Question

Case Study 5

Waleed Company Ltd. is a wholesaler of building and hardware materials in Muscat. Company furnished the following information to measure its performance by using different ratios for the year 2019: -

Company started its business with share capital and debts of RO 1,789,000 consisting of 558,000 shares of RO 2.500 each and bonds payable RO 394,000. Company’s assets including building worth RO 125,000, machinery worth RO 135,000, cash available in the office RO 62,500 and at bank 37,500. At the end of 2019, the inventory reported worth RO 28,750. Later in the year company purchased furniture worth of RO 99,850. In the year 2019, company has made the sale of RO 325,800 by incurring cost of goods sold RO 199,500 and operating expenses RO 22,500.   The income from other sources reported RO 45,800. Company paid interest of RO 5,000 on bonds payable in the year 2019. The total outstanding expenses and accounts payable reported RO 10,500 and RO 24,500 at the end of the year 2019.

Company also paid taxes at 15% on net profit. The dividend declared and paid 27.5% on PAT.   The market value of the shares at the end of the year RO 3.750 each.

Requirements: - Calculate the following ratios: -

1. Shareholder’s Ratios by showing all required calculations and formulas.            [4 Marks]
2. Profitability Ratios by showing all required calculations and formulas.              [4 Marks]
3. Current and Quick Ratio by showing all required calculations and formulas.          [2 Marks]

Answer 1

Profit and Loss A/C
Particulars	Amount	Particulars	Amount
COGS	RO 199,500	Sale	RO 325,800
Operating Expenses	RO 22,500	Income from Other Sources	RO 45,800
Interest on Bond Paid	RO 5,000	Closing Stock	RO 28,750
OS Expenses	RO 10,500
Tax Paid (15%)	RO 18,247
Dividend Paid (27.5%)	RO 33,454
Net Profit	RO 111,149
	RO 400,350		RO 400,350

A) Share Holder's Ratio

=Total Shareholder's Equity / Total Assets

= (2,092,500 / 488,600)

=4.2826

Note:

1. Share Holder's Equity = 558000 shares @ RO 3.7500

2. Total Assets Include:

Building	RO 125,000
Machinary	RO 135,000
Cash in Hand	RO 62,500
Bank	RO 37,500
Stock in Hand	RO 28,750
Furniture Purchase	RO 99,850
	RO 488,600

B) Profitability Ratio (Net Profit Margin)

= (Net Profit / Sales) X 100

= (RO 111,149 / RO 325,800) X100

= 34.1157 %

C) Current & Quick Ratio

Current Ratio:

= Current Assets / Current Liabilities

= RO 128750 / RO 35000

= 3.6786

Note:

Current Assets
Cash in Hand	RO 62,500
Bank	RO 37,500
Stock in Hand	RO 28,750
	RO 128,750

Current Liabilities
OS Expenses	RO 10,500
Account payable	RO 24,500
	RO 35,000

Quick Ratio:

= Liquid Assets / Current Liabilities

= RO 100000 / RO 35000

= 2.8571

Note:

Liquid Assets
Cash in Hand	RO 62,500
Bank	RO 37,500
	RO 100,000