Nevin has been looking at his business end-of-year financial statement for each of the years ended 21
Question:
Nevin has been looking at his business end-of-year financial statement for each of the years ended 21 December 2013 and 2014. He has worked out the following accounting ratios based on these statements.
The following information is available about revenue in each of the years ended 31 December.
Typical liquidity ratios for this type of business are as follows.
Prepare a brief report on this business performance. Make some recommendations on how any weaknesses could be overcome.
2013 2014 Gross profit margin 40% 43% Mark-up 67% 75% Profit/revenue 8% 7% Operating expenses/revenue Return on capital employed 28% 31% 11% 7% Current ratio 1.2:1 1.3:1 Liquid (acid test) ratio 0-8:1 0.6:1 Rate of inventory turnover 9 times 10 times Trade receivables turnover 29 days 35 days Trade payables turnover 36 days 30 days
Step by Step Answer:
Based on the given information the business experienced a slight decrease in revenue from 200000 in 2013 to 180000 in 2014 However there was an improv...View the full answer
Accounting For Cambridge International AS And A Level
ISBN: 9780198399711
1st Edition
Authors: Jacqueline Halls Bryan, Peter Hailstone
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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