Topic: Interpretation of financial statements (Financial Ratios)

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FA – Nov 2024 – L1 – Q5c – Profitability vs Liquidity Ratios

Explain the difference between profitability and liquidity ratios and provide two examples of each.

Question

Accounting ratios cover a wide array of ratios that are used by accountants and act as different indicators that measure profitability, liquidity, and potential financial distress in a company’s financials.

Required:

Differentiate between profitability ratios and liquidity ratios and give TWO examples each.

Answer

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Tags: Business Analysis, Financial health, Financial Ratios, Liquidity Ratios, Profitability Ratios
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: Nov 2024

FA – Mar 2024 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate financial ratios and report on the reasons for Ziekah Ltd's deteriorating cash flow.

Question

You are the financial accountant for Ziekah Ltd, a company that manufactures household furniture. Ziekah Ltd has experienced both a reduction in sales revenue and cash flow during the last financial period. You are provided with the following information regarding Ziekah Ltd for the years ended 31 October 2022 and 2023:

Statement of Profit or Loss for Years Ended

	2023 (GH¢000)	2022 (GH¢000)
Revenue	1,000	1,400
Cost of sales	(600)	(700)
Gross profit	400	700
Operating expenses	(150)	(280)
Operating profit	250	420
Interest on debentures	(60)	(100)
Profit before tax	190	320
Tax	(24)	(40)
Profit after tax	166	280

Statement of Financial Position as at

	2023 (GH¢000)	2022 (GH¢000)
Non-current assets
Property, plant, and equipment	2,320	2,400
Intangible assets	1,300	800
Total non-current assets	3,620	3,200
Current assets
Inventory	82	78
Trade receivables	138	134
Bank	–	300
Total current assets	220	512
Total assets	3,840	3,712
Equity and liabilities
Issued share capital	1,600	1,600
Retained earnings	1,224	1,058
Total equity	2,824	2,658
Non-current liabilities
10% Debentures	600	1,000
Current liabilities
Bank overdraft	342	–
Trade payables	74	54
Total current liabilities	416	54
Total equity and liabilities	3,840	3,712

Required:

a) Calculate the following ratios for both years:

i) Operating profit margin.
ii) Return on capital employed.
iii) Acid test ratio.
iv) Receivable days.

(8 marks)

b) Write a report to the Managing Director of Ziekah Ltd explaining why the cash flow of the company has deteriorated during the current financial year. You should base your report on both the ratios calculated in (a) and any additional information provided in the financial statements.

Answer

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Tags: Acid Test Ratio, Financial Analysis, Operating Profit Margin, Receivable Days, Return on Capital Employed
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: MAR 2024

FA – Nov 2023 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate and interpret financial performance ratios for Edumfa Ltd in comparison to a competitor.

Question

The following summarised information is available in respect of Edumfa Ltd for the year ended 31 July 2022:

The performance ratios for a competitor company for the same period are as follows:

Description	Ratio
Return On Capital Employed (ROCE)	25.2%
Asset turnover rate	1.06
Acid test ratio	0.9:1
Return on equity	31.5%
Receivables collection period	38 days

Required:

a) Calculate the performance indicators for Edumfa Ltd as shown for the comparable company. (10 marks)
b) Comment on the performance of Edumfa Ltd for the year ended 31 July 2022 using the information you calculated in (a) above. (10 marks)

Answer

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Tags: Acid Test Ratio, Asset Turnover, Financial Ratios, Performance Analysis, Receivables Collection Period, Return on Capital Employed, Return on Equity
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: NOV 2023

FA – July 2023 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate financial ratios and discuss ways to improve liquidity for a company using its financial statements.

Question

The following is a summary of the final accounts of Beposo Ltd for the year ended 31 December 2022.

Required:

a) Calculate each of the following ratios (where appropriate, calculations should be to two decimal places).
i) Sales to capital employed (2 marks)
ii) Current ratio (2 marks)
iii) Liquid (acid test) ratio (2 marks)
iv) Interest cover (2 marks)
v) Gearing ratio (2 marks)

b) Explain FOUR (4) ways in which Beposo Ltd could improve its liquidity. (10 marks)

Answer

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Tags: Financial Ratios, Gearing, Interest Cover, Liquidity Ratios, Sales to Capital Employed
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: JULY 2023

FA – Mar 2023 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Distinguishes between capital and revenue expenditure and calculates financial ratios to assess the performance of a business.

