Question

Ratio Analysis

The comparative statements offinancial position of IKEA Furniture Outlay Retail Shop in Sydneyfor the current year and previous year are given below. Calculatethe ratios necessary to evaluate the shop’s performance

IKEA Furniture Outlay Profit & Loss Statement

For the year ended30^th June 2012 & 2013

	2012	2013
Sales( all credit)	220 000	250 000
Less Cost of Sales:	76 500	124 000
Opening Inventory	65 000	85 000
Purchases	99 500	144 000
Goods available for sale	164 500	229 000
Closing Inventory	(88 000) 76 500	(105 000) 124 000
Gross Profit	143 500	126 000
Operating Expenses	39 700	71 060
Net Profit	103 800	54 940

IKEA Furniture OutlayBalance Sheet as at 30^th June2012/2013

	2012	2013
Assets:
Current Assets:
Cash	75 700	87 000
Accounts Receivable	69 000	68 500
Inventory	88 000	105 000
Total CurrentAssets	232 700	260 500
Non-CurrentAssets:
Plant and Equipment	295 000	208 500
Total Assets:	527 700	469 000
Liabilities

CurrentLiabilities
Accounts Payable	51 500	59 950
Bank overdraft	15 200	20 500
Total CurrentLiabilities	66 700	80 450
NoncurrentLiabilities:
6.5% Bank Loan	333 000	243 070
Total non-currentliabilities:	333 000	243 070
Totalliabilities	399 700	323 520
Owner’s Equity
Ordinary shares of $2 each	95 000	100 100
Retained profit	33 000	45 380
Total Owner’sEquity	128 000	145 480

Required:

Prepare Ratio Analysis based on the formula distributed toyou

Make comments about how to improve the business performance.

Note:

All sales are on credit. Accounts receivable balance on1/07/2011 was $66 800 and Business works 5 days a week.

Retained Profit = Net Profit – Dividend paid

Formula:

Current ratio = Current assets/Currentliabilities

Liquid ratio = Current assets —Inventory (Closing Stocks)/Current liabilities — Bank overdraft

Gross profit ratio = Grossprofit/Sales

Net profit ratio = Net profit aftertax/Sales

Accounts receivable rate = Creditsales/Average accounts receivable Collection days = 365 days /Accounts receivable rate

Return on equity = Net profit aftertax/Owners equity Debt to Equity = Total debt/Equity

Total asset turnover = Totalsales/Total assets

Return on investment (ROI) = Netprofit after tax/Total assets Inventory turnover = Cost of Goodssold/Average Inventories Times Interest cover = Net Profit beforeInterest & tax / Interest

Earnings per share = (Net profitbefore tax – Preference Dividend) / Number of Ordinary shares

Ratio(Formula)	2012	2013	Interpretation

Ratio(Formula)	2012	2013	Interpretation

Ratio(Formula)	2012	2013	Interpretation

Ratio(Formula)	2012	2013	Interpretation