The financial statements for Falls Ltd for the year ended 31 May 2014 were as follows.

Additional information:

• Dividends paid during the year: $30,000 

• Retained earnings ell June 2013: $168,000.

a. Use the financial statements for Falls Ltd to calculate the following profitability and financial ratios: 

i. Gross profit margin 

ii. Profit for the year margin 

iii. Return on capital employed

iv. Current ratio 

v. Liquid (acid test) ratio 

vi. Rate of inventory turnover (using the closing inventory as the average inventory). 

b Explain briefly what each of the ratios tells you about the financial results of Falls Ltd for the year ended 31 May 2014.

Transcribed Image Text:

Falls Ltd Income statement for the year ended 31 May 2014 Revenue 480 000 Cost of sales (122 500) Gross profit 257 500 Other income: rental income 12 500 270 000 Expenses (188 200) Operating profit 81 800 Finance costs: debenture interest (9 800) Profit for the year 72 000