Peter (Television) plc Profit and loss account for the year ended 31 December Year 2 Mn. Year 2 Year 1 Rs. Rs. Rs. Rs. Revenue 720 600 Cost of sales (432) (348) Gross profit 288 252 Distribution costs (72) (54) Administrative expenses (87) (81) (159) (135) Operating profit 129 117 Interest payable (24) (24) Profit before taxation 105 93 Taxation (42) (37) Profit for the period for ordinary equity holders 63 56 Balance sheet as at 31 December Year 2 Year 2 Year 1 Rs. Rs. Rs. Rs. Non-current (fixed) assets: Land and buildings 600 615 Plant and equipment 555 503 1,155 1,118 Current assets: Inventories (stock) 115 82 Trade receivables (debtors) 89 61 Prepayments 10 9 Bank 6 46 220 198 Current liabilities Trade payables (creditors) (45) (30) Taxation (21) (19) Accruals (29) (25) (95) (74) Net current assets 125 124 1,280 1,242 6% Debentures (400) (400) 880 842 Ordinary shares of Rs. Each 500 500 Retained earnings 380 342 Share capital and reserves 880 842 Extract from directors’ report The directors propose a dividend of 6.0 pence per share in respect of Year 2 (Year 1: 5.0 pence), amounting to £30m in total (Year 1: £25m). Notes to the financial statements: Reconcilation of movements in equity Rs. Share capital and reserves at the end of year 1 842 Less dividend paid in respect of year 1 (25) Add profit for year 2 63 Share capital and reserves at the end of year 2 880 Share price information When investors evaluate share price, they take the most up-to-date price available. However, for the exercise of comparing financial ratios it is useful to take the share prices immediately, after the preliminary announcement at the end of February or beginning of March, representing the market’s opinion when the accounting information has not become too much out of date. Rs. Market price at 1 March Year 2 202 Market price at 1 March Year 3 277 QUESTION.     Calculate and interpret following ratios from the above information §  Investor ratios §  Liquidity ratios §  Leverage ratios §  Profitability ratios

Sure, let's calculate and interpret the ratios one by one:

1. Investor Ratios:

   • Earnings per share (EPS): This is calculated as the profit for ordinary equity holders divided by the number of shares. However, the number of shares is not given in the question.
   • Dividend per share (DPS): This is calculated as the total dividends paid divided by the number of shares. Again, the number of shares is not given in the question.
   • Price/Earnings (P/E) ratio: This is calculated as the market price per share divided by the EPS. We can't calculate this without the EPS.
   • Dividend yield: This is calculated as the DPS divided by the market price per share. We can't calculate this without the DPS.

2. Liquidity Ratios:

   • Current ratio: This is calculated as current assets divided by current liabilities. For Year 2, this is 220/95 = 2.32. This means the company has 2.32 times more current assets than current liabilities, which is a good sign of short-term financial health.
   • Quick ratio: This is calculated as (current assets - inventories) divided by current liabilities. For Year 2, this is (220 - 115)/95 = 1.11. This means the company has 1.11 times more liquid current assets (i.e., excluding inventories) than current liabilities, which is also a good sign.

3. Leverage Ratios:

   • Debt ratio: This is calculated as total debt divided by total assets. For Year 2, this is 400/1280 = 0.31 or 31%. This means 31% of the company's assets are financed by debt.
   • Equity ratio: This is calculated as total equity divided by total assets. For Year 2, this is 880/1280 = 0.69 or 69%. This means 69% of the company's assets are financed by equity.

4. Profitability Ratios:

   • Gross profit margin: This is calculated as gross profit divided by revenue. For Year 2, this is 288/720 = 0.40 or 40%. This means the company makes a gross profit of 40 cents on each rupee of revenue.
   • Net profit margin: This is calculated as net profit (i.e., profit for ordinary equity holders) divided by revenue. For Year 2, this is 63/720 = 0.09 or 9%. This means the company makes a net profit of 9 cents on each rupee of revenue.
   • Return on assets (ROA): This is calculated as net profit divided by total assets. For Year 2, this is 63/1280 = 0.05 or 5%. This means the company generates a return of 5% on its assets.
   • Return on equity (ROE): This is calculated as net profit divided by total equity. For Year 2, this is 63/880 = 0.07 or 7%. This means the company generates a return of 7% on its equity.

Please note that the interpretations are based on the calculated ratios alone. For a more accurate interpretation, these ratios should be compared with industry averages or the company's past performance.