Question#1: Interpreting Financial Statements: Tarek plc is a retail chain with 160 stores and 14,000 employees. Its financial statements for 2018 are shown below: Income Statement 2018 2017 m m Turnover 1,021.5 847.4 Cost of sales -855.3 -710.4 Gross profit 166.2 137.0 Administrative expenses -47.91 -29.1 118.31 107.91 Operating profit Net interest payable Profit on ordinary activities -0.9 -0.3 before taxation 117.41 107.6 Taxation -30.7 -33.5 Profit on ordinary activities after taxation 86.7 74.1 Dividends -33.3 -29.3 Profit retained for the period 53.4 44.8 Additional information: Earnings per share 21.3p 18.4p There are 440 million shares issued of 10p each Market value of shares 1.50 1.40 Balance Sheet 2018 2017 m m Fixed assets 37.3 32.3 Intangible assets - goodwill Tangible assets 167.6 132.3 Investments 22.5 25.7 227.4 190.3 Current assets Inventory 135.0 105.3 Trade Receivables 22.5 20.8 Cash at bank 16.2 178 Cash at bank 16.2 17.8 173.7 143.9 Total assets 401.1 334.2 Non-current liabilities Long term loans 14.8 13.4 Provision for deferred taxation 9.5 7.6 24.3 21.0 Current liabilities Trade payables 159.8 149.6 Total liabilities 184.1 170.6 Net assets 2170 163.6 Non-current liabilities Long term loans 14.8 13.4 Provision for deferred taxation 9.5 76 24.3 21.0 Current liabilities Trade payables 159.8 149.6 Total liabilities 184.1 170.6 Net assets 217.0 163.6 Equity Share capital Profit and loss account 44.0 44.0 173.0 119.6 Shareholders' funds 2170 163.6 Calculate the following eight (8) ratios for both 2018 and 2017 to demonstrate the changes in profitability, liquidity, efficiency, gearing and shareholder return of Tarek pic and comment on the most important changes between 2018 and 2017. 1. Return on investment (ROI) 2. Return on capital employed (ROCE) 3. Operating margin 4. Working capital 5. Gearing 6. Interest cover 7. Days' sales outstanding 8. Asset turnover RATIOS Formulas Return on (shareholders') investment (ROI) net profit after tax/shareholders' funds Return on capital employed (ROCE) net profit before interest and tax/shareholders funds' + long