You have been asked by a friend to analyse the following set of financial statements for a smallunlisted company that he is considering investing in.Balance Sheets as at 31 December20X120X2$$Shareholders' fundsIssued capital100,00050,000150,000150,000Retained earningsTotal shareholders' funds57,500207,500Represented by:Current assetsBankAccounts receivableInventory**149,000133,00054,00045,00050,00080,00053,000Less Current liabilitiesBank35,000118,500Accounts payableTaxes payable32,0003,00037,00081,000500Working capital114,00014,500Non-current assetsLand65,000BuildingsAccum. depreciationPlant & equipmentAccum. depreciationMotor vehiclesAccum. depreciationTotal non-current assets12,500(3,500)30,000(3,000) 27,000185,000(4,000) 181,00012,500(4,500)55,000(11,000)9,0008,00044,00036,000298,000Non-current liabilitiesMortgage (secured)(105,000)150,000207,500Net total assets* Opening debtors for 20X1 was $31,000*Opening inventory for 20X1 was $46,000 Income Statements for the years ending 31 December20X120X2$$$SalesCost of sales544,000440,000104,000740,000612,500127,500Gross profitless Expenses:Selling:WagesAdvertising36,50056,00031,5005,00047,0009,000Administration:Rents & rates27,00037,0008,5002,00015,3504,00013,00016,000(1,000)5,000DepreciationGeneral OfficeGain on sale of assetsWages1,150Financial:Interest – mortgageInterest – bank4,50020,5001,5003,00010,0004,5006,000Bad debtsTotal expensesNet profit before taxTaxNet profit after tax68,00036,00010,80025,200113,50014,0004,2009,800REQUIRED:a) Calculate the following ratios:i) Gross profitii) Net profit before taxiii) Current ratioiv) Accounts receivable turnover in daysv) Inventory turnover in daysvi) Accounts payable turnovervii) Times interest coveredviii) Debt/equity.b) Comment on the profitability and stability of the company using the ratios calculated in (a)(plus any others you think may be relevant) and make recommendations to your friend.

REQUIRED: a) Calculate the following ratios: i) Gross profit ii) Net profit before tax Current ratio iv) Accounts receivable turnover in days v) Inventory turnover in days vi) Accounts payable turnover vii) Times interest covered viii) Debt/eguity.

REQUIRED: a) Calculate the following ratios: i) Gross profit ii) Net profit before tax Current ratio iv) Accounts receivable turnover in days v) Inventory turnover in days vi) Accounts payable turnover vii) Times interest covered viii) Debt/eguity.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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