The following information relates to the business of Chef One. The owner is concerned about the profitability and financial structure of his business at 30 June 2020, especially since the bank is requiring repayment of the business’s overdraft.

Inventory at 1 July 2019 was $22 500.

Required

(a) Calculate the following ratios for 2019 and 2020:

i. profit margin 

ii. return on capital 

iii. current ratio 

iv. quick ratio 

v. equity ratio 

vi. inventory turnover.

(b) Write a short report to the owner in relation to the profitability and financial stability of the business.

(c) Identify the cash flow ratios that would be useful to calculate to assist the owner to more fully understand the financial health of the business.

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Revenue (sales on credit) Cost of sales 30 June 2020 $140000 99 500 36500 30 June 2019 $105 000 68 500 Other expenses 28 000 Cash and cash equivalents (32000) 28 000 Inventories 54 500 37 000 Trade accounts receivable (net) 50000 28 000