Study the following financial statements of two companies and then answer the questions which follow. Both companies
Question:
Study the following financial statements of two companies and then answer the questions which follow. Both companies are stores selling carpets and other floorcoverings. The values shown are in £000s.
Spreadlight paid a dividend of £140,000 during the year and transferred £30,000 to a general reserve of the year end. Easylawn paid a dividend of £112,000 during the year and transferred £30,000 to a general reserve of the year end. The retained profits brought forward at the start of the year were: Spreadlight £104,000; Easylawn £60,000.
Required:
(a) Calculate the following ratios for both Spreadlight Ltd and Easylawn Ltd: (i) gross profit as percentage of sales; (vi) current ratio; (ii) net profit as percentage of sales; (vii) acid test ratio; (iii) expenses as percentage of sales; (viii) accounts receivable/sales ratio; (iv) inventory turnover; (ix) accounts payable/purchases ratio. (v) rate of return of net profit on capital employed (for the purpose of this question only, take capital as being total of share capitals + reserves at the date of the statement of financial position);
(b) Comment briefly on the comparison of each ratio as between the two companies. State which company appears to be the most efficient, giving what you consider to be possible reasons.
Transcribed Image Text:
Income Statements Sales Less Cost of goods sold Opening inventory Add Purchases Less Closing inventory Gross profit Less Expenses Wages and salaries Directors' remuneration Other expenses Net profit Statements of financial position Non-current assets Equipment at cost Less Depreciation to date Vans Less Depreciation to date Current assets Inventory Accounts receivable Bank Total assets Less Current liabilities Accounts payable Net assets Equity Issued share capital Reserves General reserve Retained profits Total equity Spreadlight Ltd 000 000 2,500 190 2,100 2,290 (220) 180 70 14 200 (80) 64 (26) 220 104 75 68 100 (2,070) 430 (264) 166 120 38 158 399 557 (189) 368 200 168 368 Easylawn Ltd 000 110 1,220 1,330 (160) 130 120 10 50 (20) 48 (16) 160 29 10 35 88 000 1,600 (1,170) 430 (260) 170 30 32 62 199 261 (38) 223 100 123 223
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a Calculation of Ratios i Gross Profit as Percentage of Sales Gross Profit Percentage Gross Profit Sales 100 ii Net Profit as Percentage of Sales Net ...View the full answer
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