Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for 2018 and 2019 are as follows:See images Dividends were paid on ordinary shares of £70,000 and £72,000 for 2018 and 2019, respectively.Required: (a) Calculate the following financial ratios for both 2018 and 2019 (using year-end figures for statement of financial position items):1 return on capital employed2 operating profifit margin3 gross profifit margin4 current ratio5 acid test ratio6 settlement period for trade receivables7 settlement period for trade payables8 inventories turnover period.(b) Comment on the performance of Threads Limited from the viewpoint of a business considering supplying a substantial amount of goods to Threads Limited on usual trade credit terms. Income statements for the year ended 30 June20182019£000£000Sales revenue1,1801,200(750)450Cost of sales(680)Gross profit500Operating expensesDepreciationOperating profit(200)(66)(208)(75)234167Interest(-)(8)Profit before taxation234159Taxation(80)(48)Profit for the year154111 Statements of financial position as at 30 June20182019£000£000ASSETSNon-current assetsProperty, plant and equipment702687Current assetsInventories148236Trade receivables102156Cash34253396Total assets9551,083EQUITY AND LIABILITIESEquityOrdinary share capital (£1 shares, fully paid)Retained earnings500500256295756795Non-current liabilitiesBorrowings – bank loan50Current liabilitiesTrade payables6076Other payables and accruals1816Тахation4024Short-term borrowings (all bank overdraft)81122199238Total equity and liabilities9551,083

all the ratios are been calculated below.

Answered: Threads Limited manufactures nuts and…

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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Question

Threads Limited manufactures nuts and bolts, which are sold to industrial users. The abbreviated financial statements for 2018 and 2019 are as follows:

See images

Dividends were paid on ordinary shares of £70,000 and £72,000 for 2018 and 2019, respectively.

Required:

(a) Calculate the following financial ratios for both 2018 and 2019 (using year-end figures for statement of financial position items):

1 return on capital employed

2 operating profifit margin

3 gross profifit margin

4 current ratio

5 acid test ratio

6 settlement period for trade receivables

7 settlement period for trade payables

8 inventories turnover period.

(b) Comment on the performance of Threads Limited from the viewpoint of a business considering supplying a substantial amount of goods to Threads Limited on usual trade credit terms.

Income statements for the year ended 30 June
2018
2019
£000
£000
Sales revenue
1,180
1,200
(750)
450
Cost of sales
(680)
Gross profit
500
Operating expenses
Depreciation
Operating profit
(200)
(66)
(208)
(75)
234
167
Interest
(-)
(8)
Profit before taxation
234
159
Taxation
(80)
(48)
Profit for the year
154
111

Statements of financial position as at 30 June
2018
2019
£000
£000
ASSETS
Non-current assets
Property, plant and equipment
702
687
Current assets
Inventories
148
236
Trade receivables
102
156
Cash
3
4
253
396
Total assets
955
1,083
EQUITY AND LIABILITIES
Equity
Ordinary share capital (£1 shares, fully paid)
Retained earnings
500
500
256
295
756
795
Non-current liabilities
Borrowings – bank loan
50
Current liabilities
Trade payables
60
76
Other payables and accruals
18
16
Тахation
40
24
Short-term borrowings (all bank overdraft)
81
122
199
238
Total equity and liabilities
955
1,083

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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