Tshiawelo Pty Limited has provided you with the following extract from the financial records for the financial year ended 31 December 2023 RCost of sales2 400 000Gross profit40%Operating expenses800 000Interest expense200 000Income tax expense30%Inventories 800 000Issued capital2 000 000Trade payables500 000Trade receivables600 000Cash and other equivalents200 000Short-term borrowings500 000Long-term borrowings2 000 000Property Plant and equipment1 000 000Required:Calculate the following ratios by choosing the correct answer from the options provided:Revenue from sales Blank 1 Net profit margin Blank 2Current ratio Blank 3Quick ratio Blank 4Debtors’ collection period Blank 5 Return on assets (ROA) Blank 6Days’ sales inventory held Blank 7Times interest earned ratio Blank 8
Question
Tshiawelo Pty Limited has provided you with the following extract from the financial records for the financial year ended 31 December 2023 RCost of sales2 400 000Gross profit40%Operating expenses800 000Interest expense200 000Income tax expense30%Inventories 800 000Issued capital2 000 000Trade payables500 000Trade receivables600 000Cash and other equivalents200 000Short-term borrowings500 000Long-term borrowings2 000 000Property Plant and equipment1 000 000Required:Calculate the following ratios by choosing the correct answer from the options provided:Revenue from sales Blank 1 Net profit margin Blank 2Current ratio Blank 3Quick ratio Blank 4Debtors’ collection period Blank 5 Return on assets (ROA) Blank 6Days’ sales inventory held Blank 7Times interest earned ratio Blank 8
Solution
To calculate the ratios, we first need to derive some figures from the given data:
-
Revenue from sales: This can be calculated by dividing the cost of sales by (1 - Gross profit margin). So, Revenue = 2,400,000 / (1 - 0.40) = 4,000,000.
-
Net profit: This is calculated by subtracting operating expenses, interest expense, and income tax expense from the gross profit. Gross profit is 40% of revenue, which is 1,600,000. Income tax is 30% of the profit before tax. So, Net profit = Gross profit - Operating expenses - Interest expense - Income tax = 1,600,000 - 800,000 - 200,000 - (1,600,000 - 800,000 - 200,000) * 30% = 420,000.
Now, we can calculate the ratios:
-
Net profit margin: This is calculated by dividing net profit by revenue. So, Net profit margin = Net profit / Revenue = 420,000 / 4,000,000 = 10.5%.
-
Current ratio: This is calculated by dividing current assets by current liabilities. Current assets include inventories, trade receivables, and cash and other equivalents, which total 1,600,000. Current liabilities include trade payables and short-term borrowings, which total 1,000,000. So, Current ratio = Current assets / Current liabilities = 1,600,000 / 1,000,000 = 1.6.
-
Quick ratio: This is calculated by subtracting inventories from current assets and dividing the result by current liabilities. So, Quick ratio = (Current assets - Inventories) / Current liabilities = (1,600,000 - 800,000) / 1,000,000 = 0.8.
-
Debtors’ collection period: This is calculated by dividing trade receivables by revenue and multiplying the result by 365. So, Debtors’ collection period = (Trade receivables / Revenue) * 365 = (600,000 / 4,000,000) * 365 = 55 days.
-
Return on assets (ROA): This is calculated by dividing net profit by total assets. Total assets include current assets and property, plant, and equipment, which total 2,600,000. So, ROA = Net profit / Total assets = 420,000 / 2,600,000 = 16.15%.
-
Days’ sales inventory held: This is calculated by dividing inventories by cost of sales and multiplying the result by 365. So, Days’ sales inventory held = (Inventories / Cost of sales) * 365 = (800,000 / 2,400,000) * 365 = 122 days.
-
Times interest earned ratio: This is calculated by dividing earnings before interest and tax (EBIT) by interest expense. EBIT is gross profit minus operating expenses, which is 800,000. So, Times interest earned ratio = EBIT / Interest expense = 800,000 / 200,000 = 4 times.
