Question
The financial statements for Charkas Ltd are given below for the two years ended 31 December 2016 & 2017. Charkas Limited operates a department store
The financial statements for Charkas Ltd are given below for the two years ended 31 December 2016 & 2017. Charkas Limited operates a department store in the centre of a small town.
Charkas Ltd Income statement for the years ended 31st December
Charkas Ltd Income Statement for the years ended 31st December | |||
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| 2016 | 2017 |
|
| $000 | $000 |
Sales Revenue | 2,600 | 3,500 | |
Cost of Sales | (1,560) | (2,350) | |
Gross profit | 1,140 | 1,150 | |
Wages and salaries | (320) | (350) | |
Overheads | (260) | (200) | |
Depreciation | (150) | (250) | |
Operating profit | 310 | 350 | |
Interest payable | (50) | (50) | |
Profit before taxation | 260 | 300 | |
Taxation | (105) | (125) | |
Profit for the year | 155 | 175 |
Charkas Ltd Balance Sheet at December 31st | |||
|
| 2016 | 2017 |
|
| $000 | $000 |
Non-current assets |
|
| |
Property, plant and equipment | 1,265 | 1,525 | |
Current assets |
|
| |
Inventories | 250 | 400 | |
Trade receivables | 105 | 145 | |
Cash at bank | 380 | 115 | |
| 735 | 660 | |
Total assets | 2,000 | 2,185 | |
Equity |
|
| |
Shareholders capital: 1$ per share | 490 | 490 | |
Share premium | 260 | 260 | |
Retained earnings | 350 | 450 | |
Total Equity | 1,100 | 1,200 | |
Non-current liabilities |
|
| |
Borrowings 10% loan notes | 500 | 500 | |
Current liabilities |
|
| |
Trade payables | 300 | 375 | |
Other payables | 100 | 110 | |
| 400 | 485 | |
Total equity and liabilities | 2,000 | 2,185 | |
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|
Dividends were paid on ordinary shares of 65,000 and 75,000 in 2016 and 2017, respectively.
Required:
a) Compute at least 8 ratios from 4 different categories, i.e.i) two ratios from liquidity, ii) two from efficiency/activity, iii) two from debt to equity ratio, iv) two from profitability, that you think are the most important. Use end-of-year values where appropriate.
b) Using the ratios calculated in (a), comment on the business's performance from the viewpoint of a prospective investor.
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