Question

Exercise 11.17 (East View Ltd)

(g) Times interest earned ratio ST11.17 he comparative financial statements of East View Ltd for the year ended 31 December are as follows East View Ltd Comparative income statement for the year ended 31 December 2016 2015 (RM) (RM) 260,000 300,000 Net sales (all credit sales) Less: Costs and expenses Cost of goods sold Selling and administration expenses Interest expenses 177,000 207,500 60,400 57,400 3,000 7,000 3,600 9,000 280,500 19,500 Income tax expenses Total costs and expenses Net profit 244,400 15,600 ov East View Ltd Comparative statement of financial position as at 31 December 2015 (RM) 2016 (RM) Assets Current assets 9,000 10,500 Cash Marketable securities 'Trade receivables (net) 7,500 9,000 46,000 37,000 35,000 88,500 191,500 42,000 Inventories 107,500 Total current assets 211,500 Non-current assets (net) 280,000 319,000 Total assets Liability and shareholders' equity Current liabilities Trade payables Income tax accrued 55,000 10,000 56,000 11,500 67,500 65,000 Total current liabilities Long-term liabilities Bond Total liabilities 65,000 132,500 40,000 105,000 Shareholders' equity Ordinary shares (par value RM5) Retained earnings Total shareholders' equity Total liability and shareholders' equity 75,000 75,000 100,000 111,500 175,000 186,500 280,000 319,000 Fundamentals of Accounting for Non-accounting Students Additional information: Ordinary shares are sold for RM22.50 per share. Required Calculate the following ratios for 2016: (a) Current ratio (b) Quick ratio (c) Trade receivables turnover ratio (d) Inventory turnover ratio (e) Profit margin (f Assets turnover (g) Return on assets (h) Return on shareholders' equity (i) Earnings per share Price-earnings ratio (j) (k) Payout ratio Debts to total assets ratio (1) (m) Times interest earned ratio The comparative financial statement data of Sali Furniture Ltd is as follows: ST11.18 Sali Furniture Ltd Comparative income statement for the year ended 31 December 2015 and 2016

Answer 1

a) Current Ratio Total current assets/Total current liabilities Current Ratio = (107500/67500) Current Ratio = 1.59 Times (Total current assets Inventories)/Total current liabilities b) Quick ratio Quick ratio (107500-42000)/67500 = Quick ratio 0.97 Times c) Trade receivable turnover ratio (Sales/Average accounts receivable) Trade receivable turnover ratio (300000/(46000+37000)/2) Trade receivable turnover ratio (300000/41500) Trade receivable turnover ratio = 7.23 Times (Cost of goods sold/Average Inventory d) Inventory turnover ratio Inventory turnover ratio (207500/(42000+35000)/2) Inventory turnover ratio = (207500/38500) Inventory turnover ratio = 5.39 Times e) Profit margin = (Net Profit/Net sales)*100 Profit margin (19500/300000) 100 Profit margin 6.50% f) Asset turnover (Net sales/Average total assets) Asset turnover (300000/(319000+280000)/2) = Asset turnover (300000/299500) = 1.00 Times Asset turnover = (Net Income/Average total assets)*100 g) Return on assets Return on assets = (19500/(319000+280000)/2)*100 Return on assets (19500/299500)*100 Return on assets 6.51% shareholders equity (Net Income/Average shareholders equity) 100 h) Return on Return on shareholders equity = (19500/(186500+175000)/2) Return on shareholders equity = (19500/180750) 100 Return on shareholders equity 10.79%