Question

The financial statements for Wiley Ltd are presented below

Statement of profit or loss and other comprehensive income for Wiley Ltd for the year ending 30 June 2019

$

$

Sales (credit)

250 000

Cost of sales

– Inventory—01 July 2018

(25 000)

– Purchases

(152 500)

– Inventory—30 June 2019

    27 500

(150 000)

Gross profit

100 000

Selling and administrative expenses

(20 000)

Depreciation

(40 000)

Profit before tax

40 000

Income tax expense (20 per cent)

(10 000)

Profit after tax

30 000

Other comprehensive income

   –

Total comprehensive income

30 000

Statement of financial position for Wiley Ltd as at 30 June 2019

($)

Cash

34 000

Accounts receivable

46 000

Inventory (cost)

27 500

Plant and equipment

125 000

less Accumulated depreciation

(30 000)

Land

50 000

Total assets

202 500

Share capital

150 000

Retained earnings

30 000

Current liabilities

Accounts payable

Dividends payable

12 500

10 000

Non-current liabilities

Long-term bonds

50 000

Total shareholders’ equity and liabilities

202 500

Required:

Calculate: EBIT Margin Ratio, Asset Turnover Ratio and Return on investment (using total assets as investment and profit after tax for income) and comment on the profitability of the company against the industry averages which are EBIT margin=25%, Asset Turnover=2.5 and Return on investment=20%.

Answer 1