Question

Question 3

Comparative financial statement data of Tardis Plc follow:

Tardis Plc

Comparative Income Statement

For the year ended 30 June 2020

	2020	2019
Net Sales	667,000	599,000
Cost of Goods Sold	(378,000)	(283,000)
Gross Profit	289,000	316,000
Operating Expenses	129,000	147,000
Interest Expense	57,000	41,000
Total Expenses	186,000	188,000
Profit Before Incoming Tax	103,000	128,000
Income Tax Expense	34,000	53,000
Net Profit	69,000	75,000

Tardis Plc

Comparative Balance Sheet

As of 30 June 2020

	2020	2019	2018
Current Assets:
Cash	37,000	40,000
Account Receivable	208,000	151,000	183,000
Inventories	352,000	286,000	184,000
Prepaid Expenses	5,000	20,000
Total Current Assets	602,000	497,000
Property Plant and Equipment	287,000	276,000
Total Assets	889,000	773,000	707,000
Total Current Liabilities	286,000	267,000
Long Term Liabilities	245,000	235,000
Total Liabilities	531,000	502,000
Preference Share Capital	50,000	50,000
Ordinary Share Capital	308,000	221,000	148,000
Total Liabilities and Shareholders' Equity	889,000	773,000

Other information:
1. The market price of Tardis Plc ordinary shares: $36.75 at 30 June 2020,

and $50.50 at 30 June 2019

2. Ordinary shares outstanding 15,000 during 2020 and 14,000 during 2019

3. All sales of CREDIT

Required:
1. Calculate the following ratios for 2020 and 2019

(a) Current ratio

(b) Inventory turnover

(c) Times interest earned

(d) Return on Ordinary equity

(e) Earnings per share of ordinary shares

(f) Price /Earnings ratio

2. Comment on the company’s performance and decide whether Tardis’ financial position improved or deteriorated during 2020 and the investment attractiveness of its ordinary shares.

Answer 1

1

a current ratio = current assets / current liabilities

Current ratio in 2019 = 497000 / 267000

= 1.86

Current ratio in 2020 = 602000 / 286000 = 2.1

b inventory turnover ratio = cost of goods sold / average inventory

Average inventory = beginning inventory + closing inventory / 2

Inventory turnover in 2019 = 283000 / 235000 = 1.20

Inventory turnover in 2020 = 378000 / 319000 = 1.18

C time interest earned ratio = income before interest and taxes / total interest expenses

   Time interest earned ratio in 2019 = 169000 / 41000 =    4.12

Time interest earned ratio in 2020 = 160000 / 57000 = 2.80

d return on ordinary equity = net income / average ordinary equity

Average ordinary equity = beginning ordinary equity + closing ordinary equity / 2

Return on ordinary equity in 2019 = 75000 / 184500 = .406

Return on ordinary equity in 2020 = 69000 / 264500 = .26

e earning per share of ordinary shares = income available to common shares holder / number of common shares outstanding ( weighted average number of common shares outstanding)

In this case there is no information about preferred dividend . So net income is taken as income available to common share holders

Earning per share of ordinary shares in 2019

= 75000 / 14000 = 5.36

Earning per share of ordinary shares in 2020

= 69000 / 15000 = 4.6

f price earning ratio = market price per share / earnings per share

Price earning ratio in 2019 = 50.50 / 5.36 = 9.42

Price earning ratio in 2020 = 36.75 / 4.6 = 7.99

2

Current ratio of the tardis plc improved 2020 compared to 2019 . But all other ratio includes inventory turnover ratio, time interest earned ratio, return on common equity ratio, earnings per share ratio and price earning ratios are decreased in 2020 compared to 2019.

It indicates that financial performance of the tardis plc is deteriorated in 2020 compared to 2019 . But the ability of the company to meet its current liabilities improved in 2020 compared to 2019 .

Return on ordinary equity , earning per share and price earnings ratio of tardis company are decrease in 2020 compared to 2019 . But the company provides return on equity ratio of. 26 , earnings per share ratio of 4.6 and price earnings ratio of 7.99

The above are the detailed calculations, equations and explanations

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