Two companies Ebony and Ivory trade in the same market. Their financial statements for the year ended 31 October 2017 are summarized below: Income statements for the year ended 31 October 2017 Ebony Ivory $ $ $ $ Sales revenue 284,000 305,000 Cost of sales (155,000) (151,000) Gross profit 129,000 154,000 Expenses: Administrative (24,000) (37,000) Selling and distribution (35,000) (53,000) Depreciation (9,000) (12,000) Loan note interest – (5,000) (68,000) (107,000) Net profit 61,000 47,000 Balance sheets as at 31 October 2017 Ebony Ivory Assets $ $ $ $ Non-current assets At cost 320,000 515,000 Accumulated depreciation (75,000) (96,000) 245,000 419,000 Current assets Inventory 91,000 293,000 Receivables 46,000 75,000 Bank 64,000 201,000 15,000 383,000 Total assets 446,000 802,000 Equity and liabilities Share capital and reserves Share capital 150,000 250,000 Retained earnings 108,000 177,000 10% Loan note – 50,000 Current liabilities 188,000 325,000 Total equity and liabilities 446,000 802,000 Required: Calculate the following ratios for Ebony and (Show the formulas used for the calculations.) Profitability ratios: Gross profit percentage Net profit percentage Return on capital employed Liquidity ratios: Current ratio Quick ratio (acid test ratio) Average collection period
Two companies Ebony and Ivory trade in the same market. Their financial statements for the year ended 31 October 2017 are summarized below:
Income statements for the year ended 31 October 2017
|
|
Ebony |
Ivory |
||
|
|
$ |
$ |
$ |
$ |
|
Sales revenue |
|
284,000 |
|
305,000 |
|
Cost of sales |
|
(155,000) |
|
(151,000) |
|
Gross profit |
|
129,000 |
|
154,000 |
|
Expenses: |
|
|
|
|
|
Administrative |
(24,000) |
|
(37,000) |
|
|
Selling and distribution |
(35,000) |
|
(53,000) |
|
|
|
(9,000) |
|
(12,000) |
|
|
Loan note interest |
– |
|
(5,000) |
|
|
|
|
(68,000) |
|
(107,000) |
|
Net profit |
|
61,000 |
|
47,000 |
|
|
|
|
|
|
Balance sheets as at 31 October 2017
|
|
Ebony |
Ivory |
||
|
Assets |
$ |
$ |
$ |
$ |
|
Non-current assets |
|
|
|
|
|
At cost |
|
320,000 |
|
515,000 |
|
Accumulated depreciation |
|
(75,000) |
|
(96,000) |
|
|
|
245,000 |
|
419,000 |
|
Current assets |
|
|
|
|
|
Inventory |
91,000 |
|
293,000 |
|
|
Receivables |
46,000 |
|
75,000 |
|
|
Bank |
64,000 |
201,000 |
15,000 |
383,000 |
|
Total assets |
|
446,000 |
|
802,000 |
|
|
|
|
|
|
|
Equity and liabilities |
|
|
|
|
|
Share capital and reserves |
|
|
|
|
|
Share capital |
|
150,000 |
|
250,000 |
|
|
|
108,000 |
|
177,000 |
|
10% Loan note |
|
– |
|
50,000 |
|
Current liabilities |
|
188,000 |
|
325,000 |
|
Total equity and liabilities |
|
446,000 |
|
802,000 |
Required:
- Calculate the following ratios for Ebony and
(Show the formulas used for the calculations.)
Profitability ratios:
Gross profit percentage
Net profit percentage
Return on capital employed
Quick ratio (acid test ratio)
Average collection period
- Compare and comment on the performance of the companies using any two ratios from each of the categories in part (a).
- State five (5) limitations of ratios.
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