Question

Calculate the following ratios for 2013 and show the steps involved:

a) Inventory turnover ratio

b) average days in inventory

c) receivables turnover ratio

d) average collection period

e) asset turnover ratio

f) profit margin on sales

g) return on assets

h) return on shareholders equity

i) equity multiplier

j) return on shareholders equity using the Du Port framework

Note: See attached balance sheet and income statement below as reference

Statement of financial position at 31 December 2013 Consolidated Notes Parent Company 2013 RO 2012 2012 RO 2013 RO RO 8 6 45,798,586 91,547,004 3,987,731 45,798,586 95,233,015 3,750,000 7 8 64,173,347 2,037,430 74,020,543 125,000 140,356,320 66,554,403 2,037,430 74,020,543 125.000 142,737,376 9 125,000 141,458,321 125.000 144,906,601 10 11,338,112 12 13 10,847,780 4,980,041 3,997,430 2,680,308 22,500,000 2.749,561 47,755,120 188,111,440 4,844,527 3.429.280 2,585,307 15,000,000 1.959,891 39,157,117 181,894,493 16,491,395 8,991,151 3,997,430 3,399,135 22,500,000 8,268,778 63,647,889 205,106,210 15,373,384 8.998,813 3.429.280 3,423,822 15,000,000 4,160,981 50,386,280 195.292,881 14 ASSETS Non-current assets Goodwill Property, plant and equipment Investment in associates Investment in subsidiaries Investments available for sale Total non-current assets Current assets Inventories Trade receivables Investments held for trading Prepayments and other receivables Bank deposits Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Share premium Legal reserve Asset replacement reserve Voluntary reserve Retained earnings Total equity Non-current liabilities Term loans - noncurrent portion Deferred tax liability Total non-current liabilities Current liabilities Term loans - current portion Short term borrowings Trade and other payables Total current liabilities Total equity and liabilities Net assets per share 15 17 18 20,000,000 13,456,873 6,666,667 3,647,566 6,352.434 65,148,892 115.272.432 20,000,000 13,456,873 6,666,667 3,647,566 19 20,000,000 13.456.873 6,666,667 3.647,566 6.352.434 57.795,984 107,919,524 20,000,000 13.456,873 6,666,667 3,647,566 6,352,434 66.987,600 117,111,140 20 21 6,352,434 79,513,513 129,637,053 22 23 54,000,000 3.288,000 57,288,000 58,000,000 3.190,546 61,190,546 54,000,000 3,288,000 57,288,000 58,000,000 3.190,546 61,190,546 22 4,000,000 4,000,000 4,000,000 22 4,000,000 223,426 12.767,769 16,991,195 24 11,551,008 15,551,008 188,111,440 8.784.423 12,784,423 181.894.493 14,181,157 18,181,157 205,106,210 195,292.881 25 0.576 0.539 0.648 0.585

Answer 1

a. Inventory Turnover Ratio         = Cost of Goods Sold / Average Inventory

Parent Company                              = 41,299,968 / (11,338,112 + 10,847,780) /2

                                                                = 41,299,968 / 11,092,946

                                                                = 3.72 Times

Consolidated                                     = 61,728,620 / (15,373,384 + 16,491,395) /2

                                                                = 61,728,620 / 15,932,390

                                                                = 3.87 Times

b. Average days in inventory            = (Cost of Average Inventory /Cost of Goods Sold) x 365

        Parent Company                              = (11,092,946 /41,299,968) x 365

                                                                        = 98.03 Days

        Consolidated                                     = (15,932,390 /61,728,620) x 365

                                                                        = 94.20 Days

c. Receivable Turnover Ration         = Net Annual Credit Sales / ((Beginning Accounts Receivable + Ending Accounts Receivable) / 2)

Parent Company                              = 67,342,941 / [ (4,844,527 + 4,980,041) /2]

                                                                = 67,342,941 /4,912,284

                                                                = 13.71 Times

Consolidated                                     = 93,290,315 / [(8,998,813 + 8,991,151) / 2]

                                                                = 93,290,315 / 8,994,982

                                                                = 10.37 Times

d. Average collection period             = (Average Accounts Receivable / Credit Sales) x 365

Parent Company                              = (4,912,284 / 67,342,941) x 365

                                                                = 26.62 Days

Consolidated                                     = (8,994,982 / 93,290,315) x 365

                                                                = 35.19 Days

e. Asset turnover ratio                        = Net Sales / Average Total Assets

Parent Company                              = 67,342,941 / [(181,894,493 +188,111,440)/2]

                                                                = 67,342,941/ 185,002,967

                                                                = 0.36

Consolidated                                     = 93,290,315 / [(195,292,881 + 205,106,210)/2]

                                                                = 93,290,315 / 200,199,546

                                                                = 0.47

f. Profit margin on sales                    = (Net Income or margin / Net Sales) x 100

Parent Company                              = (22,352,908 / 67,342,941) x100

                                                                = 33.19%

Consolidated                                     = (27,525,913 / 93,290,315) x 100

                                                                = 29.50%

g. Return on assets                              = Net Income / Average Total Assets

Parent Company                              = 22,352,908 / [(181,894,493 +188,111,440)/2]

                                                                = 22,352,908 /185,002,967

                                                                = 0.12

Consolidated                                     = 27,525,913 / [(195,292,881 + 205,106,210)/2]

                                                                = 27,525,913 / 200,199,546

                                                                = 0.14

h. Return on shareholder’s equity = (Net Income / Shareholder’s Equity) x 100

Parent Company                              = (22,352,908/115,272,432) x 100

                                                                = 19.39%

Consolidated                                     = (27,525,913 / 129,637,053) x 100

                                                                = 21.23%

i. Equity multiplier                               = Total Assets / Stockholder’s Equity

Parent Company                              = 188,111,440 / 115,272,432

                                                                = 1.63

Consolidated                                     = 205,106,210 / 129,637,053

                                                                = 1.58

j. Return on shareholder’s equity using the Du Port framework

ROE = Net Profit Margin X Asset Turnover X Equity Multiplier

( above ratios already calculated earlier, by taking that reference)

Parent Company = 33.19% X 0.36 X 1.63 = 21%

Consolidated     = 29.50% X 0.47 X 1.58 = 22%