Question

Noel Chappell has started the car repair business for five years. He is interested to know the performance of his business. The statement of financial position is shown below:

			Noel Chappell
			Statement of Financial Position
			As at 30 June
				2018		2019
				($)		($)
Assets
Cash				6,000		3,000
Accounts receivable				14,000		17,000
Inventory				13,000		19,000
Non-current assets (net)				27,000		20,000
Total assets				60,000		59,000
Liabilities and shareholders' equity
Accounts payable				20,000		22,000
Long term borrowings				16,000		13,000
Capital				24,000		24,000
Total liabilities and shareholders' equity				60,000		59,000

Additional information:

Total assets as at 1 July 2017 were $25,000.

Total revenues/sales in 2019 were $180,000 and in 2018 were $140,000.

Profit after tax for 2019 is $36000 and in 2018 is $28000.

Required

(i)    Calculate the following ratios for 2018 and 2019:

1.     current ratio

2.     quick ratio

3.     debt ratio

4.     asset turnover ratio

5.    profit margin

The industry average of the liquidity ratio for similar businesses is also provided:

current ratio	1.3:1
quick ratio	0.8:1
debt ratio	50%
asset turnover ratio	4.0:1

(ii) Comment on the liquidity and financial stability performance of the business.

Answer 1

working notes

current ratio= current assets / current liabilities

quick ratio = quick assets / current liabilities

debt ratio= total debt / averahe assets *100

asset turnover = total sales/ average assets

profit margin = profit / sales*100