Rate of return on assets, Financial Accounting

Assignment Help:

          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


Related Discussions:- Rate of return on assets

Evaluate the earnings per share, Q. A ltd. Company has equity share capital...

Q. A ltd. Company has equity share capital of Rs. 5,00,000 divided into shares of Rs. 100 each. It wishes to gain further Rs. 3,00,000 for expansion cum modernization plans. The co

Explain the favorable variance, Question: The manager of Ben and Jerry's Ic...

Question: The manager of Ben and Jerry's Ice Cream is told that the direct material quantity variance for cherries in Cherries Garcia Ice cream is favorable. What could explain thi

Forecasting earnings, what if 50% of customers who switch from pisa pizza ...

what if 50% of customers who switch from pisa pizza who switch from original pizza to healthier pizza then switch to another brand from healthier pizza.

Calculation of leverage ratios, Calculation of Leverage ratios  - ...

Calculation of Leverage ratios  -                     2008 2009 2010 U EBIT or Oper

Quarterly budgeted cost of goods sold schedule, RSC Designs quarterly selli...

RSC Designs quarterly selling and distribution expenses are $100,000 including ($10,000 depreciation), and are expected to be paid in the quarter incurred. Quarterly administrat

Accounts required and their purpose-branches, Accounts required and their p...

Accounts required and their purpose a. Branch Current Account (Head Office Books) Records all transactions branch and head office; The balance represents the investmen

Situational Decsisions, Your Company makes 42,000 units per year of a part ...

Your Company makes 42,000 units per year of a part it uses in the products it manufactures. The unit product cost of this part is computed as follows: Direct material $15.00 Direc

Seller-buyer-seller’s bank and buyer’s bank, I am facing some problems in ...

I am facing some problems in my assignment of Seller, Buyer, Seller’s Bank, and Buyer’s Bank. Can anybody suggest me the proper explanation for it? a. Draw the diagram of the tr

What is asset, Q. What is Asset? Asset - An economic resource which is ...

Q. What is Asset? Asset - An economic resource which is expected to be of benefit in the future. Probable futureeconomic benefits attained as a result of past transactions or e

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd