Question

PKM Ltd is a private company in Ghana and extracts from its most recent financial statements are provided below: Statement of profit or loss for the year ended 31 March 2017 2018 GH¢ GH¢ Sales 50,000 36,000 Cost of sales (30,000) (24,000) 20,000 12,000 Profit from sale of division - 1,000 Distribution costs (5,300) (3,500) Finance costs (2,900) (4,800) Administrative costs (800) (400) 11,000 4,300 Income tax expense (3,300) (1,300) Profit after tax and for the year 7,700 3,000 Statement of financial position as at 31st March 2017 2018 Assets GH¢ GH¢ Non- current assets Property, plant and equipment 19,000 16,300 Goodwill 2,000 - 21,000 16,300 Current assets Inventories 5,800 3,400 Trade receivables 2,400 1,300 Cash at bank - 1,500 8,200 6,200 29,200 22,500 Ordinary share capital (issued at GH¢1 each) 10,000 10,000 Retained earnings 4,000 3,000 14,000 13,000 Non-current liabilities 10% debenture loan 8,000 4,000 Current liabilities Trade payables 3,100 4,300 Income tax payable 2,700 1,200 Bank overdraft 1,400 - 7,200 5,500 29,200 22,500 The market price per share is GH¢ 2 a) Calculate the following ratios using the information in the financial statements above. i) Operating profit margin ii) Gross profit margin iii) Return on assets employed iv) Debt to equity v) Interest cover vi) Current ratio vii) Quick ratio viii) Price Earnings Ratio iv) Earnings per share b)Comment on the profitability, liquidity, gearing and investment of the company for the two year periods based on the ratios computed above and advice management where appropriate.

Answer 1