mpany’s financial statements as well as the Industry Average Ratios are provided as follows. Star Ltd Statement of Financial Position as on 31 December 2021 Fixed Assets: £,000 Owner’s equity £,000 Machinery 120,000 Equity and Reserves 100,000 Equipment 80000 Non-current liabilities: Current assets: Long term debt 12
Background:
Star Ltd is a UK-based medium sized enterprise manufacturing and selling artificial intelligence (
Star Ltd
as on 31 December 2021
|
Fixed Assets: |
£,000 |
Owner’s equity |
£,000 |
|
Machinery |
120,000 |
Equity and Reserves |
100,000 |
|
Equipment |
80000 |
Non-current liabilities: |
|
|
Current assets: |
Long term debt |
120,000 |
|
|
Inventory |
60,000 |
Current Liabilities |
|
|
Cash |
90,000 |
Accounts payable |
100,000 |
|
Receivables |
50000 |
Salaries and Bills payable |
80,000 |
|
Total assets |
400,000 |
Total liabilities & Equity |
400,000 |
Star Ltd
For the year ended on 31 December 2021
£,000 £,000
Sales 100,000
Cost of sales 80,000
Gross profit 20,000
Operating expenses 8,000
Operating profit (EBIT) 12,000
Interest Expenses 2,000
Profit before taxes 10,000
Corporate Tax 1,000
Net profit for the period 9,000
|
Average Ratios for the Industry |
Average Ratios for the Industry |
||
|
|
5% |
Assets Turnover Ratio |
1.6 |
|
Return on Equity |
12% |
|
|
|
Gross profit Ratio |
15% |
|
1.5 |
|
Operating Profit Ratio |
10% |
Acid test ratio |
1.1 |
|
Net Profit Ratio |
8% |
Gearing Ratio |
2:1 |
You are required to write a report covering the following areas:
- Briefly explain, key contents of financial statements used such as Assets, Liabilities, Equity, Revenue and Expenses.
- Calculate and interpret following financial ratios as you are involved in reporting and decision making
Return on Investment (ROI) = x 100
Return on Equity (ROE) = x 100
Gross Profit Ratio = x 100
Profit Margin Ratio = x 100
Net Profit Ratio = x 100
Assets Turnover Ratio =
Current Ratio =
Quick Ratio or Acid-Test Ratio =
Where, Quick Assts = Current Assets – Stock or Inventories
Gearing Ratio =
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