Activity Ratio Analysis

Activity Ratio Analysis

Question 1

Here are the 2012 and 2013 Financial Statements for FGH Limited.

Income Statement for the year ended 31s t December:-

£000’s 2012 2013

Sales 1,200 1,400
Cost of Sales (800) (950)
Gross Profit 400 450
Expenses (150) (220)
Net Profit 250 230
Taxation (50) (46)
Profit after Taxation 200 184
Dividend (100) (120)
Retained Profit 100 64

Balance Sheet as at 31st December

£000’s 2012 2013
Non-current Assets
Cost 1,400 1,900
Depreciation (750) (950)
650 950
Current Assets
Inventory 180 220
Receivables 110 170
Bank 10 10
300 400
950 1,350
Shareholders Funds
Share Capital 100 100
Retained Profits 210 274
310 374
Current Liabilities
Payables 90 210
Taxation 50 46
Dividend 100 120
240 376
Non-current Liabilities
Long-term Debt 400 600
950 1,350

Notes

Cost of sales can be taken to be the same as annual purchases.
All purchases and sales are made on credit.

 
Required

a) For both 2012 and 2013, calculate the following ratios:

Gross Margin
Net Margin
Return on Capital Employed
Inventory Days
Receivables Days
Payables Days
Current Ratio
Gearing

b) Using the ratios calculated in part a) above and any other factors that you believe to be important, comment critically on FGH Limited’s financial performance and position in 2012 and 2013.
Question 2 – this will use your knowledge of ratios and the layout of financial statements – good luck!

Peter Jackson is a sole trader who has recently prepared his accounts for the year ended
31 January 2014. Peter also prepared some ratios and statistics in order to analyse those accounts. Unfortunately Peter has now mislaid the accounts and all that is remaining is the schedule of ratios.

Gross profit mark-up on cost 50%
Net profit / capital employed 30%
Net profit margin 10% of revenue
Opening inventory at selling price 73 days, based on revenue
Closing inventory at selling price 109.5 days, based on revenue
Current assets: current liabilities 2.9:1
Receivables payment period 45 days
Payables payment period 60 days

Peter can remember that his revenue for the year totalled £300,000.

Required

You are required to prepare Peter’s income statement for the year ended 31 January 2014 and his statement of financial position at that date in as much detail as is possible from the above information.

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