22107 : Accounting for Business Decisions A
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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 shopâs performance
IKEA Furniture Outlay Profit & Loss Statement
For the year ended30th 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 30th 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 |
Ownerâs Equity | ||
Ordinary shares of $2 each | 95 000 | 100 100 |
Retained profit | 33 000 | 45 380 |
Total OwnerâsEquity | 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 â Dividend paid
Formula:
Current ratio = Current assets/Currentliabilities
Liquid ratio = Current assets âInventory (Closing Stocks)/Current liabilities â 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 â 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 |