Question

Calculate the following ratios for 2014 and show the steps involved:

a) Inventory turnover ratio

b) average days in inventory

c) receivables turnover ratio

d) average collection period

e) asset turnover ratio

f) profit margin on sales

g) return on assets

h) return on shareholders equity

i) equity multiplier

j) return on shareholders equity using the Du Port framework

Note: See attached balance sheet and income statement below as reference

Notes Parent Company 2014 2013 RO RO Consolidated 2014 2013 RO RO 29 30 66,988,731 (33,391,238) 33,597,493 67,342,941 (32,965,032) 34,377,909 94,292,989 (54,866,268) 39,426,721 93,290,315 (53,723,059) 39,567,256 31 (2,555,831) (3,915,944) 33 34 Revenue Cost of sales Gross profit General and administrative expenses Selling and distribution expenses Other income Profit from operations Finance cost - net Investment income Share of profit in an associate Fair value gain on financial assets at fair value through profit or loss Profit before tax Income tax Total profit and comprehensive income for the year Basic and diluted earnings per share: (6,429,310) 157,553 24,769,905 (1,945,406) 1,254,715 (2,462,668) (6,524,524) 167,988 25,558,705 (1,841,665) 1,163,172 (4,400,203) (4,871,926) 355,391 30,509,983 (1,943,423) 143,529 1,462,316 (5,301,671) 190.116 30,539,757 (1,887,443) 126,987 1.273,916 35 36 6 13 568,150 215,848 24,295,062 (2,962,086) 25,448,362 (3,095,454) 215,848 30,388,253 (2,962,086) 568,150 30,621,367 (3,095,454) 37 21,332,976 22,352,908 27,426,167 27,525,913 38 0.107 0.112 0.137 0.138

Answer 1

Calculate the following ratios for 2014 and show the steps involved:

a) Inventory turnover ratio

Ans. Inventory Turnover ratio = Cost of Goods Sold [COGS] / Average Inventory

For Parent Company = 33391238/ [10847780+8259331]/2

= 33391238/ [19107111/2]

= 33391238/9553555.50

= 3.50 approx.

For Consolidation = 54866268 [16991395+14235574]/2

= 54866268/ [33726969/2]

= 54866268/16863484.50

= 3.25  approx.

Ans. b) Average days in inventory = 365 / Inventory Turnover Ratio

For Parent Company = 365/ 3.5

= 104.29

For Consolidation = 365/3.25

= 112.31 approx

Ans. c) Receivables Turnover Ratio = Net Credit Sales / [Average Accounts Receivables]

* All sales assumed credit and net

For Parent Company = 66988731/ [4980041+5020850]/2

= 66988731/ [10000891/2]

= 66988731/5000445.50

= 13.40 approx.

For Consolidation = 94292989/[8991151+8493338]/2

= 94292989 [ 17484489/2]

= 94292989/8742244.5

= 10.79 approx.

Ans d) Average collection period = 365/Receivable Turnover

  

For Parent Company = 365/ 13.4

= 27.24 approx

For Consolidation = 365/10.79

= 33.83 approx

Ans. e) Asset turnover ratio = Net Sales / Average Total Assets

For Parent Company = 66988731/ [188111440+180207459]/2

= 66988731/ [368318899/2]

= 66988731/184159450

= 0.36 approx.

For Consolidation = 94292989/[205106210+204174931]/2

= 94292989 [ 409281141/2]

= 94292989/204640571

= 0.46 approx.

Ans. f) Profit margin on sales = Net Profit / Net Sales

For Parent Company = 21332976/ 66988731

= 0.32 approx

For Consolidation = 27426167/ 94292989

= 0.29 approx

Ans g) Return on assets = Net Incomme/ Average Total Assets

= Net Income/[Op.Total Assets+Clo. Total Assests]2]

For Parent Co. =21332976/[188111440+18020749]2

=21332976/368318899/2

=21332976/1841940

=0.12 approx

• For Consolidation
• =27426167/[205116210+204174931]2
• =27426167/[409291141]/2
• =27426167/204645571
• =0.13 approx

Ans h) Return on shareholders equity= Net Income / Equity

For Parent Company = 21332976/121605408 =17.54%

For Consolidation = 27426167/142063220 =19.31%

Ans i) Equity multiplier= Total Assets/Equity

For Parent Company =180207459/121605408 =1.48

For Consolidation= 1.44

Ans j) Return on shareholders equity using the Du Pont framework

= Net Profit Margin x Assets Turnover x Equity Multiplier

   = Net Income /Revenue x Revenue/Averagea TOTAL ASSETS x AVERAGE TOTAL ASSETS/Average Equity

= Net Income / Average Equity

For Parents Company =21332976/[121605408+115272432]/2 = 21332976/118438920=0.18 =18%

For cConsolidate= 27426167 /[142063220+1296337053]/2 =27426167/135850137 =0.20188 =20.19%

=