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    NuWell Trading Ltd.

    a) Calculate 1. Current ratio 2. Inventory turnover 3. Interest Cover Ratio 4. Return on Ordinary shareholders' equity 5. Earnings per ordinary share 6. Price/earning ratio

    b) Based on the ratios computed, comment on NuWell's financial position and the attractiveness of its ordinary shares to investors.

    c) Your friend Mr. Tan, an investor, does not believe in ratio analysis because he thinks that it is not foolproof. What could be the limitations of ratio analysis? Explain.

    See attached file for full problem description.

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    NuWell Trading Ltd.

    1. Current ratio

    For the year 2006 current ratio = current assets/current liabilities
    = 296,800/164,800
    = 1.80

    For the year 2005 current ratio = current assets/current liabilities
    = 305,600/178,400
    = 1.71

    2. Inventory turnover.

    For the year 2006 Inventory turnover. = Sales
    Average Inventories

    = 369,600
    [(117,600 + 129,600)/2]

    = 2.99

    For the year 2005 Inventory turnover. = Sales
    Average Inventories

    = 341,600
    [(129,600 + 165,600)/2]

    = 2.31

    3. Interest Cover Ratio

    For the year 2006 Interest Cover Ratio = Earnings before interest and tax
    Interest charges

    = 77,600
    8,800

    = 8.82

    For the year 2005 Interest Cover Ratio = Earnings before interest and tax
    Interest charges

    = 60,000
    9,600

    = 6.25

    4. Return on Ordinary shareholders' equity

    For the year 2006 ...

    Solution Summary

    This solution is comprised of a detailed explanation and calculation to find the financial ratios and NuWell's financial situation.

    $2.49

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