Top Schools: Financial Ratios

Q1 Fleetwood Macs, an outdoor clothing store, has been in operation for 10 years. It currently
owns four high street locations in market towns in Kent. Its funding has come from a
mixture of retained profit, share capital and long-term borrowing.
Long term loans 340,000
Share capital 200,000
Retained Profit 250,000
Figure 1 - Fleetwood Macs Capital Structure £s

Activity: Using the data in Figure 1, calculate Fleetwood Macs’ gearing based on its current
capital structure (3)

Your workings:
Gearing:

Q2 Fleetwood Macs is considering purchasing a fifth store, in the market town of Ashford. The
property is on the market for £225,000 with an additional £60,000 required for renovations.
Activity: Using the information provided and the data from Q1, calculate Fleetwood Macs’
gearing if it funded the investment with additional long-term borrowing (3)

Your workings:
Gearing:

Q3 Inspiral Carpets, a London based flooring retailer, is considering investing in some new
cutting machinery. The firm’s bank however, is very cautious about lending additional funds
to the business, as its current gearing level is 40%, with its total capital employed equating
Top Schools: Financial Ratios

to £580,000. The new cutting machinery would cost the business £110,000.
Activity: Re-calculate Inspiral Carpets’ gearing if it used a loan to finance the machinery (4)

Your workings:
Gearing:

Q4 Luke Warm Ovens Ltd is considering investing in a new piece of machinery that will improve
its manufacturing efficiency. Before deciding on the investment, Luke is keen to assess the
firm’s solvency by calculating its gearing. Figure 1 is an extract from the business’s last
balance sheet.
£(000s)
Non current liabilities 45

Share capital 20
Reserves 35
Figure 2 - Extract from Luke Warm Ovens Ltd Balance Sheet

Activity: Using the data in Figure 1, calculate Luke Warm Ovens Ltd current rate of gearing
(3)

Your workings:
Gearing:

Q5 Deep Purple, a manufacturer of luxury chocolates for some of the UK’s leading supermarkets,
is reviewing its financial performance for the last year. Figure 1 shows an extract from its
income statement.
Top Schools: Financial Ratios

Income Statement

Figure 3 - extract from Deep Purple's income statement £000s

Activity: Using the data above, calculate the gross profit margin and profit from operations
margin (operating profit margin) for the year (6)

Your workings:
Gross profit margin:

Profit from operations margin (operating profit margin):

Q6 In order to assess Deep Purple’s liquidity position, Managing Director, Ian Gillan, is reviewing
the firm’s balance sheet. Figure 2 shows an extract from this financial document, which
details the firm’s net current assets.
Activity: Using the data from the tables below, calculate the current ratio for Deep Purple
(3)

Income Statement

Revenue
Cost of Sales
Expenses

Figure 4 - extract from Deep Purple's balance sheet £000s

Your workings:
Current ratio:

Q7 Figure 3 shows another extract from the balance sheet detailing Deep Purple’s capital
structure.
Activity: Using the data in Figures 3 and 4, calculate the ROCE (3)
Top Schools: Financial Ratios

Non current liabilities 2,000 Revenue 4,500

Cost of Sales 1,800
Share capital 2,400 Expenses 2,000
Retained Profits 1,200 Figure 6 - extract from income statement £000s
Figure 5 - extract from balance sheet showing capital
structure £000s

Your workings:
ROCE:

Q8 The following year, Deep Purple’s revenue increased by 20% and the firm’s operating profit
margin was 18%. The capital structure of the firm for the following year is also detailed
below.

Balance Sheet

Figure 7 - details of the following year's capital structure £000s

Activity: Using the relevant data from Q3 and from Figure 5 above, calculate the ROCE for
the following year(3)

Your workings:
ROCE:

Q9 Orange County, a Midlands based organic fruit juice manufacturer, has concerns over the
amount of wastage that is occurring in its manufacturing plant. Its financial director, Peter
Berry, has asked to look into the firm’s inventory turnover, to ensure that its ordering
process is as efficient as possible. He has prepared the following information for the
operations director, Clementine Cherry, to investigate.
Top Schools: Financial Ratios

£ (000s)
Revenue 680
Cost of sales 240

Inventory 24
Receivables 60
Cash 15
Figure 8 extracts from Orange County's year end accounts

Activity: Calculate the inventory turnover for Orange County (3)

Your workings:
Inventory turnover:

Q10 Try ‘n’ Save plc, a national supermarket chain, has recently released its year-end accounts.
These are shown in Figures 1 and 2.
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£m
Revenue Non-current assets 7991
Cost of sales Current assets
Gross profit Inventories 616
Operating expenses Receivables 192
Operating profit Cash 488
Financing costs
Profit before tax Current liabilities
Tax Payables 2518
Profit for the year Non-current liabilities 2796
Figure 9 - Try ‘n’ Save Income Statement
Net assets 3973

Figure 10 - Try ‘n’ Save Balance Sheet

Activity: Using the information in Figures 1 and 2, calculate Try ‘n’ Save’s current ratio for
the year (3)

Your workings:
Current ratio:

Q11 Activity: Using the data in Q1, calculate Try ‘n’ Save’s inventory turnover (3)

Your workings:
Inventory turnover:

Q12 Activity: Using the data in Q1, calculate Try ‘n’ Save’s payables and receivables days (6)

Your workings:
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