Blog: FIN621 solution - VUsolutions

1. Acid Test Ratio/Quick ratio = Current Assets – ( Inventory + Prepayments) / Current
Liabilities
= 36,279,168 – (1,667,425 + 267,422)/ 33,455,815
Acid test Ratio = 1.0345

2. Sales to working Capital = Net Sales / Working Capital

Net sales = 76,642,399
Working capital = current assets – current liabilities = 36,279,168 – 33,455,812 = 2,823,356
= 76,642,399 / 2,823,356
Sales to working Capital = 27.145 / 100 = 0.2714 %

PART 2
Solvency Ratio
1. Debt-to-Equity Ratio = Total Liabilities / Shareholder Equity

= 61,387,778 / 10,315,060
Debt-to-Equity Ratio = 5.951


2. Time Interest Earned Ratio = EBIT / interest Expense

= 4,752,301 / 2,370,674
Time Interest Earned Ratio = 2


1. Fixed Charge Coverage Ratio = EBIT + Lease payments / Interest Exp + Lease
Payment
= 4,752,301 + 1,392,776 / 1,392776 + 2,370,674
Fixed Charge Coverage Ratio = 1.63


PART 3

Profitability Ratios

1. Gross Profit Margin = Gross profit / Net Sales * 100


= 7,404,163 / 76,642,399 * 100
Gross Profit Margin= 9.66 %



2. Operating Profit Margin = Operating profit / Net sales * 100


= 2,979,911 / 76,642,399 * 100


Operating Profit Margin = 3.9 %


3. Pretax Margin = Net earnings + Income Tax / Net Sales

Net Earnings = 991,067
Income Tax = 1,390,560
Net Sales = 76,642,399

= 991,067 + 1,390,560 / 76,642,399

Pretax Margin = 0.031 * 100 = 3.1%


4. Net Profit Margin = Net Pr ofit After Tax / Revenue * 100%



= 991,067 / 76,642,399 * 100
Net Profit Margin = 1.29 %






5. Return on Equity (ROE) = NP after Tax / Shareholder Equity * 100


= 991,067 / 10,315,060 * 100
Return on Equity (ROE) = 9.6




6. Return on Assets (ROA) = Net Income / Total Assets * 100


= 991, 067 / 71,702,838 * 100
ROA = 1.382


PART 4

Activity Ratios


1. Inventory Turnover = Cost of Goods Sold / Avg. Inventory

CGS = 69,238,236
Avg. Inventory = Open stock + Closing Stock / 2

= 1,391,068 + 1,667,425 / 2
Avg. Inventory = 1,529,247

= 69,238,236 / 1,529,247

Inventory Turnover = 45.24


2. Accounts Receivable Turnover = Net Sales / Avg. Account receivable



= 76,642,399 / 18,053,051

Accounts Receivable Turnover = 4.245 Times




3. Accounts payable turnover = CGS / Avg. Account payable



= 69,238,236 / 27,809,479
Accounts payable turnover = 2.489 times




4. Average collection period = (Trade Debtors × No. of Working Days) / Net Credit Sales

Accounts Receivable = 20,045,028
No. of Working Days = 360
Net Credit Sales = 76,642,399

= 20,045,028 * 360 / 76,642,399
= 94 days


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