Answer The Question Below - Exercise 2

Exercise 2: Read the comparative balance sheets and the income statements of the firm 'Imaginary Computers Limited'. Use the techniques of financial statements analysis as explained in the chapter to do the following: - Complete the missing values (titles, formulas and numerical values in the table below. Note that some ratios could not be calculated as relevant data are not available. 2. Comment on the financial strengths and weaknesses of the firm (trends of the ratios and its comparison with industry average) Imaginary Computers Ltd. Balance sheet as at 31 December ($ '000) Share capital Reserves and surplus Long-term debt 2001 2002 2003 5.3 7.5 8.5 6.7 5.7 7.4 24 1:28 Outlook learn-eu-central-1-prod-fleet01-xythos.s3.eu-central-1.amazonaws.com Imaginary Computers Ltd. Balance sheet as at 31 December ($ 000) 2001 2002/2003 Share capital 5.3 7.5 8.5 Reserves and surplus 6.7 5.7 7.4 Long-term debt 4.1 3.2 | 4.2 THE Notes payable - Short term 5.6 5.2 7.2 w Accounts payable 3.4 6.5 5.6 S02 Total Liabilities and Equity 25.1 28.1 32.9 Net fixed assets 17.4 21.8 26.1 Cash at bank 2.6 0.8 1.2 Receivables 3.5 2.8 2.9 Inventory 1.6 2.7 2.7 Total Assets 25.1 28.1 32.9 Income statement for the year ending 31 December ($ 000) 2001 2002 2003 Net Sales 29.834.9 57.41 Cost of goods sold 24.5 26.2 45.8 Gross Profit 5.3 8.7 11.6 Operating Expenses 3.7 4.2 7.0 Operating profit 1.6 4.5 4.6 Non-operating surplus/deficit 0.2 0.1 0.4 EBIT 1.8 4.6 5.0 Interest 1.0 0.9 2.0 Profit before tax 0.8 3.5 3.0 Tax 0.6 Net Profit 0.8 2.9 3.0 Dividends 0.6 0.6 1.1 Retained earnings 0.2 2.3 1.9 Answer: Ratio Formula 2001 2002 2003 Industry Average Comments 1.2 Liquidity ratios Current ratio 0.85 0.54 0.6 10.68 0.31 Inventory rurnover Iratio 18.612.91 20.5 45 43 29 0.45 Profitability ratios 10.18 0.25 Gross Profit/sales 0.15 10.03 0.08 1:28 Outlook AA learn-eu-central-1-prod-fleet01-xytho C 2001 2002 2003 Net Sales 29.8 349 57.4 Cost of goods sold 24.5 26.2 45.8 Gross Profit 5.38.7 11.6 87uo Operating Expenses 3.7 4.2 7.0 Operating profit 1.6 4.5 4.6 Non-operating surplus/deficit 0.2 0.1 0.4 EBIT 1.8 4.6 5.0 Interest 1.0 0.9 2.0 Profit before tax 0.8 3.5 3.0 Tax 0.6 Net Profit 0.8 2.9 3.0 Dividends 0.6 0.6 1.1 Retained earnings 0.2 2.3 1.9 Answer: Ratio Formula 2001 2002 2003 Industry Average Comments 1.2 0.85 0.54 Liquidity ratios Current ratio 0.6 10.68 0.31 Inventory Turnover Tratio 18.612.91 20.5 45 143 29 WHEELS 0.45 Profitability ratios 10.18 10.25 Gross Profit/sales 0.15 10.03 0.08 1.9 Debt to 1.09 1.13 Jequity ratio 1 1.8 5.11 Page 3 of 4