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Calculate the ratios for the two financial years
Course:- Accounting Basics
Reference No.:- EM131074715




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Assignment : Financial Statement Analysis

Ace Hardware is a leading family business that specialises in the manufacturing and wholesale distribution of floor tile products. Over the past two years Ace Hardware has experienced difficult operating conditions. John, the company accountant, has prepared the income statement and balance sheet for the prior two years for a management meeting. The owners of Ace Hardward have asked John to evaluate the financial statements and prepare an evaluation of operating capability to present to senior management. 60 percent of sales are made on credit.

Profit and Loss

 

201X

 

 

 

201Y

 

Total Income

 

14,543,837

 

 

11,981,782

Less Cost of Sales

 

10,752,813

73.9%

 

8,967,229

77.1%

Gross Profit (Loss)

 

3,791,024

26.1%

 

3,014,553

22.9%

Total Other Income

 

86,363

0.6%

 

-

3.3%

Less Expenses

Administrative Staff Costs

 

 

2,385,760

 

16.40%

 

 

1,719,171

 

14.35%

Advertising and Marketing Support

 

140,470

0.97%

 

75,500

0.63%

Bad Debts

 

68,534

0.47%

 

63,057

0.53%

Administrative Overhead

 

280,600

1.93%

 

290,238

2.42%

Freight and Cartage

 

10,210

0.07%

 

21,681

0.18%

Hire of Plant and  Equipment

 

103,828

0.71%

 

118,016

0.98%

Bank Charges

 

25,573

0.18%

 

20,749

0.17%

Light and Power

 

49,176

0.34%

 

42,017

0.35%

Lease of MV

 

28,160

0.19%

 

2,201

0.02%

MV Running Costs

 

332,103

2.28%

 

249,192

2.08%

Rent

 

328,307

2.26%

 

321,177

2.68%

Repairs and Maint

 

35,367

0.24%

 

18,875

0.16%

Telephone

 

67,899

0.47%

 

63,170

0.53%

Travel

 

21,398

0.15%

 

8,516

0.07%

Total Operating Expenses

 

3,877,386

26.7%

 

3,013,560

25.2%

Net Operating Profit (Loss)

 

1

 

 

993

 

Balance Sheets 201X 201Y
Current Assets    

Cash at Bank

-

-

Trade Debtors

1,116,467

875,607

Stock on Hand

1,697,220

1,231,111

Total Current Assets

2,813,687

2,106,718

Fixed Asets    

Furniture & Fitting - At Cost

43,511

43,511

Less Accum Depn Frn & Fitting

(36,606)

(37,543)

Plant & Equip - At Cost

1,329,334

1,329,334

Less Accum Depn - Plant & Equip

(1,045,363)

(1,096,991)

Motor Vehicle - At Cost

863,042

840,728

Less Accum Depn - Motor Vehicle

(707,518)

(720,326)

Office Equipment - At Cost

368,650

368,650

Less Accum Depn - Office Equip

(302,075)

(319,537)

Total Fixed Assets

512,975

407,826

Investments    

Shares in Listed Company

96,788

96,788

Loans & Deposits

153,782

153,782

Total Investments

250,570

250,570

 Intangible Assets

 

 

Trademarks & Patents

867

27,958

Goodwill - At Cost

5,430

5,430

Formation Expense - At Cost

1,000

1,000

Total Investments

7,297

34,388

 Total Non Current Assets

 770,842

 692,784

Total Assets

3,584,529

2,799,502

Current Liabilities

Bank Overdraft

 

98,917

 

116,643

Trade Creditors

1,394,198

1,181,797

Loan At Call - To Directors

149,354

137,586

Total Current Liabilities

1,642,469

1,436,026

Deferred Liabilities    
Loan - Unsecured - business Partner

1,819,577

1,326,934

 Total Deferred Liabilities

1,819,577

1,326,934

Total Liabilities

3,462,046

2,762,960

Equity    

Profit B/F

1

993

Settled Capital

50

50

Accumulated Trust Funds

31,027

31,027

Retained Profits

91,405

4,472

Total Equity

122,483

36,542

Questions:

1. Calculate the following ratio's for the two financial years:

a. Current

b. Quick

c. Debt

d. Inventory Turnover for year Y only

e. Accounts Receivable Turnover for year Y only

f. Gross Profit Percentage

g. Profit Margin

h. Return on Total Assets for year Y only

i. Return on Owner's Equity for year Y only

2. Write a short report that compares the business' performance in 201X with that in 20XY regarding its liquidity, financial flexibility, operating capability and profitability.

You are required to take the trial balance and information provided and create the adjusted trial balance. Using the adjusted trial balance you are then required to construct a Statement of Financial Position (balance sheet) and a Statement of Income (profit and loss). You may use and present your solutions in excel or word.

The report must be presented in essay format with an introduction, body and conclusion and all external references must be referenced using APA 6th edition referencing style. Word count should not exceed 1,000 words.

Answered:-

Verified Expert

The solutions are provided keeping in mind the standard literary and theoretical practices in mind. The necessary literary referencing is done to support the workings.

Preview Container content

The report for evaluation and comparison of financial performances for Ace Hardware for the years 201X and 201Y could be done on two major parameters, i.e., the operating performance and the financial performance.
For evaluation of the operating performance, the crucial ratios like Current Ratio, Quick Ratio, Debtor’s Ratio, Inventory Turnover Ratio, Rate of return on Investment, EBIT (Earnings before Interest and Taxes) and the Return on Total Assets (ROA) should be calculated for the company for the two financial years in question.




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