Rate of return on assets, Financial Accounting

          EVERLIGHT COMPANY LIMITED

Comparative Balance Sheet

December 31, Year 1 and Year 2

 

 

Year 1

      Year2

Assets

Rs.

Rs.

Cash

1,000

1,200

Bank

6,000

7,500

Accounts Receivable

12,600

14,800

Inventory

18,400

20,500

Repayments

800

850

Land and Building

20,000

24,000

 

 

December 31st

Plant and Machinery

30,000

 

32,000

 

 

88,800

 

1,00,850

 

Liabilities and Shareholders' Equity

 

4,000

 

 

7,850

 

Bills Payable

 

 

 

 

Accounts Payable

6,400

 

6,000

 

Other Current Liabilities

2,000

 

2,200

 

Debentures (10%)

20,000

 

18,000

 

Preference Shares (12%)

10,000

 

10,000

 

Ordinary Shares. Rs. 10 each

40,000

 

50,000

 

Retained Earnings

6,400

 

6,800

 

 

88,800

 

1,00,850

 

 

Income and Retained Earnings Statement of the Year Ending December 31, Year 2

 

Sales Revenue

 

Less Expenses:

 

 

 

Rs. 28,000

 

Rs. 60,000

Cost of Goods Sold

 

 

Selling

8,000

 

Administrative

6,000

 

Interest

2,000

 

Income Tax

6,400

 

Total Expenses

 

50,400

Net Income

 

9,600

Less Dividend : Preferred

1,200

 

 

Ordinary

 

8,000

 

 

 

9,200

Increase in Retained Earning for Year 2

 

400

Retained Earnings, December 31, Year 1

 

6,400

Retained Earnings, December 31, Year 2

 

6,800

 

Along with the above information, here we compute the subsequent ratios

1)      Rate of Return on Assets

2)      Profit Margin (before interest and related tax effect)

3)      Cost of Goods Sold to Sales Percentage

4)      Selling Expenses to Sales Percentage

5)      Operating Expense Ratio

6)      Total Assets Turnover

7)      Accounts Receivable Turnover

8)      Inventory Turnover

9)      Rate of Return on Ordinary Share Equity

10)  Current Ratio

11)  Quick Ratio

12)  Long-Term Debt Ratio

13)  Debt Equity Ratio                                                                                                                                    

14)  Times interest Charges Earned

15)  Earnings per (Ordinary) Share

16)  Price Earnings Ratio

17)  Book Value per Ordinary Share

 The income tax price is 40 percent. The market price of an ordinary share in the ending of Year 2 was as Rs. 14.80.

Here we take all such ratios individually.

1)      Rate of Return on Assets

= (Rs. 9,600 + (1- .40) (Rs. 2, 000))/( .5 (Rs. 88,800 + Rs.1,00,850))

 = 11.39 percent

2)      Profit Margin (before interest and related tax effect)

= (Rs. 9,600 + (1-40) (Rs. 2,000))/ Rs. 60,000

 = 18 percent

3)      Cost of Goods Sold to Sales Percentage

= Rs. 28,000/ Rs. 60,000

 = 46.67 percent

4)      Selling expenses to Sales Percentage

= Rs. 8,000/ Rs. 60,000

  = 13.33 percent

5)      Operating Expense Ratio

=  (Rs. 8,000+ Rs. 6,000)/ Rs. 60,000

   = 23.33 percent

6)      Total Asset Turnover

= Rs. 60,000 / (.5 (Rs. 88,800 + Rs.1,00,850))

= .63 times per year

7)      Accounts Receivable Turnover

= Rs. 60,000 / (.5 (Rs. 12,600 + Rs. 1,4,800))

= 4.3 8 times per year

8)      Inventory Turnover Ratio

= Rs.28,000 /.5 (Rs. 18,400 + Rs. 20,500)

= 1.44 times per year

9)      Rate of Return or Ordinary Share Equity

= (Rs. 9,600 - Rs. 1,200 x 100)/ .5 (Rs. 46,400 + Rs. 56,800)

 = 16.28 per cent

 

 

10)  Current Ratio

December 31, Year 1 : Rs.38,800/ Rs.12,400

 = 3.13:1

December 31, Year 2 : Rs. 44,850/ Rs.16,050

 = 2.79 : 1

11)  Quick Ratio:

December 31, Year 1 : Rs.19,600/ Rs.12,400

 = 1.56 :1

December 31, Year 2: Rs.23500/ Rs.16,050

 = 1.46 :1

12)  Long-term Debt Ratio

December 31, Year 1: Rs.20,000/ Rs. 80,400

 = 24.86 percent

December 31, Year 2: Rs. 18,000/ Rs. 84,800

 = 21.23 percent

13)  Debt Equity Ratio

December31, Year 1 : Rs.20,000/ Rs.46,400

    = 43.1

December 31, Year 2 : Rs.18,000/ Rs. 56,800

    = 31.69

(Equity might or not comprise retained earnings. Now, retained earnings have been comprised)

14)  Times Interest Charges Earned

(Rs. 9,600 + Rs. 6,400 + Rs: 2,000)/ Rs: 2,000

= 9 times

15)  Earnings per Ordinary Share (EPS)

December 31 Year 2:

= Rs. 8,40 0/.5 (4000 + 5000)

       = Rs.1.87

16)  Price-Earnings Ratio

December 31, Year 2 as:

=  14.80 /1.87                    

= 7.91 times

17)  Book Value per Ordinary Share

December 31, Year 1 : = Rs. 46,400/4,000

 = Rs.11.60

December 31, Year 2 : = Rs. 56,800/5,000

 = Rs.11.36

Posted Date: 4/9/2013 2:16:37 AM | Location : United States







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