Question

FINANCIAL ANALYSIS
The extracts of the financial statements of Micanfin Auto Spares (Pvt) Limited for 2017 are provided
below:
Extract of the Statement of Comprehensive Income for the year ended 31 December 2017.
Sales (credit) 1 288 000
Less cost of sales 650 000
Gross profit 638 000
Less Operating expenses 360 000
Operating profit 278 000
Less interest expense 70 000
Profit before tax 208 000
Profit after tax 180 000
Extract of Statement of Financial Position as at 31 December 2017.
Non-current assets 1 140 000
Inventories 266 000
Debtors 300 000
Bank 220 000
Total assets 1 926 000
Ordinary share capital 1 000 000
Retained earnings 482 000
Non-current liabilities 240 000
Creditors 215 000
Total liabilities 1 926 000
Required:
Calculate the following ratios for 2017. Where applicable, answers must be rounded off to two decimal places.
Profit margin
Interest cover
Debtors collection period
Current ratio
Acid test ratio
Return on own capital

Answer 1

3.1

Profit margin = Profit after tax / sales

Profit margin = 180,000/1,288,000

Profit margin = 13.98%

____________________

3.2

Interest cover = EBIT / Interest

Interest cover = 278,000 / 70,000

Interest cover = 3.97 times

____________________________

3.3

Debtor collection period = (Accounts receivable*365)/Credit sales

Debtors collection period = (300,000*365)/1,288,000

Debtor collection period= 85.02 days

________________________________

3.4

Current ratio = current asset / current liabilities

Current ratio = (266,000+300000+220,000)/215,000

Current ratio = 786,000/215,000

Current ratio = 3.66

____________________________

3.5

Acid test ratio= (Debtors+cash) / current liabilities

Acid test ratio = (300000+220,000)/215,000

Acid test ratio = 520,000/215,000

Acid test ratio = 2.42

__________________________________

3.6

Return on own capital =profit after tax / Own capital

Return on own capital = 180,000/(1,000,000+482,000)

Return on own capital = 12.15%