The following details are for the business of Peter Smith
The following details are for the business of Peter Smith
Subject: Business   / Finance
Question
The following details are for the business of Peter Smith, who is worried about the profitability and financial structure of his business at 30 June 2015, especially since the bank is requiring repayment of his overdraft.
30 June 2014 30 June 2015
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$ $
Sales (credit) 60,000 90,000
Cost of goods sold 39,000 63,000
All other expenses 12,000 21,000
Cash at bank 12,000 (18,000)
Inventory 18,000 33,000
Trade debtors 12,000 30,000
Non-current assets (net) 24,000 48,000
Trade creditors 6,000 9,000
Peter Smith, Capital 60,000 72,000
Non-current liabilities – 12,000
Inventory at 1 July 2013 was $15,000
Trade debtors at 1 July 2013 were $10,000
Calculate the following ratios for 2014 and 2015
Net profit margin
Return on owners’ equity
Current ratio
Acid test ratio
Gearing
Inventory turnover period
Write a short report to the owner about:
Profitability
Short term liquidity
Long term solvency
