Extract of the Statement of Comprehensive Income for the year ended 31 December 2018 R Revenue (credit) 988 000 Less purchases 400 000 Gross profit 560 000 Less Operating expenses 160 000 Operating profit 400 000 Less interest expense 70 000 Profit before tax 330 000 Profit after tax 280 000 Extract of Statement of Financial Position as at 31 December 2018 R Non-current assets 1 140 000 Inventories 266 000 Debtors 300 000 Bank 220 000 Total assets 1 926 000 Ordinary share capital 1 000 000 Retained earnings 482 000 Non-current liabilities 240 000 Creditors 215 000 Total liabilities 1 926 000 Required: Calculate the following ratios for 2018. Where applicable, answers must be rounded off to two decimal places. Profit margin Interest cover Debtors collection period Current ratio Acid test ratio Return on total assets Inventory turnover (Inventory 1 January 2018: R204 000)
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The extracts of the financial statements of Laki Project Specialists Limited for 2018 are provided below:
Extract of the Statement of Comprehensive Income for the year ended 31 December 2018
R
|
Revenue (credit) |
988 000 |
|
Less purchases |
400 000 |
|
Gross profit |
560 000 |
|
Less Operating expenses |
160 000 |
|
Operating profit |
400 000 |
|
Less interest expense |
70 000 |
|
Profit before tax |
330 000 |
|
Profit after tax |
280 000 |
Extract of Statement of Financial Position as at 31 December 2018
R
|
Non-current assets |
1 140 000 |
|
Inventories |
266 000 |
|
Debtors |
300 000 |
|
Bank |
220 000 |
|
Total assets |
1 926 000 |
|
|
|
|
Ordinary share capital |
1 000 000 |
|
|
482 000 |
|
Non-current liabilities |
240 000 |
|
Creditors |
215 000 |
|
Total liabilities |
1 926 000 |
Required:
Calculate the following ratios for 2018. Where applicable, answers must be rounded off to two decimal places.
- Profit margin
- Interest cover
- Debtors collection period
Current ratio - Acid test ratio
- Return on total assets
- Inventory turnover (Inventory 1 January 2018: R204 000)
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