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Question 3 (50 Marks) The following information is relates to the activities of Cox Limited. Statement...

Question 3
The following information is relates to the activities of Cox Limited.
Statement of Comprehensive Income for the year ended 31 December 2019.
Credit Sales 4870
Cost of Sales (2830)
Gross Profit 2040
Less: Operating Expenses
Selling Expenses 639
Administration Expenses 421
Depreciation 40 1100
EBIT 1040
Less:Interest (112)
Earnings before Tax 928
Less:Tax 30% (278)
Profit after Tax 650
Statement of Financial Position as at 31 December 2019.
Assets
Page 4 of 5
Fixed Assets 451
Current Assets
Stock 985
Debtors 478
Cash and Bank 128 1591
2042
Equity and Liabilities
Ordinary Shares (125 000) Shares 920
Retained Earnings 320
1240
Long Term Debt
Debentures 500
Current Liabilities
Creditors 224
Bank Overdraft 78 802
2042
Required:
Calculate the following financial ratios for Cox Limited. (20)
1.1 Current Ratio (3)
1.2 Acid Test Ratio (4)
Page 5 of 5
1.3 Gross Profit % (3)
1.4 Net Profit % (4)
1.5 Debt Ratio (4)
1.6 Return on Equity (4)
1.7 Return on Total Assets (4)
1.8 Interest Coverage Ratio (4)

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Answer #1

Current ratio = Current assets/Current Liabilities

Current ratio = 1,591/302 = 5.27

Acid test ratio = Current assets-Stock/Current liabilities

= 1,591-985/302

=606/302

= 2

Gross profit % = Gross profit/Sales*100

= 2,040/4,870*100

= 41.89%

Net profit % = Net profit after tax/Sales*100

= 650/4,870*100

=13.35%

Debt ratio = Total Debt/Total assets*100

= 802/2,042*100

= 39.27%

Return on equity = Profit after tax/Equity*100

= 650/1240*100

= 52.42%

Return on total assets = Profit after tax/Total assets*100

= 650/2042*100

= 31.83%

Interest coverage ratio = EBIT/interest

= 1040/112

= 9.28

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