Ratio Analysis and the Purpose of Accounts

Unlock business insights with ratio analysis practice!

Company ACompany BCompany C$$$Sales100,000Sales100,000Sales100,000Cost of Sales80,000Cost of Sales20,000Cost of Sales75,000Gross Profit20,000Gross Profit80,000Gross Profit25,000Less Expenses:15,000Less Expenses:65,000Less Expenses:5,000Operating Profit Profit Profit note that when entering your answer you will need to write it in the following format: XX%) The gross profit margin for company A is 20% The operating profit margin for company A is 5% The gross profit margin for company B is 80%The operating profit margin for company B is 15%The gross profit margin for company C is 25%The operating profit margin for company C is 20% Match both parts of the formula Drag the line from one part of the formula to the other. Net profit margin = Net profit / Turnover X 100 Gross profit margin = Gross profit / Turnover X 100 Current ratio = Current assets / Current liabilities Acid-test ratio = Current assets (minus stock) / Current liabilities Return on capital employed = Net profit profit / Capital employed X 100 Sort the following ratios into the correct group based on where you would get the information needed to calculate the ratio. Ratios and financial statements Income Statement Gross profit margin Operating profit margin Statement of financial position Current ratio Acid-test ratio Liquidity ratios Using the available figures work out both the current ratio and acid-test ratio for each of the business: Business Name Statement of Financial Position Figures Current Ratio (expressed as X.X:1) Acid-test Ratio (expressed as X.X:1) Taunton Farm Shop Cash $2,000, Inventories $3,000, Trade Receivables $4,000, Trade Payables $5,000 1.8:1 1.2:1 Wellington Butchers Cash $15,000, Inventories $10,000, Trade Receivables $14,000, Trade Payables $17,000, Overdraft $10,000 1.4:1 1.1:1 Sports Clothing Ltd Cash $202,000, Inventories $333,000, Trade Receivables $104,000, Trade Payables $330,000, Overdraft $150,000 1.3:1 0.6:1 Global Insurance PLC Cash $152,000, Inventories $83,000, Trade Receivables $34,000, Trade Payables $130,000, Overdraft $43,000 1.6:1 1.1:1 B.Liar Report Writing Services Cash $12,000, Inventories $13,000, Trade Receivables $4,000, Trade Payables $20,000 1.5:1 0.8:1 Return On Capital Employed (ROCE) Using your knowledge of ROCE match up each set of figures with its correct ROCE figure: Net profit: $130,000 Capital employed: $1,500,000 8.6% Net profit: £1,400,000 Capital employed: $11,800,000 11.9% Net profit: $11,530,000 Capital employed: $98,250,000 11.7% Net profit: £25,700,000 Capital employed: $141,125,000 18.2% Net profit: £76,000 Capital employed: $125,000 60.8% Gearing Using your knowledge of gearing match up each set of figures with its correct gearing ratio: Loan capital: $356,000 Total capital: $780,000 45.6% Loan capital: $1,500,000 Total capital: $8,340,000 18% Loan capital: $4,980,000 Total capital: $6,799,000 73.3% Loan capital: $750,000 Total capital: $3,220,000 23.3% Loan capital: $325,000 Total capital: $9,999,000 3.3%