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Write Report Based On The Analysis Of Different Ratios

Question

 

You are the banking manager for Wholly Donuts Pty Ltd. The proprietor has an appointment to see you next week to discuss plans to open another store in a neighboring suburb. To fund the expansion, the entity needs an injection of loan capital. Prior to the meeting you have requested Wholly Donuts Pty Ltd’s financial statements as set out below:

Wholly Donuts Pty Ltd

Income Statements for the years ending 30 June:

 

2012

2011

Income

 

 

Sales (all credit)

$480,000

$530,000

Cost of sales

300,000

360,000

Gross profit

180,000

170,000

Less expenses

 

 

Selling expenses

50,000

55,000

Administrative expenses

30,000

40,000

Interest expense

6,000

4,000

Profit before tax

94,000

71,000

Income tax

21,000

18,000

Profit after tax

$73,000

$53,000

 

Wholly Donuts

Statements of Financial Position as at 30 June:

 

2012

2011

Assets
Cash $ 30,000 $ 20,000

 

 

Accounts receivable

18,000

20,000

Inventory

12,000

16,000

Total current assets

60,000

56,000

Property, plant and equipment

130,000

170,000

Other assets

40,000

32,000

Total non-current assets

170,000

202,000

Total assets

$230,000

$258,000

Liabilities

 

 

Accounts payable

15,000

25,000

Total current liabilities

15,000

25,000

Loan (due 2018)

50,000

50,000

Total non-current liabilities

50,000

50,000

Total liabilities

65,000

75,000

Equity

 

 

Share capital

165,000

183,000

Total liabilities and equity

$230,000

$258,000

A. Calculate the following ratios for the years ending 30 June 2012 and 30 June 2011. As no financial date is available for the year ending 30 June 2010, use year-end figures instead of average figures. Show your calculations/workings.

i Return on equity

ii Return on assets

iii Net profit margin

iv Gross profit margin

v Accounts receivable turnover

vi Inventory turnover

vii Current ratio

viii Acid test ratio

ix Gearing ratio

B. i Based on your analysis write a report on the financial performance and position of Wholly Donuts Pty Ltd.

ii What other information would you like to possess before making your recommendation?

iii What are the limitations of undertaking an assessment of an entity based on ratios?

Summary

The question belongs to Accounting and it discusses about calculating return on equity, return on assets, net profit margin, gross profit margin, current ratio, acid test ratio, etc and writing a report based on the analysis of the ratios.

Total Word Count 686

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