Section 4: Analysis and Interpretation of Financial Statements Hi View Ltd's income statement for the years ended 31 December 2014 and the balance sheet as at 31 December 2013 and 2014 are as follows: HI VIEW LTD Income statements for years ended 31 December 2014 2014 Sm Sales 153 Cost of sales (76) Gross profit 77 Other expenses (including depreciation) (48) Other operating income 29 Interest revenue and similar income 29 25 Interest expense and similar charges Tax on profit or loss on ordinary activities Profit on ordinary activities after taxation Retained profit brought forward from last year 19 56 75 (18) Proposed dividend on ordinary shares Retained profit carried forward 57 HI VIEW LTD Balance sheet as at 31 December 2013 and 2014 2013 Sm 2014 Sm Current assets Inventory Debtors Cash at bank and in hand 25 25 24 26 27 77 1 51 Non-current assets Land and buildings Plant and machinery 130 110 62 172 56 186 237 249 20 6 Total assets Current liabilities Trade creditors Income tax payable Dividend payable Non-current liabilities Debenture loans (10%) Shareholders' equity Paid-up share capital (issued at $1) Retained profits 23 16 14 53 14 40 40 40 100 56 156 249 100 57 157 237 Total liabilities and shareholders' equity Other important information are as follows: The purchases of inventory made in year 2014 are $77 million. All purchases made are in credit term. All sales are in credit term. a. Based on the information given above, calculate the financial ratios of 2014 as listed below. Show workings. (6 marks) i. Average settlement period for debtors Average settlement period = Average trade debtors * 365 Credit sales ii. Average settlement period for creditors Average settlement period = Average trade creditors X 365 Credit purchases iii. Return on total assets (ROA) ROA= Net profit before interest and taxation Average total assets x 100 b. Interpret the business performance of Polygon Ltd. Given the average settlement period for debtors, average settlement period for creditors and ROA for previous year are 70 days, 90 days and 10%. (6 marks)