Creditors
100 150
Debtors
120 120
Stock
60 80
Bank
20 20
Sales
500 850
Purchases
300 750
Profit for the year
100 160
Retained profit c/f
480 190
Share Capital
200 200
Gross Profit for the year
150 90
All sales and purchases are made on credit terms.
Required:
You are required to calculate six ratios for each company designed to analyse profitability, efficiency and liquidity and to explain the differences in performance between the two companies.
answers to testing your understanding - 10
Company 1 Company 2
Profitability
GP ratio
30% 10.6%
ROCE
14.7% 41%
Liquidity
Current Assets
2 to 1 1.46 to 1
Acid Test 1.4 to 1 0.9 to 1
Efficiency
Debtor payment period
87 days 51 days
Creditors payment period 121 days 73 days
Workings
GP ratio = GP divided by sales x 100%.
= 150 x 100% 90 x 100%
500
850
= 30% = 10.6%
ROCE = Profit x 100%
Capital
= 100_____ = 160_____
480 + 200
200 + 190
= 14.7% = 41%
Current Assets Ratio = CA
CL
= 120 + 60 + 20 120
+ 80 + 20
100
150
= 2 to 1 1.46 to 1
Acid Test [CA - Stock divided by CL]
120 + 20
120 + 20
100
150
= 1.4 to 1 = 0.9 to 1
Trade Debtor Period
Debtors x 365 days
Sales
120 x 365 days 120
x 365 days
500
850
= 87.6 days = 51 days
Creditor payment period = Creditors x 365 days
Purchases
= 100 x 365
= 150 x 365
300
750
= 121 days
= 73 days
back to the question
try another one?