Question 1: Financial Statement Analysis

Blue print Ltd buys and sells fashion goods as a retail company. Its financial statements are listed below.

Statement of Financial Position as at 31 December 2020:

	USD
Assets
Non-current assets	260,000
Current assets
Inventory	220,000
Trade receivables	190,000
Cash	250,000
Current liabilities
Trade payables	127,000
Taxation	244,000
Other liabilities	175,000
Non-current liabilities and equity
Long term loans	130,000
1 ordinary shares	120,000
Share premium	110,000
Retained profits	14,000

Income Statement for the year ended 31 December 2020:

Sales revenue	750,500
Less: cost of goods sold	(309,500)
Gross profit	441,000
Less: operating expenses	(225,000)
Operating profit	216,000
Less: interest expense	(16,000)
Net profit before tax	200,000
Less: taxation	(35,000)
Net profit for the year	165,000

QUESTION CONTINUES NEXT PAGE

Required:

1. Calculate the following ratios for Blue Print Ltd in 2020.
   1. Gross profit margin
   2. Operating profit margin
   3. Return on Capital Employed (ROCE)
   4. Inventories turnover period
   5. Settlement period for trade receivables
   6. Current ratio
   7. Acid test ratio
   8. Gearing ratio
   9. Interest cover ratio

All ratio formulas and calculations must be clearly shown.

2. The ratios set out in the table below are those calculated for Blue Print Ltd based on its published financial statements for the previous year (2019)

Gross profit margin	52%
Operating profit margin	33%
Return on Capital Employed (ROCE)	44%
Inventories turnover period	159 days
Settlement period for trade receivables	110 days
Current ratio	1.05:1
Acid test ratio	0.87:1
Gearing ratio	26%
Interest cover ratio	17 times

Using the ratios, you calculated (in part a) for Blue Print Ltd in 2020 and the above ratios for 2019, critically comment on the companys performance and financial position for the two years, including possible reasons for the results and potential suggestions for improvement.

3. Critically discuss advantages and limitations in the use of ratio analysis for evaluating a firms performance.

Please type all the answer, thanks!!