Similar Questions
The following is an extract from the financial statements of Lusaka (Pty) Ltd for the year ended 28 February 2024: 2024 R’000 Cost of sales 42 323 Gross profit 34 155 Operating expenses 17 820 Finance costs 1 617 Income tax 3 267 Capital and reserves 73 095 Long-term (interest-bearing) borrowings 7 425 Bank balance (overdraft) 743 Trade payables 9 445 Non-current assets 75 059 Trade receivables 10 303 Inventory 5 346 Required: Complete the table below to calculate the following ratios and choose the nearest correct answer from the list of options provided: Ratio 2024 Return on assets (ROA) Blank 1 Debtors’ collection period Blank 2 Days' sales inventory held Blank 3 Operating profit margin Blank 4 Quick ratio Blank 5 Gross profit margin Blank 6 Debt ratio Blank 7
Incomplete statements and ratio analysis of Velaphi Mjongeni Pty Limited are given below:Velaphi Mjongeni Pty LimitedStatement of profit or loss for the year ended 31 December 2023 RSales2 700 000Cost of sales?Gross profit?Operating expenses?Profit from operations?Finance cost45 000Profit before tax?Income tax expense (30%)?Net profit for the year? Velaphi Mjongeni Pty LimitedStatement of financial position for the year ended 31 December 2023 RAssets Non-current assets Property, Plant and equipment?Current assets?Inventories320 000Trade receivables?Cash and cash equivalents?Total assets?Equity and liabilities Capital and reserves Issued capital @ R2.50 per share100 000Accumulated profits/losses?Current liabilities250 000Non-current liabilities @10%?Total equity and liabilities? The following additional information is available about Velaphi Mjongeni Pty Limited:1. Selected financial ratios calculated from the statements above are given below:Gross profit margin…………………....40%Current ratio………………………......2.40 to 1Quick ratio………………………..........1.12 to 1Debt-to-equity ratio………………..0.875 to 1Times interest earned…………….7 timesReturn on total assets………………..14% 2. All sales during the year were on credit.3. The interest expense on the statement of profit or loss relates to the bonds payable, the bonds outstanding did not change throughout the year.4. There were no changes in the number of shares outstanding during the year. Required:Calculate the following and choose the correct answer from the options provided: Cost of sales Blank 1Gross profit Blank 2Operating expenses Blank 3Profit from operations Blank 4Income tax expense Blank 5Net profit for the year Blank 6Total equity Blank 7Accumulated profits/losses Blank 8Non-current liabilities Blank 9Total current assets Blank 10
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
Purchases Rs. 7,20,000; Office expenses Rs. 30,000; Selling expenses Rs. 90,000; Opening inventory Rs. 1,40,000; Closing inventory Rs. 80,000; Revenue from operations Rs. 12,00,000. Calculate Operating Ratio
Using the financial statements below, calculate the current ratio for the current year. Please calculate to 2 decimal places.Profit and loss statement Current year Prior yearRevenue 14,800 18,500Less Cost of sales 6,000 7,500Gross profit 8,800 11,000Less expenses Wages Expense 5,500 6,500Interest Expense 2,200 2,000Depreciation Expense 1,000 1,200Advertising Expense 900 800Net profit (800) 500BALANCE SHEET Current year Prior yearCurrent assets Cash 14,250 16,700Accounts Receivable 14,000 3,500Inventory 6,000 2,500Prepaid Expenses 650 1,500Non-current assetsProperty Plant Equipment 192,500 193,500Land 210,000 210,000Total assets 437,400 427,700Current liabilitiesAccounts Payable 11,700 4,200Unearned Revenue 3,500 2,000Wages Payable 3,500 2,500Non-current liabilitiesBank Loan 118,000 122,500Total liabilities 136,700 131,200NET ASSETS 300,700 296,500Equity Share Capital 255,000 250,000Retained Earnings 45,700 46,500TOTAL EQUITY 300,700 296,500
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.