Blog: FIN621 Assignment No. 2 Solution

1. Acid Test Ratio/Quick ratio = Current Assets – ( Inventory + Prepayments) / CurrentLiabilities
= 36,279,168 – (1,667,425 + 267,422)/ 33,455,815
Acid test Ratio = 1.0345
2. Sales to working Capital = Net Sales / Working CapitalNet 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 = 5.9512.
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 + LeasePayment
= 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 SalesNet Earnings
= 991,067Income 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 Profit 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) = 9.66.
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. InventoryCGS
= 69,238,236Avg. 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 SalesAccounts 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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