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QUESTION 4 (30 MARKS) Shown below are the recently issued (summarised) financial statements of JKL Lid. a listed company, for the year ended 30 September 2017. together with comparative for 2016 and extract from the chief executive's report that accompanied their issue Statement of financial position as at 30 September: 2017 $ 000 2016 $ 000 Non-current assets Property, plant and equipment Goodwill 180,000 420,000 20.000 440,000 180,000 Current assets Inventory Trade receivables Bank 50,000 26,000 30,000 16.000 28,000 74,000 76,000 Total Assets 516,000 254,000 Equity and liabilities Equity shares of $ 1 each Retained earnings 200,000 28,000 228,000 200,000 24,000 224,000 Non-current liabilities 8% loan notes 200,000 Current liabilities Bank overdraft Trade Payables Current tax payable 34,000 46,000 8,000 88,000 26.000 4,000 30,000 516,000 254,000 Total Equity and Liabilities Revenue Cost of sales Gross profit Operating expenses Finance costs Profit before tax Income tax expense Profit for the period Statement of comprehensive income for the year ended 30 September: 2017 2016 $ 000 $ 000 500,000 360,000 (400,000) (300,000) 100,000 60,000 (52,000) (44,000) (16,000) 32,000 16,000 (8,000) (4,000) 24,000 12,000 Extracts from the chief executive's report: Highlights of JKL's performance for the year ended 30 September 2017: an increase in sales revenue of 39 % gross profit margin has increased a doubling of the profit for the period In response to the improved position the Board paid a dividend of 10 cents per share in September 2017 an increase of 25% on the previous year. You have also been provided with the following information. On 01 October 2016, JKL Ltd acquired a company, Darby Ltd, for $ 200 million. The contribution of the purchase to JKL Ltd's results for the year ended 30 September 2017 was $ 000 Revenue 140,000 Cost of sales (80,000) Gross profit 60,000 Operating expenses (16,000) Profit before tax 44,000 There was no disposal of non-current assets during the year. The following ratios have been calculated for JKL Ltd for the year ended 30 September 2006 2016 7.10% No. Ratios (0) Return on year-end capital employed (profit before interest and tax over total assets less current liabilities) (ii) Net asset turnover (iii) Gross profit margin (iv) Net profit (before tax) margin (v) Current ratio (vi) Quick Ratio 1.60 times 16.70% 4.40% 2.50 times 1.47 times Page 8 of 9 (viii) / Trade receivables' collection period (vii) Closing inventory holding period (ix) (x) Trade payables' payment period Gearing (debt over debt plus equity) 37 days 16 days 32 days Nil REQUIRED: (a) Calculate ratios for JKL Ltd for the year ended 30 September 2017 equivalent to those calculated for the year ended 30 September 2016 (showing your workings) Assess the financial performance and position of JKL Ltd for the year ended 30 September 2017 compared to the previous year. Your answer should refer to the information in the Chief Executive's report and the impact of the purchase of the company Darby Ltd. [15 Marks] (b) [12 Marks] (c) Explain the limitations of ratio analysis [3 marks] Page 9 of 9