Question

Selected Statement of Financial Position Information 2019 ($'000) 2018 ($'000) Cash and Cash Equivalents Trade Receivables Inventories Total Current Assets Total Assets Total Current Liabilities Total Liabilities Retained Earnings Shareholders Equity 119.2 236.0 886.7 1,276.5 2,548.8 927.1 1,504.7 555.6 1,044,1 72.0 204.7 891.1 1,210.5 2,491.7 917.2 1,544.1 463.2 947.6 Selected Statement of Financial Performance Information 2019 ($'000) Revenue (cash and credit sales) Income Tax Expense Interest Expense (Finance Costs) Cost of Sales Gross Profit Operating Expenses Profit After Tax 7,095.3 109.5 14.3 5,568.2 1,527.1 1,155.91 249.8
Calculate ratios and answer the following question

Answer 1

Amounts are in $ ('000)

Current ratio = Current Assets/ Current Liability

Quick ratio = Quick Asset/ Current liability

Quick asset = Current asset - Inventory

Cash ratio = (Cash + Marketable security)/ Current liability

Debt to equity = Total Debt/ Total Equity

Debt to Assets ratio = Total Debt/ Total assets

Interest coverage ratio = EBIT/ Interest

Return on Assets = PAT/ Average assets

Return on Equity = PAT/ Average Equity

Gross profit margin = Gross Profit/ Sales

Net Profit margin = Net Profit/ Sales

2010 Retorn on asets 249.81 (2,548 842491-22 1991 249.8 (1,044,145 55.6+ 463.249476 Retoon an equity 2 Gross profil morgio Net profit margin E 16.60% = 1,522117,095-3 a 21.52% - 219.8 (7,095:3 a 3.52% Seanned with CamScanner

From the above ratios, we can see that the position of company has increased from 2018 to 2019.

The liquidity position has improved as we can see the liquidity ratios increase from 2018 to 2019

The Debt equity ratio also has decreased, which shows that the total outside debt proportion has decreased. This shows that the risk of insolvency has decreased.

Interest coverage ratio also is very good, it is "26 times". Which shows that the company can pay interest without any delay or problem

Return on equity is also good. The gross profit margin of the company is also high. The only concern being the net profit margin, which we should try to improve by reducing the operating expenses other than cost of goods sold.

The main ratios to see before we invest in the shares are Profitability ratios, Liquidity ratios, Solvency ratio (except interest coverage ratio). All these ratios suggest that the investment in the shares of JB hi-fi Ltd is good, as it gives high return on equity of 21.52% (which is asked in the questionquestion as high return)