Question

Exercise Calculate liquidity, Profitability, Debt ratios from the below details and comment on the financial performance, compared to the previous year. 400,000 Statement of Income of XYZ LLC for the year ended 31st December 2015 & 2014 Particulars Amount(RO) Amount (RO) 2015 2014 Sales 270,000 Less: Cost of goods sold 135,000 200,000 Salaries 48,600 66,250 Depreciation 22,950 37,500 Interest 5,400 211,950 6,250 Income before taxes 58,050 Less: Income taxes 27,000 Net Income 31,050 310,000 90,000 29,700 60,300 Balance sheet of XYZ LLC as on 31 December 2015 & 2014 Assets Amount(RO) 2015 Non-current assets 878,472 Accumulated depreciation 152,712 Net non-current assets 725,760 Cash 24,192 Accounts receivable 68,040 Inventory 151,200 Total assets 969,192 Liabilities and Equity: Current liabilities: Accounts payable 111,888 Salaries payable 37,800 Total current liabilities 149,688 Long term debt 189,000 Shareholder's equity 630,504 Total liabilities & shareholder's equity Amount(RO) 2014 966,319 167,983 798,336 26,611 74,844 166,320 1,066,111 123,077 41,580 164,657 207,900 693,554

Answer 1

Answer:

Ratio Calculation Current asset = Cash+inventories+account receivable Current liabilities = Account payable Current ratio = current assets / current liabilities 2014 267775 164657 1.63 2015 243432 149688 1.63 Liquidity ratio Quick asset Current liabilities Acid Test ratio = Quick assets/ current liabilities 101455 164657 0.62 92232 149688 0.62

Comment: The company's current ratio is little lower than the standard ratio of 2. Also he quick ratio is less than the standard. This suggests that the stock levels are strictly controlled. It would seem that working capital is tightly managed, to avoid poor liquidity. The company's liquidity ratio has remain unchanged.

Ratio Calculation Gross Profit = Sales - cost of goods sold 2014 200000 400000 50 2015 135000 270000 50 Sales Gross profit margin ratio = Gross profit margin/ Sales Net Profit Sales Net profit margin ratio = Net profit margin/ Sales 60300 400000 15.08 31050 270000 11.50 Profitability ratio Net Income Total assets Return on assets = Net profit/total assets *100 60300 1066111 5.66 31050 969192 3.20 Net Income Equity Return on equity = Net profit / Equity* 100 60300 693554 8.69 31050 630504 4.92

Comment: The gross profit margin ratio has remain unchanged in both the year but net profit margin ratio, return on assets and return on equity has decreased in 2015 as compared to 2014 which has happened mostly due to decrease in sales.

Ratio Calculation Total debt = Current liabilities + long-term debt Total assets Debt ratio = Total debt / Total assets 2014 372557 1066111 0.35 2015 338688 969192 0.35 Debt ratio

Comment: The debt ratio has remain unchanged in both the year