Advertising 12,000
Insurances 11,000
Directors’ Salaries 27,000
Sundry Expenses 12,000
195,000
Net Profit 65,000
SR Building Services Ltd
Balance Sheet as at 31st December 2006
Fixed Assets 120,000
Current Assets
Stock 100,000
Debtors 35,000
135,000
Current liabilities
Creditors 56,000
Bank overdraft 36,000
92,000
Net Current Asset 43,000
163,000
Less Long-Term Liability - Bank Loan 58,000
105,000
Financed By
Share Capital 40,000
Retained Profits 65,000
Capital employed 105,000
Profitability ratios
These ratios consist of three ratios which are the gross profit, net profit and the return on capital employed.
Gross profit ratio: this is the profit amount after you have deducted your cost of sales. It is also used to calculate the amount of sales a business has made which is then turned into the gross profit.
Formula of gross profit ratio: gross profit divided by sales and multiplied by 100.
260,000÷650,000x100=40%
Return Capital employed: money invested in the running of the business. this is used to find the amount of the net profit and how many times it covers the capital put into the business.
Return on capital employed ratio: net profit divided by Capital employed x 100
Net profit: this is achieved when the business has paid all their expenditures and costs made by the business and it is used to calculate the amount of sales which was made.
Net profit ratio= net profit divided by sales x 100
Liquidity ratios
There are 6 liquidity ratios and they are current, stock turnover, acid test, creditor, debtors and the debt over equity.
Current ratio measures the business’s capability of paying back its short term expenses.
Formula: current assets divided by current liabilities.
135,000÷95,000 =1.4
Stock turnover measures the number of time in which the stock covers the cost of sales for over a year.
Formula: stock divided by cost of sales x 365 days.
100,000÷390,000×365 = 94 times
Acid test ratio shows if the business has enough short term assets to cover its expenses without selling any properties owned by the business.
Formula: current asset – stock divided by current liabilities.
135,000-35,000÷95,000 =1.1
Debtor day ratio it measures how long a business would take to pay off their debts through the year.
Formula: debtors divided by sales x 365 days
35,000÷650,000×365 = 19 days
Creditor day ratio measures how long the business would take to collect their debts through the year.
Formula: creditors divided by purchases x 365 days
36,000÷390,000×365 = 33 days
Debt over equity measures how the business controls their financial state which is calculated by dividing long term liabilities by the equity.
58,000÷105,000 = 0.5
by
trevonmengotgooglemailcom (student)
