The following is an extract from the financial statements of Lusaka (Pty) Ltd for the year ended 28 February 2024: 2024 R’000Cost of sales42 323Gross profit34 155Operating expenses17 820Finance costs1 617Income tax3 267Capital and reserves73 095Long-term (interest-bearing) borrowings7 425Bank balance (overdraft)743Trade payables9 445Non-current assets75 059Trade receivables10 303Inventory5 346 Required:Complete the table below to calculate the following ratios and choose the nearest correct answer from the list of options provided:Ratio2024Return on assets (ROA)Blank 1Debtors’ collection periodBlank 2Days' sales inventory heldBlank 3Operating profit marginBlank 4Quick ratioBlank 5Gross profit marginBlank 6Debt ratioBlank 7
Question
The following is an extract from the financial statements of Lusaka (Pty) Ltd for the year ended 28 February 2024: 2024 R’000Cost of sales42 323Gross profit34 155Operating expenses17 820Finance costs1 617Income tax3 267Capital and reserves73 095Long-term (interest-bearing) borrowings7 425Bank balance (overdraft)743Trade payables9 445Non-current assets75 059Trade receivables10 303Inventory5 346 Required:Complete the table below to calculate the following ratios and choose the nearest correct answer from the list of options provided:Ratio2024Return on assets (ROA)Blank 1Debtors’ collection periodBlank 2Days' sales inventory heldBlank 3Operating profit marginBlank 4Quick ratioBlank 5Gross profit marginBlank 6Debt ratioBlank 7
Solution
To calculate the ratios, we first need to determine some additional figures from the financial statements:
- Sales = Cost of Sales + Gross Profit = 42,323 + 34,155 = 76,478
- Operating Profit = Gross Profit - Operating Expenses = 34,155 - 17,820 = 16,335
- Total Assets = Non-current Assets + Current Assets (Trade Receivables + Inventory) = 75,059 + (10,303 + 5,346) = 90,708
- Current Liabilities = Trade Payables + Bank Overdraft = 9,445 + 743 = 10,188
- Total Debt = Long-term borrowings + Current Liabilities = 7,425 + 10,188 = 17,613
- Net Income = Operating Profit - Finance Costs - Income Tax = 16,335 - 1,617 - 3,267 = 11,451
Now we can calculate the ratios:
- Return on Assets (ROA) = Net Income / Total Assets = 11,451 / 90,708 = 0.126 or 12.6%
- Debtors’ Collection Period = (Trade Receivables / Sales) x 365 = (10,303 / 76,478) x 365 = 49.2 days
- Days' Sales Inventory Held = (Inventory / Cost of Sales) x 365 = (5,346 / 42,323) x 365 = 46.1 days
- Operating Profit Margin = Operating Profit / Sales = 16,335 / 76,478 = 0.213 or 21.3%
- Quick Ratio = (Current Assets - Inventory) / Current Liabilities = (15,649 - 5,346) / 10,188 = 1.01
- Gross Profit Margin = Gross Profit / Sales = 34,155 / 76,478 = 0.446 or 44.6%
- Debt Ratio = Total Debt / Total Assets = 17,613 / 90,708 = 0.194 or 19.4%
Similar Questions
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