Use the following information to answer the questions that follow.

Neftec Industries
Statement of Financial Position as at 31 December 2020 and
December 2021
                                                            2020               2021
Non- Current Assets
Land                                                 20,000                26,000
Buildings and equipment                 70,000               100,000
Less: allowance for depreciation     (28,000)            (38,000)
Total Non-current assets                  62,000                88,000
Current Assets
Cash 9,000 500
Accounts receivable                         12,500                 16,000
Inventories                                        29,000                  45,500
Total current assets                          50,500                  62,000
TOTAL ASSETS                             112,500                   150,000
Equity and Liabilities
Equity
Ordinary shares                                 31,500                 31,500
Retained earnings                              24,750                    26,550
Total Equity                                         56,250                   58,050
Non-Current Liabilities
Long term debt                                    28,750                        22,950
Total Non-Current liabilities                 28,750                         22,950
Current Liabilities
Accounts payable                               10,500                            22,000
Bank notes                                          17,000                          47,000
Total Current Liabilities                        27,500                              69,000
TOTAL EQUITY AND LIABILITIES      112,500                          150,000

Neftec Industries
Statement of Income for years ended December 31, 2020 and
31 December 2021
                                                             2020          2021
Sales                                                   125,000     160,000
Cost of goods sold                              (75,000)      (96,000)
Gross profit                                          50,000         64,000
Operating expenses
- Fixed cash operating expenses        21,000           21,000
- Variable operating expense             12,500            16,000
- Depreciation                                      4,500            10,000
Total operating expense                        38,000         47,000
Earning before interest and taxes          12,000        17,000
Interest                                                   (3,000)         (6,100)
Earnings before taxes                               9,000           10,900
Taxes                                                        (4,500)          (5,450)
Net Income                                                 4,500            5,450

Industry Norms
Current ratio 1.8
Acid-test ratio 0.70
Average collection period 31.00
Inventory turnover 2.50
Debt ratio 0.58
Gross profit margin 38%
Operating profit margin 10%
Total asset turnover 1.14
Fixed asset turnover 1.40
Return on total assets 4.0%
Return on common equity 9.5%

Required:
Evaluate the firm’s performance for the year 2020 and 2021 by:
a. Calculating the same ratios as the industry norms.
b. Remark on the performance of Neftec based on your calculations.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below a Calculating the same ratios as the industry norms Current ratio 2020 Current Assets Cur... View the full answer