Ratio Analysis – Question

Given below are the financial statements of ABC Limited for the year ended 31 st March 2021.

ABC Limited
Income Statement for the year ended 31st March 2021
Turnover 3,000,000
Cost of Sales 1,750,000
Gross profit 1,250,000
Selling and Distribution Expenses 600,000
Administration Expenses 300,000
Operating Profit 350,000
Interest Expenses 100,000
Profit Before Tax 250,000
Corporation Tax 25,000
Profit After Tax 225,000
Retained Profit b/f from previous year 125,000
Profits available for appropriation 400,000
Ordinary Dividend 50,000
Retained profits c/f to next year 350,000

ABC Limited
Statement of Financial Position as at 31st March 2021

Non-current assets (Property Plant and Equipment) 2,000,000

Current Assets
Inventory 600,000
Trade Debtors (Trade Receivables) 425,000
Other Receivables 100,000
Prepayments and Advances 25,000
Short term investments 25,000
Cash at Bank 75,000
Cash in Hand 25,000 1,275,000

Total Assets 3,2750,000

Shareholders’ Funds
Ordinary Share Capital 1,000,000
Reserves 500,000 1,500,000

Current Liabilities
Trade Creditors (Trade Payables) 300,000
 Bank overdraft 450,000
Accrued expenses 25,000
Dividends payables 50,000
Corporation tax payable 25,000 850,000

Long-term Liabilities
Bank Loan 600,000
Debentures 325,000 925,000

Total Equity and Liabilities 3,275,000

Additional Information
1. A detailed analysis of the cost of sales revealed the following:
• All sales and purchases have been made purely on credit
• The Cost of sales figure was made up as follows
Stock : 01.04.08 550,000
Purchases 1,800,000
Stock : 31.03.09 (600,000)
Cost of Sales 1,750,000

2. The ordinary share capital consists of 100,000 ordinary shares with a nominal value of
Rs.10 each. The latest available market price of this share is Rs.45.00

3. The trade debtors and trade creditors balances as at march 31, 2008 had been
Rs.475,000 and Rs.350,000 respectively
Required
Calculate each the following ratios and comment on what each of those ratios generally
communicate about the business’ performance:
1. Gross Profit Margin
2. Gross Profit Mark-up
3. Operating Profit Margin
4. Net Profit Margin
5. Return on Capital Employed
6. Return of Total Assets
7. Return on Equity
8. Return on Net Assets
9. Current ratio
10. Acid Test Ratio
11. Inventory turnover
12. Debtors turnover
13. Creditors Turnover
14. Working Capital Cycle
15. Asset Turnover
16. Fixed Asset Turnover
17. Debt to Equity ratio
18. Interest cover
19. Earnings per share
20. Price Earnings ratio
21. Dividend yield