QUESTION THREE

a.Explain any three (3) objectives that Ratio Analysis seeks to address. (3 marks)

b.State and explain any two (2) limitations of ratio analysis. (2 marks)

c.The summarized financial accounts of Ndenge Ltd for the year 2018 and 2017 are as follows;

Statements of Comprehensive Income for the period ended 30/06

2018 (Shs) 2017 (Shs)

Sales 300,000 350,000

Less: Cost of sales (130,000) (160,000)

Gross profit 170,000 190,000

Less: Operating expenses

Debenture interest (65,000) (75,000)

Net profit 105,000 115,000

Statements of Financial Position as at 30/06

2018 (Shs) 2017 (Shs)

Non - Current Assets (NBV) 150,000 190,000

Current Assets

Stock 40,000 50,000

Debtors 45,000 47,000

Bank - 5,000

Total Assets 235,000 292,000

Financed by:

Capital: Ordinary shares 150,000 150,000

Profit & loss account 40,000 50,000

Equity 190,000 200,000

Liabilities

10% Debentures - 70,000

Current Liabilities

Creditors 25,000 22,000

Bank Overdraft 20,000 -

Total Liabilities 45,000 92,000

TOTAL EQUITY & LIABILTITES 235,000 292,000

Required:

Calculate the following ratios for both years (2018 and 2017) and compare the results with comments.

1.Net Profit Margin(5 marks)

2.Debt Ratio(5 marks)

3.Working Capital Ratio(5 marks)

4.Total Assets Turnover(5 marks)