Professional Documents
Culture Documents
Financial Statement
Analysis &
Performance
Exercises
Inventory turnover
ratio
Current ratio
Gross profit margin
Net profit margin
Zaitun
Trading
6 times
Chantra
Trading
8 times
2 times
30%
15%
3 times
40%
10%
Activity:
Chantra has a higher inventory
turnover ratio. Inventory is
sold/replaced more times than Zaitun.
Liquidity:
Chantra is more liquid than Zaitun.
Profitability:
Chantra has a higher gross profit
margin makes more profit per sale.
However, on a net profit basis (after
deducting all expenses), Zaitun has a
higher margin.
Orchid Palace
Income Statement for the year ended 31.12.2012
Sales
Less: Sales returns
2,500,600
(35,000)
2,465,600
Opening inventory
Add: Purchases
550,000
1,100,000
100,000
(80,000)
(380,700)
1,289,300
Gross profit
1,176,300
Orchid Palace
Income Statement for the year ended 31.12.2012
(Contd.)
Salesmen salaries
160,000
Distribution expenses
128,000
20,000
Administrative expenses
97,000
Depreciation of equipment
25,000
50,000
Marketing expenses
85,000
Consultancy expenses
100,000
350,000
1,015,000
Interest expense
(10,000)
Net profit
151,300
Orchid Palace
Balance Sheet as at 31.12.2012
Non-current
assets
Long-term
liabilities
1,700,00
0
(380,000
)
Equipment
Less: Provision for
depreciation
Bank loan
1,480,00
0
850,000
(250,000
)
1,000,000
Current
liabilities
500,000 Accounts payable
569,000
1,980,00
0
Current assets
Owners equity
Inventory
380,700
Accounts
receivable
360,000
219,600
Total assets
Capital
1,371,300
2,940,30
960,300
Liquidity ratios:
Current ratio
= Current assets/Current liabilities
= 960,300/569,000
= 1.69
Quick ratio
= (Current assets Inventory
Prepayments)/Current liabilities
= (960,300 380,700)/569,000
= 1.02
* Note that both CR & QR are > 1.
Generally, this means that the firm is
Activity ratios:
Inventory turnover ratio
= Cost of goods sold/Average inventory
= 1,289,300/(0.5 X [550,000 + 380,700])
= 1,289,300/465,350
= 2.77
Number of days sales in receivables
= Average accounts receivable/Average
daily sales
= 360,000/2,465,600 X 365 days
= 53.29 days
*Take accounts receivable @ 31.12.2012
Gearing ratios:
Debt ratio
= Total liabilities/Total assets X 100
= (1,000,000 + 569,000)/2,940,300 X
100
= 53.36%
Times interest earned ratio
= Net profit/Interest expense
= 151,300/10,000
= 15.13 times
Debt to equity ratio
= Long term debt/Owners equity
= 1,000,000/1,371,300
Profitability ratios:
Gross profit margin
= Gross profit/net sales X 100
= 1,176,300/2,465,600 X 100
= 48%
Net profit margin
= Net profit/net sales X 100
= 151,300/2,465,600 X 100
= 6%
Return on assets ratio
= Net profit after tax/Total assets X 100
= 151,300/2,940,300 X 100
= 5%
* Since there is no tax, take net profit after tax
= net profit.