IA – JULY 2020 – L1 – Q4 – Financial Ratios Calculation

Calculate five specified ratios for 2018 and 2019 from given P&L and balance sheet extracts.

Question

Answer at least TWO questions from this section

The following shows extract of the Profit & Loss Account and the Balance Sheet of AMBULANCE LIMITED.

Trading & Profit & Loss:	GHS	GHS
Turnover (Sales Revenue)	16,555	23,220
Cost of Goods Sold	12,345	18,650
Gross Profit	4,210	4,570
General & Administration Expenses	2,544	3,275
Net Profit	1,666	1,295

Balance Sheet:	GHS	GHS
Capital	40,000	40,000
Retained Earnings (Net Profit)	6,000	9,000
Long-Term Loan	7,000	8,850
Fixed Assets	38,000	38,000
Current Assets	9,100	12,350
Current Liabilities	400	500

You are required to: Calculate any five (5) of the following ratios for both 2018 and 2019:

Answer

Calculations (2018 | 2019):

Gross Profit Margin = (GP / Sales) x 100 = (4,210 / 16,555) x 100 = 25.43% | (4,570 / 23,220) x 100 = 19.68%
Net Profit Margin = (NP / Sales) x 100 = (1,666 / 16,555) x 100 = 10.07% | (1,295 / 23,220) x 100 = 5.58%
ROCE = (NP / (Equity + Long-term Debt)) x 100 = (1,666 / (46,000 + 7,000)) x 100 = 3.14% | (1,295 / (49,000 + 8,850)) x 100 = 2.23%
Return on Shareholders’ Fund = (NP / Equity) x 100 = (1,666 / 46,000) x 100 = 3.62% | (1,295 / 49,000) x 100 = 2.64%
Return on Fixed Assets = (NP / Fixed Assets) x 100 = (1,666 / 38,000) x 100 = 4.38% | (1,295 / 38,000) x 100 = 3.41%
Return on Total Assets = (NP / Total Assets) x 100 = (1,666 / 47,100) x 100 = 3.54% | (1,295 / 50,350) x 100 = 2.57%
Current Ratio = Current Assets / Current Liabilities = 9,100 / 400 = 22.75:1 | 12,350 / 500 = 24.7:1

(Select any 5; each with calculation for both years. High current ratio indicates strong liquidity, vital post-DDEP in Ghana for banks.)