MA – L2 – Q57 – Performance analysis

Evaluate KINTAMPO LTD's performance using financial ratios for two divisions, Amir and Mo.

Question

Zestco is an importer and retailer of vegetable oils. Extracts from the financial statements for this year and last are set out below.

Statements of profit or loss for the years ended 30 September

Statements of financial position as of 30 September

	Year 7	Year 6
	ZC¢’000	ZC¢’000
Assets
Non-current assets
Property, plant and equipment	78	72
Current assets
Inventories	106	61
Trade receivables	316	198
Cash	6
	428	259
Total assets	506	331
Equity and liabilities
Equity
Ordinary shares	110	85
Preference shares	23	11
Share premium	15
Revaluation reserve	20
Retained earnings	78
Current liabilities
Bank overdraft	49
Trade payables	198
Current tax payable	7
Total equity and liabilities

Required:

Define and calculate the following ratios for each year:

(a) Gross profit percentage

(b) Net profit percentage

(d) Asset turnover

(e) Current ratio

(f) Quick ratio

(g) Average receivables collection period

(h) Average payables period

(i) Inventory turnover.

Answer

(a) Gross profit % = Gross profit / Sales × 100

Year 7: 405 / 2,160 × 100 = 18.75%

Year 6: 362 / 1,806 × 100 = 20.0%

(b) Net profit % = Profit for the period / Sales × 100

Year 7: 9 / 2,160 × 100 = 0.4%

Year 6: 53 / 1,806 × 100 = 2.9%

(c) Return on capital employed = (Profit before interest and tax / Capital employed) × 100

Capital employed = Share capital + Reserves + Long-term debt

Year 7: 15 / (110 + 23 + 15 + 20 + 78) × 100 = 15 / 246 × 100 = 6.1%