Statement of Financial Position as at 31 December 2018 Assets 2018 2017 GHS GHS Non-current assets Property, plant and equipment 802,180 656,071 Current assets Inventory Trade receivables 64,422 86,550 905,679 807,712 Prepayment and accrued income 97,022 45,729 Cash at bank and in hand 1,327 68,363 1,068,450 1,008,354 Total assets 1,870,630 1,664,425 Equity and liabilities Equity Ordinary shares Income surplus 258,178 258,178 651,721 410,591 909,899 668,769 Non-current liabilities 10% loan stock 100,000 100,000 Current liabilities Trade payables 627,018 545,340 Accruals and deferred income 81,279 280,464 Corporate taxes Other taxes 108,000 37,200 44,434 32,652 860,731 895,656 Total equity and liabilities 1,870,630 1,664,425 Required: a. Calculate the following ratios: Profitability ratios - Return on Capital Employed, Return on Equity, Gross profit margin and Net profit margin ii. Long term solvency and stability - Debt/Asset ratio, Gearing ratio and Interest cover Short-term solvency and liquidity – Current ratio and Acid test ratio iv. i. iii. Efficiency (turnover ratios) – Account receivable collection period, Account payable payment period, Inventory turnover (times) b. Prepare a report addressed to the Chief Executive Officer, assessing the relative performance and financial position of Glory Ltd for the year ended 31st December, 2018

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter13: Financial Statement Analysis

Section: Chapter Questions

Problem 13.10E

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Question

You are a consultant for Glory Ltd, a quoted company operating in the manufacturing sector. Following are a
Statement of Profit or Loss and Statement of Financial Position with comparatives for the year ended 31st December 2018.

Statement of Profit or Loss for the year ended 31st December, 2018

	2018 GHS	2017 GHS
Sales revenue	3,095,576	1,909,051
Cost of sales	2,402,609	1,441,950
Gross profit	692,967	467,101
Interest receivable	744	2,782
Administration expenses	333,466	222,872
Operating profit	360,245	247,011
Interest	18,115	21,909
Profit before taxation	342,130	225,102
Income tax expense	74,200	31,272
Profit for the year	267,930	193,830

Statement of Financial Position as at 31 December 2018
Assets
2018
2017
GHS
GHS
Non-current assets
Property, plant and equipment
802,180
656,071
Current assets
Inventory
Trade receivables
64,422
86,550
905,679
807,712
Prepayment and accrued income
97,022
45,729
Cash at bank and in hand
1,327
68,363
1,068,450
1,008,354
Total assets
1,870,630
1,664,425
Equity and liabilities
Equity
Ordinary shares
Income surplus
258,178
258,178
651,721
410,591
909,899
668,769
Non-current liabilities
10% loan stock
100,000
100,000
Current liabilities
Trade payables
627,018
545,340
Accruals and deferred income
81,279
280,464
Corporate taxes
Other taxes
108,000
37,200
44,434
32,652
860,731
895,656
Total equity and liabilities
1,870,630
1,664,425

Required:
a. Calculate the following ratios:
Profitability ratios - Return on Capital Employed, Return on Equity, Gross profit margin and Net
profit margin
ii. Long term solvency and stability - Debt/Asset ratio, Gearing ratio and Interest cover
Short-term solvency and liquidity – Current ratio and Acid test ratio
iv.
i.
iii.
Efficiency (turnover ratios) – Account receivable collection period, Account payable payment
period, Inventory turnover (times)
b. Prepare a report addressed to the Chief Executive Officer, assessing the relative performance and financial
position of Glory Ltd for the year ended 31st December, 2018

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