Task 2

Use the same table of formulae you used for Task 1, and the financial statements for KLM Limited, for all calculations for this task. You must show all your workings. Marks will be allocated for both the answer and workings in the final exam.

Statement of Profit or Loss For KLM Limited for the year ending 31.12.20
			000s	000s
Revenue				1400
Opening Inventory			200
Purchases			970
			1170
less Closing Inventory			240
Cost of Sales				930
Gross Profit				470
less Expenses
Distribution Expenses			140
Administration Expenses			140
				280
Profit From Operations (PBIT)				190
less Finance Costs (Loan Interest)				20
Profit For The Year Before Tax (PBT)				170
less Tax				50
Profit For The Year				120
Statement of Changes in Equity
	Issued Share Capital	Share Premium	Retained Earnings	Total
Balances at Start	1,250,000	0	180,000	1,430,000
Profit For The Year			120,000	120,000
less Dividends Paid			100,000	100,000
Balances at End	1,250,000	0	200,000	1,450,000

Statement of Financial Position For KLM Limited for the year ending 31.12.20
		Cost	Depreciation	Net Book Value
Non-Current Assets		000s	000s	000s
Premises		1000	150	850
Fixtures & Fittings		300	120	180
Vehicles		350	100	250
		1650	370	1280
Current Assets
Inventory			300
Trade Receivables			150
Cash & Cash Equivalents			135
			525
less Current Liabilities
Trade Payables		205
Trade Liability		110
			315
				270
				1550
less Non-Current Liabilities
10% Debentures				100
Net Assets				1450
Equity
Issued Share Capital
1 2500 000 ordinary shares of 1 each, fully paid				1250
Revenue Reserve
Retained Earnings				200
Total Equity				1450

Use the information in the financial statements of KLM Limited, the table of formulas and notes to calculate the following ratios.

1. Gross profit percentage
2. Operating profit percentage
3. Net profit percentage
4. Return on capital employed
5. Return on equity

Liquidity Ratios / Solvency and Financial Position Ratios

Use the information in the financial statements of KLM Limited and the table of formulae to calculate the following ratios.

1. Current ratio
2. Liquid capital ratio (acidity test)
3. Gearing ratio (leverage ratio)
4. Interest cover

Questions

Use the ratios you calculated to answer the following questions:

1. What can the company do to improve its current ratio?
2. What can the company do to improve its acid test ratio?
3. What can the company do to increase its interest cover?
4. What can the company do to reduce its gearing ratio?