Question

a) Distinguish between capital expenditure and revenue expenditure. (5 marks)

b) Banky is the owner of a business supplying goods to other traders. He has just received the financial statement for his business for the year ended 31 December 2022 from his accountant. Below are the summarized financial statements:

Required:

i) Calculate for Banky each of the following ratios for the year ended 31 December 2022 (where appropriate, calculations should be approximated to two decimal places):

Net profit margin. (2 marks)
Return on capital employed (using the closing year-end value for capital employed) (2 marks)
Current ratio. (2 marks)
Liquid (acid test) ratio. (2 marks)
Rate of inventory turnover. (2 marks)

ii) Based on the ratios calculated in i) above, and all other information provided, assess the performance (profitability) of Banky’s business. (5 marks)

Answer

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Tags: Capital Expenditure, Financial Ratios, Liquidity, Profitability, Revenue Expenditure
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: MAR 2023

FA – Dec 2023 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculates and interprets financial ratios to assess the performance of a company over two years.

Question

Below is the formatting of Question 5 from the uploaded document as per your request:

==========
Level:
Level 1

Professional Bodies:
ICAG

Programs:
Professional Program

Subjects:
Financial Accounting (Paper 1.1)

Topics:

Interpretation of financial statements (Financial Ratios)

Series:
Dec 2023

Total Marks:
20

Question Tags:
Financial Ratios, Performance Analysis, Profitability, Liquidity, Efficiency

Question Short Summary:
Calculates and interprets financial ratios to assess the performance of a company over two years.

Question:

a) The following summarised information has been extracted from the accounts of Kotoku Ltd for the years ended 31 December 2021 and 31 December 2020:

Statements of Profit and Loss	2021 (GHȼ’000)	2020 (GHȼ’000)
Revenue	1,150	1,766
Cost of sales	(684)	(1,141)
Gross profit	466	625
Expenses	(338)	(472)
Interest on loans	(26)	(33)
Profit before tax	102	120
Tax	30	36
Profit after tax	72	84

Calculate the following ratios for Kotoku Ltd for both years (2020 and 2021):

i) Return On Capital Employed (ROCE) (2 marks)
ii) Asset turnover (2 marks)
iii) Gross profit margin (2 marks)
iv) Acid test ratio (2 marks)
v) Receivables collection period (2 marks)

b) Using the additional information given and the ratios you calculated in part (a), comment on the financial performance of Kotoku Ltd. (10 marks)

Answer

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Tags: Efficiency, Financial Ratios, Liquidity, Performance Analysis, Profitability
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: DEC 2023

FA – Aug 2022 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculation and comparison of financial ratios for two businesses to assess performance, followed by a discussion of which business is performing better.

Question

a) Garu and Gushegu are two businesses that compete in the same market and have been trading for a number of years. The following information relates to their results for the year ended 31 December 2021:

Account	Garu (GHȼ’000)	Gushegu (GHȼ’000)
Sales	4,455	5,264
Cost of Sales	2,549	2,632
Net Profit	1,075	1,137
Inventory at 1 January	820	518
Inventory at 31 December	1,040	498
Capital Employed	2,428	1,953
Receivables	1,200	1,324
Bank	75	980
Payables	750	720

There are no other current assets or current liabilities.

Required:
Calculate the following ratios for each of the two businesses: i) Return on Capital Employed (ROCE)
ii) Gross Profit Margin
iii) Current Ratio
iv) Liquid (Acid Test) Ratio
v) Inventory Turnover
(10 marks)

b) Using the ratios calculated, discuss which of the two businesses appears to be performing better.
(10 marks)

Answer

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Tags: Acid Test Ratio, Current Ratio, Gross Profit Margin, Inventory Turnover, Ratio Analysis, Return on Capital Employed
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: AUG 2022

FA – Aug 2022 – L1 – Q4 – IAS 7: Statement of cash flows | Interpretation of financial statements (Financial Ratios)

Preparation of a Statement of Cash Flows using IAS 7, including cash flows from operating, investing, and financing activities, with an analysis of the benefits of preparing cash flow statements.

