ABFA3044 BUSINESS ACCOUNTING

TUTORIAL 8: FINANCIAL RATIO ANALYSIS (I)

1. Briefly explain the categories of financial ratios.

2. Compare the differences between trend analysis and comparative analysis.

3. Rocket Bookstore has an opening inventory of RM45,000, closing inventory RM60,000

and purchases of RM148,000.
Required: Using the information given above, calculate the inventory turnover times and
inventory turnover in days.

4. Surge Bhd has the following results for the year ended 31st August 2020:

Statement of Profit or Loss for the year ended 31st August 2020
RM’000 RM’000
Revenue 28,000
Cost of sales
Opening inventory 2,300
Purchases 16,200
18,500
Less: Closing inventory 2,800
15,700
Gross profit 12,300
Less: Expenses (6,200)
Net profit 6,100
Less: Taxation (1,000)
Net profit after tax 5,100

Required: Calculate the gross profit margin and net profit margin of Surge Bhd for the
period.

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5. [Past year paper – Nov Examination 2021/2022 Q2]

Red Peace Sdn Bhd has provided the following financial statements:

Statement of Financial Position as at 31st October …

2021 2020
RM’000 RM’000
Non-current assets
Property, plant and equipment 11,280 9,200

Current assets
Inventories 160 176
Trade receivables 3,072 1,592
Prepayments 96 80
Fixed deposits 472 704
Cash on hand 40 48
3,840 2,600
Total assets 15,120 11,800

Equity
Share capital 12,016 8,480
Retained earnings 960 800
12,976 9,280
Non-current liabilities
Debentures 1,200 1,760

Current liabilities
Trade payables 320 200
Bank overdraft 208 320
Dividend payable 80 40
Tax payable 336 200
944 760
Total equity and liabilities 15,120 11,800

Statement of Profit or Loss for the year ended 31st October

2021 2020
RM’000 RM’000
Revenue 20,480 18,800
Cost of sales (13,280) (10,870)
Gross profit 7,200 7,930
Administrative expenses (2,656) (3,150)
Distribution costs (2,368) (2,766)
Finance costs (768) (920)
Profit before taxation 1,408 1,094
Tax expenses (640) (494)
Profit for the year 768 600
Required:

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a. Calculate the following ratios for Red Peace Sdn Bhd for years ended 31 October
2020 and 31 October 2021:

i. Gross profit margin

2020:

Gross Profit
×100 %
Sales
7,930
¿ ×100 %
18,800

= 42.18%

2021:

7,200
¿ ×100 %
20,480

¿ 35.16%

ii. Net profit margin (using profit before tax)

2020:

Net Profit (before tax)

×100 %
Sales

1,094
¿ ×100 %
18,800

= 5.82%

2021:

1,408
¿ ×100 %
20,480

¿ 6.88%

iii. Return on capital employed

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2020:

Net Profit (before interest ∧tax )

×100 %
Capital( share capital ,reserves ,∧borrowings)

1,094 +920
¿ × 100 %
9,280+1,760

= 18.24%

2021:

1,408+ 768
¿ ×100 %
12, 976+1,200

¿ 15.35%

iv. Asset turnover

2020:

Sales
Average Total Assets

18,800
¿
11,800

= 1: 1.59

2021:

20,480
¿
15,120

¿ 1: 1.35

v. Current ratio

2020:

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Current Assets
Current Liabilities

2,600
¿
760

= 3.42: 1

2021:

3,840
¿
944

= 4.07: 1

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vi. Quick ratio

vii. Inventory turnover days (using closing inventories)
viii. Receivables collection period
ix. Payables payment period (using cost of sales)
Provide the formulas used for calculating the ratios and all workings should be shown
clearly.
b. Comment on Red Peace Sdn Bhd’s performance over the two-year period based on
the ratios you have calculated in part (a) above.