1Mediummains
Management
Directors of ABC Ltd. wish to diversify. Presently, ABC Ltd. is into selling finished goods from its own godown. ABC Ltd. issued debentures on 07-04-2022 and purchased fixed assets on the very same day. The purchase prices are assumed to have remained stable during the concerned period. Following financial information is available to you:
INCOME STATEMENT (₹)
2021-22: Cash sales 30,000; Credit sales 2,70,000; Less: Cost of goods sold 2,36,000; Gross profit 64,000; Less: Operating expenses – (i) Warehousing 13,000 (ii) Transport 6,000 (iii) Administrative 19,000 (iv) Selling 11,000; Net profit 15,000.
2022-23: Cash sales 32,000; Credit sales 3,42,000; Less: Cost of goods sold 2,98,000; Gross profit 76,000; Less: Operating expenses – (i) Warehousing 14,000 (ii) Transport 10,000 (iii) Administrative 19,000 (iv) Selling 57,000; Net profit 19,000.
BALANCE SHEET (₹)
Assets & Liabilities 2021-22 2022-23
Fixed Assets (Net Block) – 30,000 – 40,000
Receivables 50,000 82,000
Cash at Bank 10,000 7,000
Stock 60,000 94,000
Total Current Assets (CA) 1,20,000 1,83,000
Payables 50,000 76,000
Total Current Liabilities (CL) 50,000 76,000
Working Capital (CA-CL) 70,000 1,07,000
Net Assets 1,00,000 1,47,000
Represented by:
(i) Share capital 75,000 75,000
(ii) Reserve & Surplus 25,000 42,000
(iii) Debentures – 30,000
1,00,000 1,47,000
You are required to calculate the following ratios for the years 2021-22 and 2022-23:
(i) Gross Profit Ratio
(ii) Operating expenses to sales ratio
(iii) Operating profit ratio
(iv) Capital turnover ratio
(v) Stock turnover ratio
(vi) Net profit to Net worth ratio
(vii) Receivables collection period
Ratio relating to capital employed should be based on the capital at the end of the year. Give the reasons for change in the ratios for two years. Assume opening stock of ₹10,000 for the year 2021-22. Ignore taxation.