Question

Section C:

Calculate the following ratios using the financial statements in Section B. Follow each calculation with a sentence explaining what the ratio tells you about the business:

1. ROCE
2. Current Ratio
3. Acid Test
4. Gearing Ratio

There is a maximum of 20 marks available for this section, 2 marks for the correct calculation and 3 marks for the explanation for each ratio.

Ratio formulas:

Return on Capital Employed = Operating Profit / Total Assets minus Current Liabilities x 100

Current Ratio = Current Assets / Current Liabilities

Acid Test = Current Assets - Inventories / Current liabilities

Gearing Ratio = Non-current Liabilities / (Equity plus Non-current Liabilities) x 100

Statement of Financial Position
Assets
Current
Cash and equivalents		220
Trade receivables		8,420
Other receivables		10
Inventories		1,000
ST Investments		160
Non-Current
Land and Buildings		14,644
Fix and Fit		708
Plant		15,012
Vehicles		1,235
LT Investments		1,500
Total Assets		42,909
Liabilities
Current
Trade payable		6,580
Overdraft		150
ST Loans		1,310
Taxation Due		500
Dividend		200
Non-Current
Loans		8,000
Total Liabilities		16,740
Net Assets		26,169
Equity		26,169
Retained Earnings		10,063
Shareholders’ Equity		16,106

Income Statement
Sales		60,600
COGS		34,020
Gross Profit		26,580
Operating Expenses		15,256
Operating Profit		11,324
Interest received		559
Tax paid		1,026
Financing costs		3,050
Profit for the period		7,807

Answer 1