Question
Rose-Jewel sells jewellery through retail stores throughout the country. Over the last two years it has experienced declining profitability and is wondering if this is
Rose-Jewel sells jewellery through retail stores throughout the country. Over the last two years it has experienced declining profitability and is wondering if this is related to the sector as a whole. It has recently subscribed to an agency that produces average ratios across many businesses. Below are the ratios that have been provided by the agency for Rose-Jewel's business sector based on a year end of 30 September 2019.
Return on year-end capital employed (ROCE) | 168% |
Net asset (total assets less current liabilities) turnover | 1-4 times |
Gross profit margin | 35% |
Operating profit margin | 12% |
Current ratio | 125:1 |
Average inventory turnover | 3 times |
Trade payables' payment period | 64 days |
Debt to equity | 38% |
The financial statements of Rose-Jewel for the year ended 30 September 2019 are:
Income Statement |
RM'000 |
RM'000 |
Revenue |
| 56 ,000 |
Opening inventory | 8,300 |
|
Purchases | 43,900 |
|
| 52,200 |
|
Closing inventory | (10,200) | (42,000) |
Gross profit |
| 14,000 |
Operating costs |
| (9,800) |
Finance costs |
| (800) |
Profit before tax |
| 3,400 |
Income tax expense |
| (1,000) |
Profit for the year |
| 2,400 |
Statement of financial position |
RM'000 |
RM'000 |
Assets |
|
|
Non-current assets |
|
|
Property and shop fittings |
| 25,600 |
Deferred development expenditure |
| 5,000 |
|
| 30,600 |
Current assets |
|
|
Inventory | 10,200 |
|
Bank | 1,000 | 11,200 |
Total assets |
| 41,800 |
Equity and liabilities |
|
|
Equity Equity shares of RM1 each |
|
15,000 |
Property revaluation reserve |
| 3,000 |
Retained earnings |
| 8,600 |
|
| 26,600 |
Non-current liabilities |
|
|
10% loan notes |
| 8,000 |
Current liabilities |
|
|
Trade payables | 5,400 |
|
Current tax payables | 1,800 | 7,200 |
Total equity and liabilities |
| 41,800 |
Prepare the equivalent ratios that have been provided by the agency for Rose-Jewel.
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