Question No.

1
As a finance manager of ABC Ltd. You are provided with the following financial data and required to compute and
interpret:
Industry Averages:
a. Return on equity. 12%
b. Quick ratio. 2.5:1
c. Long-term debt to equity. 0.75:1
d. Return on capital employed 20%
e. Interest Coverage 4 Times
Assets:
Cash .................................................................................................... $ 2,500
Accounts receivable ........................................................................... 3,000
Inventory ............................................................................................ 6,500
Fixed assets ........................................................................................ 8,000
Total assets........................................................................................ $20,000

Liabilities and stockholders’ equity:

Current Liabilities ............................................................................... $ 3,000
Long-term debt .................................................................................. 2,000
Stockholders’ equity........................................................................... 15,000
Total liabilities and stockholders’ equity ............................................. $20,000

Income before interest and taxes ....................................................... $ 4,400

Interest payments..................................................................................... 1,200
Taxes (35 percent tax rate) ....................................................................... 1,120
Net income (after-taxes) .................................................................... $ 2,080

Question No. 2
Great worth Ltd had the following ratios at 31 December 2013 and 31 December 2012:

2013 2012
25% 28%
Gross profit margin
Trade payable days 40 days 44 days
Trade receivable days
30 days 35 days
REQUIRED:

a) Give possible reasons why the gross profit margin made by Great worth Ltd has decreased from
2012 to 2013.
b) What explanations could there be for Great worth Ltd to be paying its trade payable 4
days more quickly in 2013 than in 2012.
c) Explain what may have occurred to have led to the change in trade receivable days
between 2012 and 2013.
Question No. 3
The following financial statements apply to Quincy Appliances, Inc.
QUINCY APPLIANCES, INC.
Balance Sheet
As of December 31
2013 2012
Assets
Current assets
Cash $118,000 $ 91,000
Marketable securities 24,000 18,000
Accounts receivable (net) 112,000 108,000
Inventories 180,000 192,000
Prepaid expenses 27,000 14,000
Total current assets 461,000 423,000
Non-current assets
Investments 120,000 120,000
Plant (net) 260,000 254,000
Other 81,000 74,000
Total assets $922,000 $871,000
2013 2012
Liabilities and Stockholders’ Equity
Liabilities
Current liabilities
Notes payable $ 20,000 $ 15,000
Accounts payable 80,000 38,000
Other 66,000 9,000
Total current liabilities 166,000 62,000
Non-current liabilities
Bonds payable 110,000 210,000
Other 26,000 12,000
Total noncurrent liabilities 136,000 222,000
Total liabilities 302,000 284,000
Stockholders’ equity
Preferred stock ($100 par, 4% cumulative) 136,000 136,000
Common stock ($10 par; 50,000 shares authorized;
24,000 shares issued) 240,000 240,000
Retained earnings 244,000 211,000
Total stockholders’ equity 620,000 587,000
Total liabilities and stockholders’ equity $922,000 $871,000
QUINCY APPLIANCES, INC.
Statements of Income and Retained Earnings
For the Years Ended December 31
2013 2012
Revenues
Sales (net) $240,000 $230,000
Other revenues 7,000 4,000
Total revenues 247,000 234,000
Expenses
Cost of goods sold 143,000 130,000
Selling, general, and administrative 46,000 57,000
Bond interest expense 7,000 10,000
 Income tax expense 8,000 14,000
Total expenses 204,000 211,000
Net income 43,000 23,000
Retained earnings, January 1 211,000 198,000
Less: Preferred stock dividends 4,000 4,000
Common stock dividends 6,000 6,000
Retained earnings, December 31 $244,000 $211,000
Required:
Calculate the following ratios for 2012 and 2013 and based on the ratios listed below you are required to
interpret the financial performance of the company from 2012 to 2013, whether it has improved or declined.
a. Debt to assets ratio
b. Debt to equity ratio
c. Times interest was earned (Interest Coverage)
d. Net profit margin
e. Turnover of assets (Asset turnover ratio)
f. Return on investment
g. Return on equity
h. Earnings per share
i. Price-earnings ratio (market price: $13.26)
Question No. 4
Summarized below are the financial statements for two similar retail stores, Buggy Ltd and Bertie
Ltd. Both sell children’s scooters in the Birmingham region:
Income statement Buggy Ltd
Bertie Ltd
For the period 30 June 2013
£ £ £ £
Sales 80,000 120,000
Cost of sales 60,000 96,000
Gross profit 20,000 24,000
Depreciation 1,000 3,000
Other expenses 9,000 6,000
10,000 9,000

OPERATING PROFIT 10,000 15,000

Statement of financial Position

as on June 30,2013
Buggy Ltd Bertie Ltd

£ £ £ £

NON-CURRENT ASSETS
 at net book value 2,000
CURRENT ASSETS 14,000
Inventories 20000
Trade receivables 25,000 17,500
20,000
Bank balance 5,000 2,500
45,000 40,000

TOTAL ASSETS 47,000 54,000

EQUITY ANDLIABILITIES
Equity
Ordinary £1 shares 25,000 20,000

Share premium 5,000 8,000

Retained profits 12,000 16,000
Current liabilities
5,000 10,000
Trade payables
47,000 54,000

REQUIRED:
(a) Calculate the following ratios for both of the companies:
i. Return on capital employed
ii. Gross profit margin
iii. Operating profit margin
iv. Acid test ratio
v. Inventory days
vi. Trade receivable days
vii. Trade payable days.
viii. Earnings per Share
ix. Return on Investment
x. Return on Equity

(b) Briefly interpret the ratios you have computed for the two companies, under
the headings of profitability, liquidity and working capital management.

Note: You can do common size and Index analysis on question No. 1, 3 and 4.