Calculate the ratios for Adenta Ltd equivalent to the industry averages and as the Financial Controller of Adenta Ltd, write a report to the Board of Directors analysing the financial performance of Adenta Ltd based on a comparison with the industry averages
Adenta Ltd (Adenta) assembles telecommunication equipment and sells to wholesalers and retailers. The following ratios relate to the average figures for Adenta’s industry for the year ended 31 December, 2018:
Return on capital employed 20.10% Gross profit margin 32% Net profit (before tax) margin 12.50% Current ratio 1.6:1
Acid-test ratio 0.9:1
Inventory turnover period 46 days Trade receivable collection period 45 days Debt-to-equity ratio 40%
Dividen yield 6% Dividendcover 3 times
Adenta’s financial statements for the year to 31 December, 2018 are set out below:
Statement of Profit or Loss for the year ended 31 December, 2018
|
Sales |
48,500 |
|
Cost of sales |
(37,400) |
|
Gross profit |
11,100 |
|
Operating expenses |
(6,880) |
|
Operating profit |
4,220 |
|
Finance cost |
(500) |
|
Profit before taxation |
3,720 |
|
Taxation |
(1,800) |
|
Profit after taxation |
1,920 |
Extracts of Statement of Changes in Equity for the year ended 31 December, 2018
GH¢’000
|
Retained earnings as at 1 January 2018 |
3,580 |
|
Net profit after tax |
1,920 |
|
|
5,500 |
|
Dividends |
(1,800) |
|
Retained earnings as at 31 December 2018 |
3,700 |
|
Statement of Financial Position as at 31 December 2018
Non-current assets |
GH¢’000 |
|
Property, plant and equipment |
10,800 |
|
Current Assets Inventories |
5,500 |
|
Trade receivables |
6,400 |
|
|
11,900 |
|
Total assets |
22,700 |
|
Equity Stated capital (Ordinary shares issued @ GH¢0.25 per share) |
3,000 |
|
Retained earnings |
3,700 |
|
|
6,700 |
|
Non-current Liabilities 8% Debenture |
6,000 |
|
Current liabilities Bank overdraft |
1,300 |
|
Trade payables |
7,000 |
|
Taxation |
1,700 |
|
|
10,000 |
|
Total equity and liabilities |
22,700 |
(Note: The market price of Adenta’s shares throughout the year averaged GH¢6.00 each.)
Required:
Calculate the ratios for Adenta Ltd equivalent to the industry averages and as the Financial Controller of Adenta Ltd, write a report to the Board of Directors analysing the financial performance of Adenta Ltd based on a comparison with the industry averages.
Step by step
Solved in 2 steps
