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Bac 203 Cat 2

Rafiki Hardware Tools Company Limited sells plumbing fixtures and has financial statements from 2015-2017 showing trends in cash, accounts receivable, inventory, fixed assets, accounts payable, accruals, loans, stock, and retained earnings. Sales decreased from 2016 to 2017 while costs and profits decreased. Required is an evaluation of liquidity ratios, activity ratios, and profitability ratios to analyze Rafiki's financial position. The financial statements of ABC Company show assets, liabilities, net worth, income statement for 2017. Required is to calculate inventory turnover ratio, times interest earned ratio, total assets turnover, net profit margin, and comment on how ABC's ratios compare to industry norms.

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Brian Mutua
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93 views

Bac 203 Cat 2

Rafiki Hardware Tools Company Limited sells plumbing fixtures and has financial statements from 2015-2017 showing trends in cash, accounts receivable, inventory, fixed assets, accounts payable, accruals, loans, stock, and retained earnings. Sales decreased from 2016 to 2017 while costs and profits decreased. Required is an evaluation of liquidity ratios, activity ratios, and profitability ratios to analyze Rafiki's financial position. The financial statements of ABC Company show assets, liabilities, net worth, income statement for 2017. Required is to calculate inventory turnover ratio, times interest earned ratio, total assets turnover, net profit margin, and comment on how ABC's ratios compare to industry norms.

Uploaded by

Brian Mutua
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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1. Rafiki Hardware Tools Company Limited sells plumbing fixtures on terms of 2/10 net 30.

Its financial statements for the last three years are as follows:

2015 2016 2017

Sh’000’ Sh’000’ Sh’000’

Cash 30,000 20,000 5,000

Accounts receivable 200,000 260,000 290,000

Inventory 400,000 480,000 600,000

Net fixed assets 800,000 800,000 800,000

1,430,000 1,560,000 1,695,000

Accounts payable 230,000 300,000 380,000

Accruals 200,000 210,000 225,000

Bank loan, short term 100,000 100,000 140,000

Long term debt 300,000 300,000 300,000

Common stock 100,000 100,000 100,000

Retained earnings 500,000 550,000 550,000

1,430,000 1,560,000 1,695,000

Additional information:

Sales 4,000,000 4,300,000 3,800,000

Cost of goods sold 3,200,000 3,600,000 3,300,000

Net profit 300,000 200,000 100,000

Required
Evaluate the financial position of Rafiki hardware tools company

(i) Liquidity ratios


(ii) Activity ratios
(iii) Profitability ratios

2. The following financial statements relate to the ABC Company:

Assets Shs. Liabilities & Net worth Shs.


Cash 28,500 Trade creditors 116,250
Debtors 270,000 Notes payable (9%) 54,000
Stock 649,500 Other current liabilities 100,500
Total current assets 948,800 Long term debt (10%) 300,000
Net fixed assets 285,750 Net worth 663,000

1,233,750 1,233,750

Income Statement for the year ended 31 March 2017


Shs.
Sales 1,972,500

Less cost of sales 1,368,000


Gross profit 604,500
Selling and administration 498,750
expenses
105,750
Earnings before interest and tax
34,500
Interest expense
71,250

28,500
Estimated taxation (40%)
42,750
Earnings after interest and tax

Required
a) Calculate:
i. Inventory turnover ratio;
ii. Times interest earned ratio;
iii. Total assets turnover;
iv. Net profit margin
b) The ABC Company operates in an industry whose norms are as follows:

Ratio Industry Norm


Inventory turnover 6.2 times
Times interest earned ratio 5.3 times
Total assets turnover 2.2 times
Net profit margin 3%

Required
Comment on the revelation made by the ratios you have computed in part (a) above when
compared with the industry average.

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