Red Rock Ltd is a public company with a share capital consisting of fully paid ordinary shares. In 2020 the company financed its expansion by using external debt funds (Bank borrowings). Working capital is financed by a flexible bank overdraft.

Use the template on the following pages to complete this question.

In each ratio category you should:

A: State whether the ratios have improved or weakened.

B: Explain what may have caused the changes over the 3 years.

C: Describe possible actions that could be taken to improve the results in the

category?

Ratio 2018 2019 2020

Liquidity

Current ratio 1.3:1 1.1:1 0.8:1

Liquid ratio 1:1 1.3:1 1.4:1

Activity/Efficiency

Collection period (days) 30 38 55

Stock turnover (times) 11 8 7

Profitability

Gross profit margin 40% 38% 35%

Net profit margin 10% 8% 5%

Long-term Security

Interest coverage (times) 20 18 8

Debt to Equity 35% 38% 55%

Market Performance

Market price of shares $3.55 $3.05 $2.10

Payout ratio 20% 20% 20%

Dividends per share $0.50 $0.40 $0.30

Liquidity

(Circle one answer)

A: This category of measures has IMPROVED / WEAKENED over time.

B: Possible cause of the changes:

C: Suggested action to improve the result in future:

Activity/Efficiency

(Circle one answer)

A: This category of measures has IMPROVED / WEAKENED over time.

B: Possible cause of the changes:

C: Suggested action to improve the result in future:

Profitability

(Circle one answer)

A: This category of measures has IMPROVED / WEAKENED over time.

B: Possible cause of the changes:

C: Suggested action to improve the result in future:

l

Long-term Security

(Circle one answer)

A: This category of measures has IMPROVED / WEAKENED over time.

B: Possible cause of the changes:

C: Suggested action to improve the result in future:

Market Performance

(Circle one answer)

A: This category of measures has IMPROVED / WEAKENED over time.

B: Possible cause of the changes:

C: Suggested action to improve the result in future: