- 20 Marks
FA – May 2020 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)
This question involves calculating financial ratios and providing commentary on the company’s performance based on those ratios.
Question
The following are extracts from the financial statements of Sky Ltd:
Required:
a) Prepare the following ratio analysis for 2018 financial year.
i) Current ratio
ii) Acid test ratio
iii) Net Profit Margin
iv) Return on capital employed
v) Receivables day
vi) Payables day
vii) Inventory turnover
(10 marks)
b) Comment on FIVE (5) of the ratios you have calculated.
Note: The following industry averages are provided to enable you to write your comment:
- Current ratio: 1.9:1
- Acid test ratio: 0.9:1
- Net profit margin: 6%
- Return on Capital Employed (ROCE): 25%
- Receivable days: 45 days
- Payable days: 38 days
- Inventory turnover: 4.4 times
(10 marks)
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