Comment on each of the ratios calculated in part (a).
b. Comment on each of the ratios calculated in part (a).
ABOVE IS THE QUESTION THAT I NEED ANSWER, BELOW IS THE QUESTION (A) ANSWER THAT MENTIONED IN QUESTION (B)
a) Calculate the following ratios for Company A and Company B. State clearly the formulae used for each ratio:
ANSWER
- i) Gross Profit Margin
Formula:
Gross profit Margin = ( Gross profit / Net sales ) x 100
Company A :
= ( 40000 / 160000 ) x 100
= 25 %
Company B :
= ( 60000 / 240000 ) x 100
= 25 %
- ii)Net Profit Margin
Net profit Margin = ( Net profit / Net sales ) x 100
Company A :
= ( 9000 / 160000 ) x 100
= 5.625 %
Company B:
= ( 18000 / 240000 ) x 100
= 7.5 %
iii) Inventory Turnover Period (days)
Inventory Turnover Period (days) = ( Inventory / Cost of sales ) x 365
Company A:
= ( 30000 / 120000 ) x 100
= 25 %
Company B:
= ( 50000 / 180000 ) x 100
= 27.777 %
- iv) Receivables Collection Period (days)
Receivables Collection Period (days) = ( Receivables / Net sales ) x 365 days
Company A:
= ( 6000 / 160000 ) x 365
= 13.68 Days
Company B:
= ( 20000 / 240000 ) x 365
= 30.41 Days
v) Payables Payment Period (days)
Company A:
- Payables payment period= * 365
Accounts payable= RM 10,000
Cost of sales= RM120,000
Payable payment period= *365
= 30.42 days
Company B:
- Accounts payable= RM 20,000
Cost of sales= RM 180,000
Payable payment period= *365
= *365
= 40.55 days
- vi)
Current Ratio
Company A
Current ratio=
Current assets= RM 40,000
Current liabilities= RM 10,000
Current ratio=
= 4 times.
Company B
Current assets= RM 80,000
Current liabilities= RM 20,000
Current ratio=
=
= 4 times
- vii)Quick Ratio
Company A
Quick ratio=
Bank= RM 4000
Receivables= RM 6000
Accounts payable= RM 10,000
Quick ratio=
= 1 times.
Company B
Bank= RM 10,000
Receivables= RM 20,000
Accounts payable= RM 20,000
Quick ratio=
=
= 1.5 times
Step by step
Solved in 3 steps
