Ahmed Company Ltd. is a wholesaler of electrical parts in Sharqiyah region. The following information is furnished by company in order to assess its performance by using different ratios for the year 2019: - Company started its business with a share capital and debts of RO 2,000,000 consisting of 160,000 shares of RO 10 each and bank loans RO 400,000. Company’s assets including building worth RO 900,000, machinery worth RO 135,000, cash available in the office RO 42,500 and at bank 135,500. At the end of 2019, the inventory reported worth RO 134,750. Later in the year company purchased furniture worth of RO 20,450. In the year 2019, company has made the sale of RO 1,350,400 by incurring cost of goods sold RO 690,250 and operating expenses RO 320,500. The income from other sources reported RO 15,800. Company paid interest of RO 8,400 on bank loans in the year 2019. The total outstanding expenses and accounts payable reported RO 4,400 and RO 124,500 at the end of the year 2019. Company also paid taxes at 15% on net profit. The dividend declared and paid 9.5% on PAT. The market value of the shares at the end of the year RO 13.250 each. Requirements: - Calculate the following ratios: - Shareholder’s Ratios by showing all required calculations and formulas.
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.
Ahmed Company Ltd. is a wholesaler of electrical parts in Sharqiyah region. The following information is furnished by company in order to assess its performance by using different ratios for the year 2019: -
Company started its business with a share capital and debts of RO 2,000,000 consisting of 160,000 shares of RO 10 each and bank loans RO 400,000. Company’s assets including building worth RO 900,000, machinery worth RO 135,000, cash available in the office RO 42,500 and at bank 135,500. At the end of 2019, the inventory reported worth RO 134,750. Later in the year company purchased furniture worth of RO 20,450. In the year 2019, company has made the sale of RO 1,350,400 by incurring cost of goods sold RO 690,250 and operating expenses RO 320,500. The income from other sources reported RO 15,800. Company paid interest of RO 8,400 on bank loans in the year 2019. The total outstanding expenses and accounts payable reported RO 4,400 and RO 124,500 at the end of the year 2019.
Company also paid taxes at 15% on net profit. The dividend declared and paid 9.5% on PAT. The market value of the shares at the end of the year RO 13.250 each.
Requirements: - Calculate the following ratios: -
- Shareholder’s Ratios by showing all required calculations and formulas.
- Profitability Ratios by showing all required calculations and formulas (
Return on assets , Return on fixed capital, Return on working capital). - Current and Quick Ratio by showing all required calculations and formulas.
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