The extracted financial information of Ilya Trading for 2019 and 2018 are presented below: 2019 2018...

The extracted financial information of Ilya Trading for 2019 and 2018 are presented below:

	2019	2018
	RM	RM
Fixed Assets	7,288	5,870
Current Assets	17,693	16,357
Current Liabilities	9,829	9,027
Long Term Liabilities	1,509	583
Share Capital	4,965	4,965
Retained Profit	8,678	7,652
Sales	35,395	40,192
Net Profit	1,801	2,149

Required:

Compute the following ratios for both year 2019 and 2018.

Profit Margin
Return on Total Assets
Return on Equity
Current Ratio
Debt Ratio

Briefly compare and comment the performance of Ilya Trading based on the ratios computed for year 2019 and 2018 above.

Expert Solution

A:

	Formula	2019	2018
Profit margin	Net profit/Sales	*5.09%*	*5.35%*

Return on Total assets	Net profit/(fixed assets + current assets)	*7.21%*	*9.67%*

ROE	Net profit/(share capital+retained earnings)	*13.20%*	*17.03%*

Current ratio	Current assets/Current liabilities	*1.80*	*1.81*

Debt ratio	(Current liabilities+long term liabilities)/(fixed assets/current assets)	*0.45*	*0.43*

B: From the above ratios we can see that the company’s profit margin declined from 5.35% in 2018 to 5.09% in 2019. This shows that the company made less profit in 2019 per $ of sales when compared to 2018. The company’s return on total assets also declined in 2019 to 7.21% from the year ago figure of 9.67%. This shows that the company is generating less profit now per $ of assets used when compared to 2018 figure. Expectedly the company’s ROE also declined as well in 2019 when compared to 2018 figure. All these can be attributed to declining profitability of the company. The company’s current ratio has remained more or less stable and this shows stability in its ability to meet its short term obligations. Debt ratio increased in 2019 and this means that the company is making use of higher leverage in 2019 i.e. making use of higher debt in 2019 when compared to 2018.

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ekkarill92 answered 1 year ago

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