Question

a) The following information relates to the activities of Chemu Ltd:

Statement of Financial Position as at 31 December

Account	2021 (GHȼ’000)	2020 (GHȼ’000)
Assets
Non-current assets	1,295	810
Current assets
Inventory	1,500	500
Receivables	2,680	890
Bank	–	740
Total assets	5,475	2,940
Equity and liabilities
Equity
Share capital	600	400
Retained earnings	1,625	600
Total equity	2,225	1,000
Non-current liabilities
10% Debentures	160	360
Current liabilities
Bank overdraft	1,810	–
Payables	1,000	680
Taxation	280	900
Total liabilities	3,250	1,940
Total equity and liabilities	5,475	2,940

Additional information:

i) The Statement of Profit or Loss for the year ended 31 December 2021 shows the following:

Account	Amount (GHȼ’000)
Operating profit	1,531
Interest payable	(26)
Profit before taxation	1,505
Taxation	(480)
Profit for the period	1,025

ii) Payables consist of trade payables and accrued interest. The accrued interest as at 31 December 2021 was GHȼ45,000 and as at 2020 was GHȼ80,000.

iii) Profit before taxation had been arrived at after charging GHȼ395,000 for depreciation on non-current assets.

iv) During the year, non-current assets with a carrying amount of GHȼ200,000 were sold for GHȼ190,000.

Required:
Prepare a Statement of Cash Flows for Chemu Ltd for the year ended 31 December 2021, in accordance with IAS 7: Statement of Cash Flows.
(16 marks)

b) Identify FOUR (4) benefits Chemu Ltd may derive from preparing a Statement of Cash Flows.
(4 marks)

Answer

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Tags: Cash Flow Statement, Financing Activities, Investing Activities, Operating Activities
Level: Level 1

Topic: IAS 7: Statement of cash flows, Interpretation of financial statements (Financial Ratios)
Series: AUG 2022

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)

Answer

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Tags: Inventory Turnover, Liquidity Ratios, Payables Period, Profitability Ratios, Receivables Collection Period, Return on Capital Employed
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: APR 2022

FA – Nov 2021 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculation and interpretation of financial ratios, including gross profit margin, net profit margin, ROCE, and liquidity ratios, and assessment of liquidity and profitability.

Question

The following summary information relates to two businesses, Danyi and Napo. Both businesses traded in the same market sector for the year ended 31 December 2020.

Statement of Profit or Loss Accounts for the year ended 31 December 2020:

Required:
a) Calculate the following ratios for Danyi and Napo:
i) Gross profit margin
ii) Net profit margin
iii) Return on capital employed (ROCE)
iv) Current ratio
v) Liquid (acid test) ratio
vi) Inventory turnover
(6 marks)

b) Use the ratios calculated in a) to assess:
i) The liquidity of both businesses
ii) The profitability of both businesses
(8 marks)

c) Advise management of both Danyi and Napo on the actions they should now take to improve liquidity and profitability.
(6 marks)

Answer

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Tags: Current Ratio, Financial Statement Analysis, Gross Profit Margin, Inventory Turnover, Liquidity Ratio, Net Profit Margin, ROCE
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: NOV 2021

FA – May 2021 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculation and interpretation of financial ratios, including gross profit margin, net profit margin, inventory turnover, and ROCE, and explanation of differences between Income and Expenditure Account and Receipts and Payments Account.

Question

a) The accountant of Kwadaso Traders has prepared the Trading and Profit and Loss Account for the year ended 31 December 2020 and the forecast for the year ended 31 December 2021. These are reproduced below:

Required:
i) Calculate the following ratios for the year ended 31 December 2020 and for the year ended 31 December 2021.

Gross Profit Margin (1 mark)
Net Profit Margin (1 mark)
Inventory Turnover (1 mark)
Return on Capital Employed (ROCE) (1 mark)

ii) The manager of Kwadaso Traders has set the objective of improving the profitability of the business for the year ending 31 December 2021. Discuss the changes between the two years based on the ratios calculated and the additional information provided, and explain whether or not Kwadaso Traders will achieve its objective.
(8 marks)

iii) Explain the importance of the Return on Capital Employed (ROCE) percentage to a business.
(3 marks)

b) Financial statements prepared by clubs, societies, and associations are different from those prepared by sole traders, partnerships, and limited liability companies. The financial statements prepared by these not-for-profit organizations are the Trading Account, the Income and Expenditure Account, the Receipts and Payment Account, and the Statement of Financial Position.

Required:
Explain TWO (2) differences between an Income and Expenditure Account and a Receipts and Payments Account.
(5 marks)

Answer

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Tags: Financial Ratios, Gross Profit Margin, Income and Expenditure Account, Inventory Turnover, Net Profit Margin, Receipts and Payments Account, ROCE
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: MAY 2021

FA – Nov 2020 – L1 – Q5 – IAS 7: Statement of cash flows | Interpretation of financial statements (Financial Ratios)

Analysis of financial performance using ratios and calculation of additional liquidity ratios and explanation of the importance of the statement of cash flows.

