Note: Formula sheets are attached below: Question 8: Analysis and Interpretation

Question

Note: Formula sheets are attached below:

Question 8: Analysis and Interpretation of Financial Statements (21 marks) NuBold Ltd, in operation for three years, is a medium size retailer in construction hardware indus try. It purchases the goods from the wholesaler and redistribute to smaller redistributor and individuals. Its most recent set of accounts is set out below. NuBold Ltd Balance Sheet as at 31 December 2016 RM'000 RM 000 Current assets Debtors Inventory 940 580 1.520 Non-current assets Freehold land and buildings Plant and machinery (net value) 168 512 680 2.200 Total assets Current liabilities Bank overdraft Creditors Taxation 254 401 95 750 Non-current liabilities Bank loan 420 Shareholders' equity Paid-up capital (issued at RM1 each) Retained profits Total liabilities and shareholders' equity 650 380 1030 2,200

Explanation / Answer

1. Return On capital employed

(Net profit befor intrest and taxation/shrare equity+reserves+long term loans)*100

(317/1450)*100 = 21.86%

2. Compared to last year company ROCE has gone down that means how the company uses its cpaital and long term loans for generating profitability has gone down.

3. Suggestion for gross profit should be to focus on Inventory Management to bring down the inventory cost and for the net profit will be to operate more efficently and to get more for what they have invested in each departments.

4. Net Profit Margin= (317/2286)*100 = 13.87%

5. Gross profit margin = (gross profit/sales)*100

(846/2286)*100= 37%

6.current Ratio = Current assets / current liabilities

1520/750= 2.0267

7. Quick ratio = Current assets- Inventory/ Current Liabilities

940/750= 1.2534

8. Gearing Ratio= (long term Liabilities/share capital+reserves+long term liabilities)*100

(420/1450)*100= 28.97%
9. Limitation of ratio anlaysis

That caompany can do window dressing that would show completly different picture then actual/

If there is change in accounting poloicy then current ratios cannot be compared with the previous one.

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