Reference no: EM13824672

Problem-

 

You are the banking manager for Wholly Donuts Pty Ltd. The proprietor has an appointment to see you next week to discuss plans to open another store in a neighboring suburb. To fund the expansion, the entity needs an injection of loan capital. Prior to the meeting you have requested Wholly Donuts Pty Ltd's financial statements as set out below:

 

Wholly Donuts Pty Ltd Income Statements for the years ending 30 June:
	2012	2011
Income
Sales (all credit)	$480,000	$530,000
Cost of sales	300,000	360,000
Gross profit	180,000	170,000
Less expenses
Selling expenses	50,000	55,000
Administrative expenses	30,000	40,000
Interest expense	6,000	4,000
Profit before tax	94,000	71,000
Income tax	21,000	18,000
Profit after tax	$73,000	$53,000

 

Wholly Donuts Statements of Financial Position as at 30 June:
	2012	2011
Assets Cash $ 30,000 $ 20,000
Accounts receivable	18,000	20,000
Inventory	12,000	16,000
Total current assets	60,000	56,000
Property, plant and equipment	130,000	170,000
Other assets	40,000	32,000
Total non-current assets	170,000	202,000
Total assets	$230,000	$258,000
Liabilities
Accounts payable	15,000	25,000
Total current liabilities	15,000	25,000
Loan (due 2018)	50,000	50,000
Total non-current liabilities	50,000	50,000
Total liabilities	65,000	75,000
Equity
Share capital	165,000	183,000
Total liabilities and equity	$230,000	$258,000

 

A. Calculate the following ratios for the years ending 30 June 2012 and 30 June 2011. As no financial date is available for the year ending 30 June 2010, use year-end figures instead of average figures. Show your calculations/workings.

 

i Return on equity

 

ii Return on assets

 

iii Net profit margin

 

iv Gross profit margin

 

v Accounts receivable turnover

 

vi Inventory turnover

 

vii Current ratio

 

viii Acid test ratio

 

ix Gearing ratio

 

B. i Based on your analysis write a report on the financial performance and position of Wholly Donuts Pty Ltd.

 

ii What other information would you like to possess before making your recommendation?

 

iii What are the limitations of undertaking an assessment of an entity based on ratios?

 

Additional information-

 

This problem belongs to Accounting and it discuss about calculating return on equity, return on assets, net profit margin, gross profit margin, current ratio, acid test ratio, etc and writing a report based on the analysis of the ratios.