Sample Company One: Old Fashioned Furniture Pty Ltd You are the banking relationship manager for Old Fashioned Furniture PtyLtd. The proprietor has an appointment to see you next week to discuss plans to open another store in another town. To fund this e
Sample Company One: Old Fashioned Furniture Pty Ltd
You are the banking relationship manager for Old Fashioned Furniture PtyLtd. The proprietor has an appointment to see you next week to discuss plans to open another store in another town.
To fund this expansion, the entity needs an injection of loan capital. Prior to the meeting you have requested Old Fashioned Furniture Pty Ltd‘sfinancial statements. The following information was provided.
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Old Fashioned Furniture Pty Ltd Statement of Financial Performance for the 12 months ending 30thJune |
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|
|
2013 |
2012 |
|
Income |
$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 (EBIT) |
94,000 |
71,000 |
|
Income tax |
21,000 |
18,000 |
|
Profits after tax |
73,000 |
53,000 |
Old Fashioned Furniture Pty Ltd Statement of Financial Position as at the 30th June |
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|
|
2013 |
2012 |
|
Current Assets |
|
|
|
Cash |
$30,000 |
$20,000 |
|
Accounts receivable (net *) |
18,000 |
20,000 |
|
Inventories |
12,000 |
16,000 |
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Total Current Assets |
60,000 |
56,000 |
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Non-Current Assets |
|
|
|
Property, plant & equipment |
130,000 |
170,000 |
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Other assets |
40,000 |
32,000 |
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Total non-current assets |
170,000 |
202,000 |
|
Total Assets |
$230,000 |
$258,000 |
|
Current Liabilities |
|
|
|
Accounts payable |
15,000 |
25,000 |
|
Total current liabilities |
15,000 |
25,000 |
|
Non-current liabilities |
|
|
|
Loan (due 2015) |
50,000 |
50,000 |
|
Total non-current liabilities |
50,000 |
50,000 |
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Total Liabilities |
65,000 |
75,000 |
|
Equity |
|
|
|
Share capital |
165,000 |
183,000 |
|
Total Liabilities & Equity |
$230,000 |
$258,000 |
* Notes: The accounts receivable figure comprises;
2013 2012
Accounts receivable $20,000 $22,000
Allowance for impaired receivables 2,000 2,000
18,000 20,000
Required:
a). Give the formula for each of the following ratios, then calculate each ratio for both years using supplied end of year figures:
i. current ratio
ii. acid test ratio
iii. days inventory
iv. days debtors
v. debt to equity
vi. net profit margin
vii. return on assets
viii. return on equity.
Note: Because you do not have beginning and ending balances for BOTH years, you cannot average. Consequently you must use the supplied end of year figures when calculating ratios.
b). Based on your analysis, write a short (no more the 400 words)report on the financial performance and position of Old Fashioned Furniture Pty Ltd.
What other information would you like to possess before making your recommendation? (approximately 100 words)
What are the limitations (approximately 100 words) of undertaking an assessment of an entity based purely on ratios?
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