Exercise 1

Based on the Balance sheet and Profit loss account, calculate the following liquidity ratios for
ABC Ltd and Sage Ltd:
• Current ratio
• Quick ratio
• Receivables payment period
• Inventory turnover period
• Payables’ payment period
• Cash operating cycle.
Comment on the working capital management of the company using relevant ratios.

ABC Ltd
Trading, Profit & loss Account for the 12 months to
30th September 2008
Sales 40000

Cost of Goods sold

Opening stock 0
Purchases 21000
21000
Less closing stock -3000
Cost of Goods Sold 18000
Gross Profit 22000

Expenses

General 14000
Insurance 1800
Telephone 2000
Depreciation 1200
19000
Net Profit 3000

ABC Ltd
Balance Sheet As at 30th September 2008
Fixed Assets
Furniture Cost 8000
Less Dep -1200 6800

Current Assets
Stock 3000
Debtors 5000
Prepayments 200
Cash 400 8600

Current Liabilities

Creditors 5900
Accrual 500 6400

Working Capital 2200

Less Long Term Liabilities 0

Total net Assets 9000

Financed By
Capital 6000
Net profit for the year 3000
Shareholders Funds 9000

Saga Ltd
Trading, Profit & loss Account for the 12 months to
30th September 2008
Sales 3490
Less sales returns -140
3350
Cost of Goods sold
Opening stock 1500
Purchases 1800-130 1670
3170

Less closing stock -2500

Cost of Goods Sold 670
Gross Profit 2680

Expenses 2055

Depreciation 110 2165

Net Profit 515

Saga Ltd
Balance Sheet As at 30th September 2008
Fixed Assets
Equipment 1100
less depreciation 110 990 990
 Current Assets
Stock 2500
Debtors 730
Bank 1840
Cash 655 5725

Current Liabilities

Creditors 1700 1700

Working Capital 4025 4025

Less Long Term Liabilities 0

Total net Assets 5015 5015

Financed By
Capital 4500 4500
Net profit for the year 515 515
Shareholders Funds 5015 5015

Exercise 2

Q1: A company has £2,500,000 of ordinary 50 pence shares in issue. Its results for the year
end are as follows:
£
Profit before taxation 750,000
Taxation 150,000
600,000
Ordinary dividend 150,000
Retained profit 450,000
The market price per share is currently 80 pence ex div.
Calculate the following ratios:
(i) EPS
(ii) P/E
(iii) Dividend yield ( DPS/ Market Price . DPS = Dividend/ O
(iv) Dividend cover
Briefly explain the meaning of each ratio.

Q2: Summary financial information for Company ABS is given below, covering the last two
years.

Current year Previous year

£'000 £'000
Revenue 74,521 68,000
Cost of sales 28,256 25,772
 Salaries and wages 20,027 19,562
Other costs 11,489 9,160
Profit before interest and tax 14,749 13,506
Interest 1,553 1,863
Tax 4,347 3,726
Profit after Interest and tax 8,849 7,917
Dividends payable 4,800 3,100
Shareholders' funds 39,900 35,087
Long term debt 14,000 17,500
Number of share in issue 14,000 14,000
P/E ratio (average for year)
ABS 14 13
Industry 15.2 15.0

Required
(a) Using profitability, debt, and shareholders’ investment ratios, to discuss the
performance of ABS over the last two years.
(b) Explain why accounting profits may not be the best measure of a company’s
achievements.( Giải thích sao nó giảm  giảm vì sao
(c) Discuss how good corporate governance procedures can help to manage under-
performance in private sector companies.

Question 3
Key figures have been extracted from the published accounts of SunCo and are summarised
below.

Income Statements for the year ending 31 December

2020 2019
£m £m
Turnover 6,980 6,590
Cost of sales 5,475 5,145
Gross Profit 1,505 1,445
Administration and Distribution Expenses 1,105 990
Profit before Interest and Tax 400 455
Interest 60 35
Profit before tax 340 420
Tax 68 84
Profit after tax 272 336
Dividends 110 134
Retained Profit 162 202

Statements of Financial Position as at 31 December

2020 2019
£m £m
Non-current assets 3,507 3,222
Current assets 588 542

Inventories 338 296

Trade receivables 161 142
Cash and cash equivalents 89 104
Current Liabilities 1,250 1,309

Trade Payables 656 595

Overdrafts@ 12% 69 199
Other current Liabilities 525 515
Long term Loans @ 15% 838 568

Net assets 2,007 1,887

Equity 2,007 1,887

Share Capital @ £ 0.5 per share 1,000 1,000
Reserves 1,007 887

Share Price £ 1.7 £ 1.9

Required:
Evaluate SunCo’s financial performance in 2020 by comparing to 2019
with the following ratios:

i) Profitability ratios - ROCE, Gross profit margin, Operating profit margin

ii) Liquidity ratios - Current ratio, Quick ratio;

iii) Debt ratios – Gearing ratio, Interest cover;
iv) Investment ratios - EPS, P/E ratio, DPS.

- ROCE = EBIT/( LONG TERM DEBT + EQUITY )

- Gross profit margin = Net Sales – COGS/ Net Sales
- Operating Margin = Operating Earnings/ Revenue
- Interest Coverage Ratio=EBIT/ Interest Expense
where:EBIT=Earnings before interest and taxes

QUESTION 4

Summer plc is a medium-sized manufacturing company. The following are the most
recent financial statements of the company:
1. Profit and Loss Accounts for years ending 31 December 2021
  2021 2020
Sale 7,600 7,500
Cost of Goods Sold 5,400 4,600
Gross Profit 2,200 2,900
Administration and Distribution Expense 520 350
 Profit before Interest and Tax 1,680 2,550
Interest 520 500
Profit before Tax 1,160 2,050
Tax 390 420
Profit after Tax 770 1,630
Dividends 410 410
Retained Earnings 360 1,220
2. Balance sheet as at 31 December 2021
  2021 2020
I . ASSET    
1. Fixed assets 6,300 6,400
- Furniture cost 9,500 10,000
- Less Dep (3,200) (3,600)
2. Current asset 3,290 3,300
- Stock 2,100 2,200
- Debtors 870 890
- Cash 320 210
 
II. LIABILITIES AND EQUITY    
1. Current Liabilities 2,310 2,100
- Creditors 2,310 2,100
Total net asset 7,280 7,600
2. Long Term Liabilities 5,400 5,400
- 10% Debentures 2015 5,400 5,400
3. Capital and Reserves 4,590 4,550
- £0.50 Ordinary shares 3,570 3,570
- Reserves - P&L a/c 1,020 980
Share prices at 31 December £1.45 £1.90
3. Average data for the business sector in which Summer operates is as follows:
Return before Interest and Tax/Capital Employed 0.28
P/E ratio 12 times
Dividend cover 3 times
Gearing (book value of debt/book value of equity) 1
Interest Cover 4 times
Current Ratio 2:1
Stock Days 90 days

Required:
 a. Calculate ratios for both years that would be helpful in assessing the recent financial
performance of the company from a shareholder perspective.
- Profitability ratios: ROCE, Gross profit margin, Operating profit margin
- Liquidity ratios: Current ratio, Quick ratio
- Debt ratios: Gearing ratio, Interest cover
- Investment ratios: EPS, P/E ratio, DPS, Divident cover, Divident yield 45
b. Analyse the company’s performance in the year ended 31st December 2021 using the
information derived in (a) above, clearly identifying any issues that you consider
should be brought to the attention of the ordinary shareholders. You are not expected
to discuss working capital management as part of your answer here.

Note: Industry average ratios could be used for analysis purpose.