Question

You are presented with the following summarized accounts of Mtwapa Ltd. which has 40,000 issued ordinary shares:

                             Mtwapa Ltd.

                             Income Statement for the Year

                             To 28 Feb. 2012

	Sh.
Sales (all credit)	1,200
Cost of sales	600
Gross profit	600
Administrative expenses	(500)
Debenture interest payable	(10)
Profit on ordinary activities	90
Taxation	(30)
	60
Dividends	(40)
Retained profit for the year	20

                             Mtwapa Ltd.

                             Statement of Financial Position

                             At 28 Feb. 2012

	Sh.	Sh.	Sh.
Fixed assets (net book value)			685
Current assets:
Stock	45
Trade debtors	200
	275
Less: Current liabilities:
Trade creditors	160
Bank overdraft	10
Taxation	30
Proposed dividend	40	240	35
			720
Capital and reserves:
Ordinary share capital (market price Sh. 32)			600
Profit and loss account			20
			620
Shareholders’ funds:
Loans			100
10% debentures
			720

          Required:

1. Return on capital employed.
2. Gross profit margin.
3. Net profit margin.
4. Current ratio.
5. Acid test ratio.
6. Fixed assets turnover.
7. Debtors’ collection period (assume one year = 360 days)
8. Capital gearing ratio.
9. Earnings per share.
10. Price earnings ratio.

[10 marks]

show your working

Answer 1

Return on Capital Employed = Operating Profit /( Total Assets - Current Liabilities)

= (Profit on Ordinary Activities + Interest Expense )/(720-240)

= (90+10)/480 = 20.83%

b) Gross Profit Margin = Gross Profit/ revenue = 600/1200 = 50%

c)Net Profit Margin = Net Profit/ Sales = 60/1200 = 5%

d)current ratio = Current Assets/ Current Liabities = 245/240 = 1.02

e)Fixed assets turnover ratio = Sales/fixed assets = 1200/685 = 1.75

f) Debtors collection period = 200/1200*365 = 60.833 days