2013	2012
Cash	30,800	35,625	36,800
Accounts receivables net	88,500	62,500	49,000
Merchandize inventory	111,500	82,500	53,000
Prepaid expenses	9,700	9,375	4,000
Plant assets net	277,500	255,000	229,500
Long term notes payable Secured by mortgage on plant assets	95,500	102,500	82,500
Common stock Sh. 10 par value	162,500	162,500	82,500
Retained earnings	129,100	104,750	78,250
Total liabilities and equity	518,900	75,000	372,000

Statement of income

For the year ended 31 December (sh.000)

		2014	2013
Sales		672,500	530,000
Cost of goods sold	410,225	344,500
Other operating expenses	208,550	133,980
Interest expense	11,100	12,300
Total costs and expenses	8,525	7,845
Net income		(638,400)	(498,625)
		34,100	31,375
Earnings per share		Sh. 210	Sh. 193

Assume all the sales were on credit and that there are 360 days in a year.

Required

1. Compare the short-term liquidity of the company at the end of 2014, 2013 and 2012 by computing the following rations ( 6 marks)

1. Current ratio
2. Acid test ratio; comment on the ratios

2. Compute the following working capital management ratios for 2014 and 2013

1. Average collection period
2. Receivables turnover
3. Inventory turnover
4. Average sale period

Comment on the changes from 2013 to 2014 (12 marks)

3. Compare the long term risk and capital structure positions of the company at the end of 2014 and 2013 by computing the following ratios.

1. Debt to asset ratio
2. Time interest earned ratio

Comment on these ratio results (7 marks)