QUESTION B1

ABC Plc is a women cloths shop. The company is based in Luton. Recently the company faced cash problems and approached your for advice. The following ratios were computed by their junior accountant

2019

2018

Current ratio

1:1

2.:1

Gross Profit margin

69%

70%

Inventory turnover days

22

20

Net profit margin

14%

16%

Quick ratio

2:1

3:1

Gearing Ratio

16%

11%

ROCE

21%

22%

Trade payable settlement days

26

22

Trade receivable settlement days

30

34

Interest Cover

3

6

Required:

You are required to provide an analysis of the company performance by grouping the ratios and provide suggestions how they could improve their performance.List all assumptions you may require to provide your proposals. What are the limitations of analysing the ratios based on other factors?

Total Marks = 25 Marks