Conglong Limited is a manufacturing company. Conglong’s accountant has just calculated the ratios for the latest financial year and obtained industry averages for these ratios. However, the accountant is unable to provide any insight into what Conglong Limited’s ratios reveal when compared with the industry averages. The company’s ratios and the ratios for industry averages are detailed below. Ratio Conglong Limited Industry averages RoCE 15% 36% Sales to total capital employed (Asset turnover) 1.5 times 3 times Operating profit margin 10% 12% Gross profit 40% 30% Current ratio 1 time 2 times Quick Acid ratio 0.6 times 1.6 times Inventory days 60 days 15 days Trade receivables days 60 days 30 days Trade payables days 20 days 30 days Interest cover 3 times 5 times Required: Using the ratios above, explain to the directors of Conglong Limited what the ratios reveal about Conglong Limited’s financial performance and financial health in the context of industry averages.
Conglong Limited is a manufacturing company. Conglong’s accountant has just calculated the ratios for the latest financial year and obtained industry averages for these ratios. However, the accountant is unable to provide any insight into what Conglong Limited’s ratios reveal when compared with the industry averages. The company’s ratios and the ratios for industry averages are detailed below. Ratio Conglong Limited Industry averages RoCE 15% 36% Sales to total capital employed (Asset turnover) 1.5 times 3 times Operating profit margin 10% 12% Gross profit 40% 30% Current ratio 1 time 2 times Quick Acid ratio 0.6 times 1.6 times Inventory days 60 days 15 days Trade receivables days 60 days 30 days Trade payables days 20 days 30 days Interest cover 3 times 5 times Required: Using the ratios above, explain to the directors of Conglong Limited what the ratios reveal about Conglong Limited’s financial performance and financial health in the context of industry averages.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter15: Financial Statement Analysis
Section: Chapter Questions
Problem 57P: Grammatico Company has just completed its third year of operations. The income statement is as...
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Conglong Limited is a manufacturing company. Conglong’s accountant has just calculated the ratios for the latest financial year and obtained industry averages for these ratios. However, the accountant is unable to provide any insight into what Conglong Limited’s ratios reveal when compared with the industry averages.
The company’s ratios and the ratios for industry averages are detailed below.
|
Ratio |
Conglong Limited |
Industry averages |
|
RoCE |
15% |
36% |
|
Sales to total capital employed (Asset turnover) |
1.5 times |
3 times |
|
Operating profit margin |
10% |
12% |
|
Gross profit |
40% |
30% |
|
Current ratio |
1 time |
2 times |
|
Quick Acid ratio |
0.6 times |
1.6 times |
|
Inventory days |
60 days |
15 days |
|
Trade receivables days |
60 days |
30 days |
|
Trade payables days |
20 days |
30 days |
|
Interest cover |
3 times |
5 times |
Required:
- Using the ratios above, explain to the directors of Conglong Limited what the ratios reveal about Conglong Limited’s financial performance and financial health in the context of industry averages.
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