The computation of the following financial ratios for Golden Times Ltd is as follows:
<h3>(i) Return on capital employed:</h3>
= Profit after tax/Total assets - current liabilities x 100
= 12.44% (Sh 224,000/ Sh 1,800,000) x 100
<h3>(ii) The profit margin:</h3>
= Profit after tax/Sales revenue x 100
= 5.6% (Sh 224,000/Sh 4,000,000 x 100)
<h3>(iii) The turnover of capital:</h3>
= Sales Revenue/Equity
= 2.86 x (Sh 4,000,000/Sh 1,400,000
<h3>(iv) Current ratio:</h3>
= Current Assets/Current Liabilities
= 1.09 (Sh 1,520,000/Sh 1,400,000)
<h3>(v) Liquid ratio:</h3>
= Current Assets less Stocks /Current Liabilities
= 0.37 (Sh 1,520,000 - Sh 1,000,000/Sh 1,400,000)
<h3>(vi) Number of days accounts receivable are outstanding:</h3>
= Average Accounts Receivable/Sales Revenue x 365
= (Sh. 400,000/Sh. 4,000,000 x 365
= 36.5 days
<h3>(vii) Proprietary ratio:</h3>
= Shareholders equity/Total assets x 100
= 43.75% (Sh. 1,400,000/Sh. 3,200,000)
<h3>(viii) Stock turnover ratio:</h3>
= Cost of goods sold / Average stock
= 2.11 x (Sh. 3,000,000/Sh. 1,420,000)
<h3>(ix) Dividend yield ratio:</h3>
= Dividend per share/Price per share
= 5.36% (Sh. 0.268/Sh.5 x 100)
<h3>(x) Price earnings ratio:</h3>
= Market price per share/Earnings per share
= 8.93x (Sh. 5/Sh. 0.56)
<h3>Data and Calculations:</h3>
Golden Times Ltd
<h3>Balance sheet</h3>
As at 31 March 2000
Sh. Sh. Sh.
Fixed Assets:
Freehold property (Net Book Value) 480,000
Plant and machinery (Net Book Value) 800,000
Motor Vehicle (Net Book Value) 200,000
Furniture and fittings (Net Book Value) 200,000
1,680,000
Current Assets:
Stocks 1,000,000
Debtors 400,000
Investments 120,000
1,520,000
Current Liabilities:
Trade creditors 338,400
Bank overdraft 878,400
Corporation tax 176,000
Dividends payable 107,200 1,400,000 120,000
1,800,000
Financed by:
Authorized share capital – 800,000
Sh. 1 ordinary shares
Issued and fully paid: 400,000 Sh.1 400,000
Ordinary shares
Capital reserve 200,000
Revenue reserve 800,000
Loan capital: 400,000 10% Sh. 1 Debentures 400,000
1,800,000
Golden Times Ltd
<h3>Profit and loss account</h3>
For the year ended 31 March 2000
Sh.
Sales (credit) 4,000,000
Profit after charging all expenses except interest on 440,000
debentures
Less: Debenture interest (40,000)
Profit before tax 400,000
Corporation tax 176,000
Profit after tax 224,000
Less: Ordinary dividend proposed (107,200)
Retained profit transferred to revenue reserve 116,800
Beginning stock = Sh. 1,840,000 (Sh. 3,000,000 + 1,000,000 - 2,160,000)
Average stock = Sh. 1,420,000 (Sh. 1840,000 + Sh. 1,000,000)/2
Dividend per share = Sh. 0.268 (Sh 107,200/400,000)
Earnings per share = Sh. 0.56 (Sh. 224,000/400,000)
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