Question

The following financial information relates to Mawoekpor Ltd. for the year ended 31 December 2019 (with comparative figures for the year ended 31 December 2018):

Statement of Financial Position as at 31 December 2019

Required:
a) Select THREE (3) of the ratios listed above and briefly outline what information each ratio provides to users of financial information, commenting specifically on the financial results of Mawoekpor Ltd.
(9 marks)

b) Calculate TWO (2) additional ratios for both 2018 and 2019 that would provide further evidence of the liquidity of the company.
(5 marks)

c) Explain THREE (3) importance of preparing a statement of cash flows.
(6 marks)

Answer

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Tags: Financial Ratios, Gross Profit Margin, Inventory Turnover, Liquidity Ratios, Payables Days, Receivables Days, Return on Capital Employed (ROCE), Statement of Cash Flows
Level: Level 1

Topic: IAS 7: Statement of cash flows, Interpretation of financial statements (Financial Ratios)
Series: NOV 2020

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)

Answer

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Tags: Financial Statements, Interpretation of Financial Statements, Ratio Analysis
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: MAY 2020

FA – May 2019 – L1 – Q7 – Interpretation of financial statements (Financial Ratios)

Analyze the financial performance of Ayawaso Ltd from 2016 to 2018 using various financial ratios, and discuss the advantages of ratio analysis.

Question

Ayawaso Ltd operates a hotel in Accra, and the following are its results for the last three years with its year-end being 31 December:

Year	2016	2017	2018
Revenue increase / (decrease)	(5%)	4%	12%
Non-Current Assets increase / (decrease)	40%	10%	2%
Gross Profit	60%	61%	66%
Net Profit	23%	25%	21%
Return on Capital Employed	12%	15%	10%
Current Ratio	1.4:1	1.6:1	1.8:1
Acid Ratio	0.6:1	1.0:1	0.9:1
Debt to Equity Ratio	50%	44%	43%
Dividend Cover	4 times	8 times	10 times

Required:
a) Using all of the above information, comment on the Gearing, Liquidity, and Profitability of Ayawaso Ltd from 2016 to 2018. (12 marks)

b) Identify and explain FIVE (5) advantages of ratio analysis as a means of assessing the financial performance of a business. (5 marks)

c) State THREE (3) likely reasons for the significant change in non-current assets in 2016 and 2017. (3 marks)

Answer

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Tags: Dividend Cover, Financial Analysis, Non-current Assets, Ratio Analysis
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: MAY 2019

FA – Nov 2018 – L1 – Q6 – Interpretation of financial statements (Financial Ratios)

Evaluate two companies using financial ratios to advise on the better investment option.

Question

Oware Ltd is considering possible investment in only one of the following companies: Achiaa Ltd or Apire Ltd. Extracts from the financial statements of both companies are below:

Required:
a) Calculate the following ratios for both Achiaa Ltd and Apire Ltd:
i) The Net Profit %
ii) The Debt to Equity Ratio
iii) Trade Receivable Days
iv) Interest Cover
(12 marks)

b) Prepare a memorandum on the overall assessment, making recommendations on which company Oware Ltd should invest in.
(8 marks)

Answer

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Tags: Financial Ratios, Gearing Ratios, Liquidity Ratios, Profitability Ratios
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: NOV 2018

FA – May 2018 – L1 – Q6 – Interpretation of financial statements (Financial Ratios)

Compute profitability and efficiency ratios for three shops and provide commentary on the results.

Question

The owners of three electrical shops that sell very similar goods, but which operate in different towns, have agreed to discuss their business practices. They hope to identify ways in which each might improve performance. As a first step, the three businesses have sent their latest annual reports to an accountant. The accountant has made sure that their financial statements are comparable in terms of accounting policies and assumptions and has summarized the main figures. The accountant has prepared the following summary:

Statement of Profit or Loss for the year ended 30 June 2017

Required:
a) Compute TWO ratios each of profitability and efficiency of the shops, highlighting areas in which one or more appear(s) to be most successful. (10 marks)

b) You should make comments on what each ratio tells the user. (10 marks)

Answer

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Tags: Comparative Analysis, Efficiency Ratios, Financial Ratios, Profitability Ratios
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: MAY 2018

FA – Nov 2017 – L1 – Q4 – Interpretation of financial statements (Financial Ratios)

Calculate and interpret financial ratios for Kantamanto Ltd and explain why the cash flow of the company deteriorated during the financial year.

