Financial ratio analysis provides us with a useful tool to assess the performance of a logistics company. Below is an extract of the financial statements of ABC Logistics Company for the years ended 31 Dec 2003 and 31 Dec 2004. (All figures in million ZMK) Profit and Loss Account for the year ended 31st December 2004 2003 Revenues 5,000,000 5,000,000 Less: Cost of goods sold (4,000,000) (4,500,000) Gross Profit 1,000,000 500,000 Less: Interest expenses (100,000) (80,000) Other operating expenses (400,000) (370,000) Net Profit 500,000 50,000 Balance Sheet as at 31st December 2004 2003 Fixed Assets 600,000 180,000 Current Assets Stock 500,000 600,000 Trade Debt 900,000 564,500 Cash at bank 10,500 9,000 1,410,500 1,173,500 Current liabilities Trade Creditors 200,000 182,000 Other accruals 30,000 10,000 230,000 192,000 Long term liabilities 10% Debentures 1,000,000 800,000 Total Net assets 771,500 361,500 Represented by: Ordinary Share Capital 100,000 100,000 Reserves 671,500 261,500 Total shareholders‟ funds 771,500 361,500 a) Using ratio analysis, comment on the performance of ABC Logistics Company over the two-year period in terms of profitability, liquidity, working capital and long term solvency. b) What are the limitations of ratio analysis? c) Explain the following as approaches to analysing the costs of the logistics function: (i) Fixed/variable costs (ii) Direct/indirect costs (iii) Engineered/discretionary costs
Financial ratio analysis provides us with a useful tool to assess the performance of a logistics company.
Below is an extract of the financial statements of ABC Logistics Company for the years ended
31 Dec 2003 and 31 Dec 2004. (All figures in million ZMK)
2004 2003
Revenues 5,000,000 5,000,000
Less: Cost of goods sold (4,000,000) (4,500,000)
Gross Profit 1,000,000 500,000
Less: Interest expenses (100,000) (80,000)
Other operating expenses (400,000) (370,000)
Net Profit 500,000 50,000
2004 2003
Fixed Assets 600,000 180,000
Current Assets
Stock 500,000 600,000
Trade Debt 900,000 564,500
Cash at bank 10,500 9,000
1,410,500 1,173,500
Current liabilities
Trade Creditors 200,000 182,000
Other accruals 30,000 10,000
230,000 192,000
Long term liabilities
10% Debentures 1,000,000 800,000
Total Net assets 771,500 361,500
Represented by:
Ordinary Share Capital 100,000 100,000
Reserves 671,500 261,500
Total shareholders‟ funds 771,500 361,500
- a) Using ratio analysis, comment on the performance of ABC Logistics Company over the two-year period in terms of profitability, liquidity, working capital and long term solvency.
- b) What are the limitations of ratio analysis?
- c) Explain the following as approaches to analysing the costs of the logistics function:
(i) Fixed/variable costs
(ii) Direct/indirect costs
(iii) Engineered/discretionary costs
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