Ratio Analysis

The comparative statements of financial position of IKEA Furniture Outlay Retail Shop in Sydney for the current year and previous year are given below. Calculate the ratios necessary to evaluate the shops performance

IKEA Furniture Outlay Profit & Loss Statement

For the year ended 30^th June 2012 & 2013

	2012	2013
Sales( all credit)	220 000	250 000
Less Cost of Sales:	76 500	124 000
Opening Inventory	65 000	85 000
Purchases	99 500	144 000
Goods available for sale	164 500	229 000
Closing Inventory	(88 000) 76 500	(105 000) 124 000
Gross Profit	143 500	126 000
Operating Expenses	39 700	71 060
Net Profit	103 800	54 940

IKEA Furniture Outlay Balance Sheet as at 30^th June 2012/2013

	2012	2013
Assets:
Current Assets:
Cash	75 700	87 000
Accounts Receivable	69 000	68 500
Inventory	88 000	105 000
Total Current Assets	232 700	260 500
Non-Current Assets:
Plant and Equipment	295 000	208 500
Total Assets:	527 700	469 000
Liabilities

Current Liabilities
Accounts Payable	51 500	59 950
Bank overdraft	15 200	20 500
Total Current Liabilities	66 700	80 450
Noncurrent Liabilities:
6.5% Bank Loan	333 000	243 070
Total non-current liabilities:	333 000	243 070
Total liabilities	399 700	323 520
Owners Equity
Ordinary shares of $2 each	95 000	100 100
Retained profit	33 000	45 380
Total Owners Equity	128 000	145 480

Required:

Prepare Ratio Analysis based on the formula distributed to you

Make comments about how to improve the business performance.

Note:

All sales are on credit. Accounts receivable balance on 1/07/2011 was $66 800 and Business works 5 days a week.

Retained Profit = Net Profit Dividend paid

Formula:

Current ratio = Current assets/Current liabilities

Liquid ratio = Current assets Inventory (Closing Stocks)/Current liabilities Bank overdraft

Gross profit ratio = Gross profit/Sales

Net profit ratio = Net profit after tax/Sales

Accounts receivable rate = Credit sales/Average accounts receivable Collection days = 365 days / Accounts receivable rate

Return on equity = Net profit after tax/Owners equity Debt to Equity = Total debt/Equity

Total asset turnover = Total sales/Total assets

Return on investment (ROI) = Net profit after tax/Total assets Inventory turnover = Cost of Goods sold/Average Inventories Times Interest cover = Net Profit before Interest & tax / Interest

Earnings per share = (Net profit before tax Preference Dividend) / Number of Ordinary shares

Ratio (Formula)	2012	2013	Interpretation

Ratio (Formula)	2012	2013	Interpretation

Ratio (Formula)	2012	2013	Interpretation

Ratio (Formula)	2012	2013	Interpretation