Question

You are the Financial Accountant for Kantamanto Ltd, a company that manufactures household furniture. Kantamanto Ltd has experienced both a reduction in sales revenue and cash flow during the last financial period. You are provided with the following information regarding Kantamanto Ltd for the years ended 31 October 2016 and 2017:
Statement of Profit or Loss for years ended

Required:

a) Calculate the following ratios for the year ended 31 October 2017:

i) Gross Profit Margin
ii) Operating Profit Margin
iii) Return on Capital Employed
iv) Current Ratio
v) Quick Ratio
vi) Inventory Turnover Ratio
vii) Trade Receivables Collection Period
viii) Trade Payables Payment Period
ix) Interest Coverage Ratio
x) Debt to Equity Ratio

(10 marks)

b) Comment on the performance, liquidity, and efficiency of Kantamanto Ltd using the ratios calculated in (a). (6 marks)

c) Explain TWO reasons why Kantamanto Ltd’s cash flow may have deteriorated during the financial year ended 31 October 2017. (4 marks)

Answer

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Tags: Cash Flow, Efficiency, Financial Ratios, Liquidity, Profitability
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: NOV 2017

FA – May 2017 – L1 – Q6 – Interpretation of financial statements (Financial Ratios)

Calculate and interpret various financial ratios for Father Ltd and Son Ltd, focusing on liquidity, profitability, and efficiency.

Question

The following is a summary of the Financial Statements of two companies in the retailing business.

Required:

a) Compute the following ratios for both companies:

i) Current Ratio (2 marks)
ii) Acid Test Ratio (2 marks)
iii) Gross Profit Margin (2 marks)
iv) Return on Capital Employed (2 marks)
v) Trade Payable Period (2 marks)
vi) Receivable Collection Period (2 marks)

b) Using the ratios calculated in (a) above, interpret the results under the following categories:

i) Profitability (3 marks)
ii) Liquidity (3 marks)
iii) Efficiency (3 marks)

Answer

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Tags: Efficiency Ratios, Financial Statements, Liquidity Ratios, Profitability Ratios, Ratio Analysis
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: MAY 2017

FA – Nov 2016 – L1 – Q7 – Interpretation of financial statements (Financial Ratios)

Calculation of financial ratios and explanation of gearing implications for shareholders.

Question

a) State any FIVE users of accounting information and their information needs. (5 marks)

b) The following is a summary of the final accounts of Gade Ltd for the year ended 31st December 2015.

Statement of Profit or Loss for the year ended 31st December 2015

Required:
Calculate each of the following ratios (where appropriate calculations should be shown to two decimal places):
i) Sales to capital employed. (2 marks)
ii) Liquid (acid test) ratio. (1 mark)
iii) Interest cover. (2 marks)
iv) Dividend cover. (2 marks)
v) Gearing ratio. (2 marks)
vi) Earnings per share. (2 marks)
vii) Explain the implications of the level of gearing for the ordinary shareholders of Gade Ltd. (4 marks)

Answer

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Tags: Financial Analysis, Financial Ratios, Gearing, Ratio Calculations, Shareholders
Level: Level 1

Topic: Interpretation of financial statements (Financial Ratios)
Series: NOV 2016

FA – May 2016 – L1 – Q5 – Interpretation of financial statements (Financial Ratios)

Calculate financial ratios for BB’s business and analyze its performance compared to a competitor.

Question

BB 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 2014 from his accountant. These are reproduced below.

Income Statement for the year ended 31st December 2014

Description	GH¢
Sales	400,000
Cost of sales	(300,000)
Gross Profit	100,000
Expenses	(70,000)
Net Profit	30,000

Statement of Financial Position as at 31st December 2014

Note: Inventory on 1st January 2014 was valued at GH¢48,000.
BB has also obtained comparative information about a competitor for the year ended 31st December 2014.

Description	Competitor
Net profit margin	6%
Return on capital employed	10.50%
Current ratio	4.2:1
Liquid (acid test) ratio	0.3:1
Rate of inventory turnover	4 times

Required:
a) Calculate for BB each of the following ratios for the year ended 31st December 2014 (where appropriate, calculations should be approximated to two decimal places):
i) Net profit margin. (2 marks)
ii) Return on capital employed (using the closing year end value for capital employed). (2 marks)
iii) Current ratio. (2 marks)
iv) Liquid (acid test) ratio. (2 marks)
v) Rate of inventory turnover. (2 marks)

b) Based on the ratios calculated in part (a) and all other information provided, demonstrate the performance (profitability and liquidity) of BB’s business. (10 marks)

Answer

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Tags: Financial Ratios, Liquidity, Performance Comparison, Profitability
Level: Level 1