Alex is currently considering to invest his money in one of the companies betweenCompany A and Company B. The summarized final accounts of the companies for theirlast completed financial year are as follows: (refer to the images) Required:a. Calculate the following ratios for Company A and Company B. State clearly theformulae used for each ratio:i. Gross Profit Marginii. Net Profit Marginiii. Inventory Turnover Period (days)iv. Receivables Collection Period (days)v. Payables Payment Period (days)vi. Current Ratiovii. Quick Ratiob. Comment on each of the ratios calculated in part (a) above. Alex is currently considering to invest his money in one of the companies betweenCompany A and Company B. The summarized final accounts of the companies for theirlast completed financial year are as follows:Statements ofComprehensiveIncomeCompany ARMRMCompany BRMRMSales160,000(120,000)40,000240,000(180,000)60,000Cost of salesGross profitLess:Administration expensesSelling and distribution12,00018,0006,0009,500expensesOther operatingexpensesFinancial expenses10,0003,00014,000500(31,000)9,000(42,000)18,000Net profit..3/- Company ACompany BRMRMRMRMStatements ofFinancialPositionNon- currentAssets80,000180,000Current AssetsInventoryReceivables30,0006,0004,00050,00020,00010,000Bank40,000120,00080,000260,000Total AssetCapital and reservesOrdinary share capitalAccumulated profits60,00020,00080,000160,00075,000235,000Non Current liabilities10% Loan stock30,0005,000Current liabilitiesPayablesTotal Capital and reserves10,00020,000120,000260,000

Solution:- i)Calculation of Gross Profit Margin as follows under:- Gross Profit Margin =Gross profit…

Answered: Alex is currently considering to invest…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter15: Financial Statement Analysis

Section: Chapter Questions

Problem 63P: Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture...

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Alex is currently considering to invest his money in one of the companies between
Company A and Company B. The summarized final accounts of the companies for their
last completed financial year are as follows: (refer to the images)

Required:
a. Calculate the following ratios for Company A and Company B. State clearly the
formulae used for each ratio:
i. Gross Profit Margin
ii. Net Profit Margin
iii. Inventory Turnover Period (days)
iv. Receivables Collection Period (days)
v. Payables Payment Period (days)
vi. Current Ratio
vii. Quick Ratio

b. Comment on each of the ratios calculated in part (a) above.

Company A
Company B
RM
RM
RM
RM
Statements of
Financial
Position
Non- current
Assets
80,000
180,000
Current Assets
Inventory
Receivables
30,000
6,000
4,000
50,000
20,000
10,000
Bank
40,000
120,000
80,000
260,000
Total Asset
Capital and reserves
Ordinary share capital
Accumulated profits
60,000
20,000
80,000
160,000
75,000
235,000
Non Current liabilities
10% Loan stock
30,000
5,000
Current liabilities
Payables
Total Capital and reserves
10,000
20,000
120,000
260,000

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