Ide Corporation Ltd’s Statement of Financial Position for the 2017 and 2018 financial years are as follows: Assets 2018(R) 2017(R) Non-Current Assets 5 000 000 3 800 000 Inventory 500 000 700 000 Receivables 350 000 420 000 Cash 280 000 140 000 6 130 000 5 060 000 Equity and Liabilities Share Capital (R2 shares) 2 600 000 1 700 000 Retained Income 500 000 940 000 Long term Debt 2 000 000 1 800 000 Payables 1 030 000 620 000 6 130 000 5 060 000 The abbreviated Statement of Comprehensive Income for the year ended 2018 reflects the following: R Sales (75% on credit) 2 400 000 Cost of sales 1 600 000 Depreciation 62 000 Interest expense 96 000 Tax (30%) 160 000 Net Income after tax 300 000 Dividends 240 000 Retained Income 60 000 NB: Their shares are currently trading at R3 per share. Required: 2.1 Calculate the gross profit margin and net profit margin. 2.2 Calculate the Earnings Per Share (EPS) and Dividends Per Share (DPS) for the current year. Explain what occurs to the difference between the EPS and the DPS value. 2.3 Calculate the return on equity. Will shareholders be happy with this return? Explain. 2.4 Calculate and comment on the acid test ratio for both years. 2.5 Calculate and comment on the debt equity ratio for both years. 2.6 Calculate the stock turnover rate and explain the meaning of this ratio.
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.
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