Question

The following financial statements relate to Whinchat plc, which operates a wholesale carpet business:

Income statements for the year ended 31 March Year 12 and Year 13

	Year 12	Year 13
	€m	€m
Revenue*	2,240	2,681
Cost of sales	(1,745)	(2,272)
Gross profit	495	409
Operating expenses	(252)	(362)
Operating profit	243	47
Interest payable	(18)	(32)
Profit before taxation	225	15
Taxation	(60)	(4)
Profit for the year	165	11

*    All sales and purchases are made on credit.

Balance sheets as at 31 March Year 12 and Year 13

	Year 12	Year 13
ASSETS	€m	€m
Non-current assets
Property, plant and equipment
Land and buildings	381	427
Fixtures and fittings	129	160
	510	587
Current assets
Inventories	300	406
Trade receivables	240	273
Cash at bank	4	–
	544	679
Total assets	1,054	1,266
EQUITY AND LIABILITIES
Equity
Ordinary €0.50 shares	300	300
Reserves – retained profits	263	234
	563	534
Non-current liabilities
Borrowings – loan notes	200	300
Current liabilities
Trade payables	261	354
Taxation	30	2
Short-term borrowings (all bank overdraft)	-	76
	291	432
Total equity and liabilities	1,054	1,266

1. Calculate the operating profit margin of Whinchat plc as at 31 March Year 12 and as at 31 March Year 13.
2. Calculate the gross profit margin of Whinchat plc as at 31 March Year 12 and as at 31 March Year 13.
3. Calculate the inventory turnover period of Whinchat plc as at 31 March Year 12 and as at 31 March Year 13.
4. Calculate the current ratio of Whinchat plc as at 31 March Year 12 and as at 31 March Year 13.
5. Calculate the acid test ratio of Whinchat plc as at 31 March Year 12 and as at 31 March Year 13.
6. Calculate the gearing ratio of Whinchat plc as at 31 March Year 12 and as at 31 March Year 13.
7. Calculate the interest cover ratio of Whinchat plc as at 31 March Year 12 and as at 31 March Year 13.

Answer 1

a). Operaing profit margin = (Operating profit/Revenue)*100

Operating profit margin as at 31 March year 12 = (243/2240)*100 = 10.85%

Operating profit margin as at 31 March year 13 = (47/2681)*100 = 1.75%

b). Gross profit margin = (Gross profit/Revenue)*100

Gross profit margin as at 31 March year 12 = (495/2240)*100 = 22.10%

Gross profit margin as at 31 March year 13 = (409/2681)*100 = 15.26%

c). Inventory turnover period = (Inventory/Cost of Goods sold)*365

Inventory turnover period for the year ending 31 March year 12 = (300/1745)*365 = 62.75 days

Inventory turnover period for the year ending 31 March year 13 = (406/2272)*365 = 65.22 days

d). Current ratio = Current assets/Current liabilities

Current ratio as at 31 March year 12 = 544/291 = 1.87

Current ratio as at 31 March year 13 = 679/432 = 1.57

e). Acid test ratio = (Current assets-Inventory)/Current Liabilities

Acid test ratio as at 31 March year 12 = (544-300)/291 = 0.8385

Acid test ratio as at 31 March year 13 = (679-406)/432 = 0.6319