- 10 Marks
FA – L1 – Q103 – Interpretation of Financial Statements
Calculate five financial ratios for KK Enterprises based on its 20X8 financial statements.
Question
KK is the owner of a business supplying goods to other traders. He has just received the financial accounts for his business for the year ended 31st December 20X8 from his accountant. These are reproduced below.
Statement of profit or loss for the year ended 31st December 20X8
| GH¢ | GH¢ |
|---|---|
| Sales | |
| Cost of sales | |
| Gross profit | |
| Expenses | |
| Net profit |
Statement of financial position as at 31st December 20X8
| GH¢ | GH¢ |
|---|---|
| Non-current assets (net) | |
| Current assets | |
| Inventory | 52,000 |
| Receivables | 15,000 |
| Cash | 100 |
| Total assets | |
| Current liabilities | |
| Payables | 6,000 |
| Bank | 2,500 |
| Capital | |
| Balance b/d | 200,000 |
| Net profit | 30,000 |
| Drawings | (21,400) |
| Total capital and liabilities |
Note: Inventory on 1st January 20X8 was valued at GH¢ 48,000.
Required:
Calculate for KK Enterprises each of the following ratios for the year ended 31st December 20X8 (where appropriate, calculations should be approximated to two decimal places):
(i) Net profit margin.
(ii) Return on capital employed (using the closing year-end value for capital employed).
(iii) Current ratio.
(iv) Liquid (acid test) ratio.
(v) Rate of inventory turnover.
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