The extracts of the financial statements of TBN Limited for 2023 are provided below:
Extract of the Statement of Comprehensive Income for the year ended 31 December 2023
R
Sales (credit) 988 000
Less cost of sales 400 000
Gross profit 560 000
Less Operating expenses 160 000
Operating profit ...
QUESTION ONE [25]
The extracts of the financial statements of TBN Limited for 2023 are provided below:
Extract of the Statement of Comprehensive Income for the year ended 31 December 2023
R
Sales (credit) 988 000
Less cost of sales 400 000
Gross profit 560 000
Less Operating expenses 160 000
Operating profit 400 000
Less interest expense 70 000
Profit before tax 330 000
Profit after tax 280 000
Extract of Statement of Financial Position as at 31 December 2023
Non-current assets 1 140 000
Inventories 266 000
Debtors 300 000
Bank 220 000
Total assets 1 926 000
, Required:
Calculate the following ratios for 2023: (Where applicable, answers must be rounded off to two decimal
places.)
1.1 Profit margin (3)
1.2 Interest cover (4)
1.3 Debtors collection period (4)
1.4 Current ratio (4)
1.5 Acid test ratio (4)
1.6 Return on total assets (2)
1.7 Inventory turnover (Inventory 1 January 2021: R204 000) (2)
1.8 Comment on the acid test ratio (2)
SOLUTION:
1.1 Profit margin = Net profit / sales x 100
= 280 000 x 100
= 28.34%
1.2 Interest cover = Operating profit / interest expense
= 400 000
= 5.71 times
1.3 Debtors collection period = Debtors / Credit sales x 365
= 300 000 x 365
= 110.83 days
1.4 Current ratio = Current assets / Current liabilities
= (266 000 + 300 000 + 220 000) / 215 000
= 786 000
= 3.66 : 1
1.5 Acid test ratio = Current assets – Inventories / Current liabilities
= (786 000 – 266 000) / 215 000
= 520 000
= 2.42 : 1
1.6 Return on total assets = Net profit / Total assets x 100
= 280 926 000 x 100
= 14.54%
1.7 Inventory turnover = Cost of sales / Average inventory
= 400 000 / (266 000 + 204 000) ÷2
= 400 000
= 1.70 times
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