Calculate the gross profit margin, Cost Accounting

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Assets                                               2011                                                                        2010

Non Current Assets                             4 800 000                                                               3 300 000

Inventory                                            500 000                                                                   700 000

Receivables                                        350 000                                                                   420 000

Cash                                                  280 000                                                                   140 000

                                                       5 930 000                                                               4 560 000

Equity and Liabilities

Share Capital (R2 shares)                  2 600 000                                                                1 700 000

Retained Income                               500 000                                                                     440 000

Long term Debt                              2 000 000                                                                   1 800 000

Payables                                            830 000                                                                     620 000

                                                     5 930 000                                                                     4 560 000

Their abbreviated Income Statement for the year ended 2011:

Sales (75% on credit)             2 400 000

Cost of sales                          1 600 000

Depreciation                              80 000

Interest expense                         90 000

Tax (30%)                                 160 000

Net Income after Tax                 300 000

Dividends                                  240 000

Retained Income                         60 000

NB: Company X is a wine retailer. Their shares are currently trading at $3 per share.

Required

1. Calculate the gross profit margin and their net profit margin.

2. Calculate the EPS and DPS for the current year. Explain what occurs to the difference between the EPS and the DPS value, from an accounting perspective. 

3. Calculate the return on equity. Will shareholders be happy with this return? Explain.

4. Calculate and comment on the acid test ratio for both years.

5. Calculate and comment on the debt equity ratio for both years.

6. Calculate the stock turnover rate and explain the meaning of this ratio.

7. What is the period for which they have stock on hand? Is this acceptable? Explain.


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