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    Accounting: Ratio analysis for XYZ ltd.

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    XYZ Ltd is a group of doctors, dentists, professional sports players and celebrities with excess funds who wish to find small companies with great innovative ideas and invest in them. Several of the small companies present their idea to XYZ under a televised show broadcasted on national TV.

    The following information has been derived from the past three years' financial statements of ABC Ltd, one of the small companies looking for investment from XYZ.

    Balance sheets, December 31

    2012 2011 2010
    Current assets
    Cash 50,000 45,000 94,000
    Account receivable, net 130,000 120,000 110,000
    Merchandise inventories 250,000 230,000 195,000
    Other current assets 45,000 53,000 42,000
    Total current assets 475,000 448,000 441,000
    Property plant and equipment, net 196,000 191,000 175,000

    Total assets 671,000 639,000 616,000

    Current liabilities
    Accounts payable 175,000 195,000 185,000
    Accrued liabilities 1,000 6,500 21,000
    Total current liabilities 176,000 201,500 206,000

    Long-term liabilities 230,000 250,000 295,000
    Total liabilities 406,000 451,500 501,000

    Shareholders' equity
    Common shares 110,000 95,000 65,000
    Preferred shares, note 5 25,000 25,000 25,000
    Retained earnings 130,000 67,500 25,000
    Total shareholders' equity 265,000 187,500 115,000
    Total liabilities and shareholders' equity 671,000 639,000 616,000

    Income statements 2012 2011

    Net sales £723,700 £694,000
    Cost of goods sold 347,350 344,500
    Gross margin 376,350 349,500

    Operating expenses 183,500 179,750

    Income from operations 192,850 169,750
    Interest expense 37,525 39,450
    Income before income tax 155,325 130,300
    Income tax expense 38,831 32,575

    Net income £116,494 £97,725

    Additional information:
    1. The common shares are traded on the stock exchange. At the end of 2012, the value of the share was £15.00, and at the end of 2011, the value per share was £14.00.
    2. The number of shares outstanding on the market is as follows:
    i. 2012: 25,000
    ii. 2011: 15,000
    iii. 2010: 10,000
    3. All sales are made on credit.
    4. The company's income tax rate is 25%.
    5. The preferred shares are cumulative; no par value, £2.50; 10,000 Shares authorized; 2,000 shares issued and outstanding.

    Complete the following:
    You, the consultant, have been hired by XYZ to assist in the analysis of the financial statements and provide a recommendation as to whether XYZ should invest or not invest in this company. You should justify your recommendation based on the calculation of the following financial ratios:
    • Current ratio (Liquidity)
    • Operating profit margin (Profitability)
    • Return on Ordinary Shareholders' Funds (ROSF) (Profitability)
    • Average settlement period for trade receivables (Efficiency)
    • Earnings per share (Investment)

    -> Attached the original file with correct tabulations for better understanding.

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    https://brainmass.com/business/financial-accounting-bookkeeping/accounting-ratio-analysis-for-xyz-ltd-574763

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    The problem set deals with issues under accounting: Ratio analysis.

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