- 20 Marks
FA – April 2022 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)
Calculation and interpretation of key financial ratios for two companies to assess profitability and liquidity.`
Question
The Statement of Profit or Loss and Statements of Financial Position of two manufacturing companies in the same sector are set out below:
Required:
a) Define and calculate the following ratios for each company:
i) Net profit percentage
ii) Return on capital employed
iii) Average receivables collection period
iv) Average payables period
v) Inventory turnover
(15 marks)
b) A not-for-profit organisation issues a different set of financial statements than the statements produced by a business organisation (profit making). When it comes to bookkeeping for a not-for-profit organisation, many processes remain the same as that of a business organisation. However, differences in terminology apply when managing the books of a not-for-profit organisation.
Required:
What terminology will be used for the following:
i) Profit for the period
ii) Loss for the period
iii) Equity reserve
(5 marks)
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