Homework Answers
Answer:
a.Current Ratio = Current Assets / Current Liabilities
2016 = ( 300 + 240 + 3 ) / ( 221 + 40 + 30 ) = 543 / 291 = 1.87
2017 = ( 406 + 273 ) / ( 314 + 40 + 5 + 74 ) = 679 / 433 = 1.57
The current assets are enough to take care of current liabilities but the ratio has fallen from 2016 to 2017
b.Acid Test Ratio = Quick Assets / Current Liabilities
2016 = ( 240 + 3 ) / 291 = 243 / 291 = 0.835
2017 = 273 / 433 = 0.63
short term liquidity is below average
c.Accounts Receivable Collection period = 365 / (Sales / average receivables)
2016 = 365 / ( 2240 / 240 ) = 365 / 9.33 = 39.12 Days
2017 = 365 / ( 2681 / 273 ) = 365 / 9.82 = 37.17 Days
Debtors collection period has reduced thereby increasing liquidity
d.Accounts Payable Payment period = 365 / ( Cost of sales / Avg. Trade Payable)
2016 = 365 / ( 1745 / 221 ) = 365 / 7.895 = 46.23 Days
2017 = 365 / ( 2272 / 314 ) = 365 / 7.24 = 50.41 Days
Payables payments period increased thereby increasing liquidity
e.Debt Ratio = Total Liabilities / Total Assets
2016 = 491 / 1053 = 0.47
2017 = 733 / 1266 = 0.58
the debt ratio has increased thereby making the capital structure risky
f.Times Interest Earned = EBIT / Finance cost
2016 = 243 / 18 = 13.5
2017 = 47 / 32 = 1.47
g.Gross Profit Margin = Gross Profit / Sales
2016 = 495 / 2240 = 22.10%
2017 = 409 / 2681 = 15.26%
Gross Profit has reduced from 2016 to 2017
h.Net Profit Margin = Net Income / Sales
2016 = 164 / 2240 = 7.32%
2017 = 11 / 2681 = 0.41%
Net Income has reduced considerably due to increase interest payments
i.Return On Equity = Net Income / Avg. Shareholders Equity
2016 = 164 / 562 = 29.18%
2017 = 11 / 533 = 2.06%
Return on Equity has fallen considerably
j.Return on Assets = Net Income / Avg. Total Assets
2016 = 164 / 1053 = 15.57%
2017 = 11 / 1266 = 0.87%
Return on Assets has fallen considerably
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