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    Practice Questions - Ratio Analysis

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    saltee
    The financial statements show that Renada Limited's fixed assets increased from £1,000,000 in 2002 to £1,800,000 in 2003, while current assets and liabilities fluctuated between the two years presented. Gross profit declined from £2,100,000 in 2002 to £1,800,000 in 2003 despite an increase in sales revenue over the same period. While pre-tax profit fell from £600,000 to £200,000 between 2002 and 2003, the decline may have been influenced by changes in stock levels, credit periods, and operating expenses.

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    Practice Questions - Ratio Analysis

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    saltee
    7K views2 pages
    The financial statements show that Renada Limited's fixed assets increased from £1,000,000 in 2002 to £1,800,000 in 2003, while current assets and liabilities fluctuated between the two years presented. Gross profit declined from £2,100,000 in 2002 to £1,800,000 in 2003 despite an increase in sales revenue over the same period. While pre-tax profit fell from £600,000 to £200,000 between 2002 and 2003, the decline may have been influenced by changes in stock levels, credit periods, and operating expenses.

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    The financial statements show that Renada Limited's fixed assets increased from £1,000,000 in 2002 to £1,800,000 in 2003, while current assets and liabilities fluctuated between the two years presented. Gross profit declined from £2,100,000 in 2002 to £1,800,000 in 2003 despite an increase in sales revenue over the same period. While pre-tax profit fell from £600,000 to £200,000 between 2002 and 2003, the decline may have been influenced by changes in stock levels, credit periods, and operating expenses.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    7K views2 pages

    Practice Questions - Ratio Analysis

    Uploaded by

    saltee
    The financial statements show that Renada Limited's fixed assets increased from £1,000,000 in 2002 to £1,800,000 in 2003, while current assets and liabilities fluctuated between the two years presented. Gross profit declined from £2,100,000 in 2002 to £1,800,000 in 2003 despite an increase in sales revenue over the same period. While pre-tax profit fell from £600,000 to £200,000 between 2002 and 2003, the decline may have been influenced by changes in stock levels, credit periods, and operating expenses.

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    Practice Question: Interpreting Financial Statements

    The summarised financial statements of Renada Limited at 31 October 2002 and 31 October 2003
    are given below:
    Balance sheets for year ended 31st October

    2002 2003
    £ £ £ £
    Fixed assets (net book value) 1,000,000 1,800,000
    Current assets
    Stock 600,000 1,600,000
    Debtors 1,270,000 1,800,000
    Cash 140,000 2,010,000 – 3,400,000
    ––––––––– –––––––––
    Creditors: amounts falling due within one year
    Bank overdraft – 260,000
    Taxation 120,000 40,000
    Trade creditors 1,050,000 (1,170,000) 2,100,000 (2,400,000)
    ––––––––– ––––––––– ––––––––– ––––––––––
    1,840,000 2,800,000
    ––––––––– –––––––––
    Capital and reserves
    Ordinary share capital 500,000 600,000
    Share premium account 420,000 820,000
    Revaluation reserve – 300,000
    Profit and loss account 920,000 1,340,000 1,080,000 2,200,000
    ––––––––– ––––––––– ––––––––– –––––––––
    1,840,000 2,800,000
    ––––––––– –––––––––
    Income Statements
    2002 2003
    £ £
    Sales Revenue (all on credit) 8,400,000 9,000,000
    Cost of sales (6,300,000) (7,200,000)
    –––––––––– ––––––––––
    Gross profit
    2,100,000 1,800,000

    Operating expenses (1,500,000) (1,600,000)


    ––––––––– –––––––––
    Profit before taxation
    600,000 200,000
    Taxation (120,000) (40,000)
    ––––––––– –––––––––
    Profit for the financial year
    480,000 160,000
    ––––––––– ––––––––
    Required:

    (a) Calculate in DAYS for the two years shown, the following (use closing figures for all three
    calculations):

    (i) Stock holding period;

    (ii) Average period of credit granted to customers;

    (iii) Average period of credit allowed by suppliers. (3 marks)

    (b) (i) Comment briefly on the changes in the position of the company revealed by the changes in
    these ratios between the two years. (3 marks)

    (ii) Briefly explain how two factors shown in the financial statements and/or the notes may have
    contributed to the decline in the company's pre-tax return on capital employed, which is
    down from 32-6 per cent in 2002 to 7-1 per cent in 2003. (4 marks)

    (Total: 10 marks)

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