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    Retain the shares as investment or dispose them off.

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    Mr. Leftright has 500 shares in Sigma Limited. He observed a fall in the dividend of the company. He is confused. Advice him through a proper analysis of the financial statement, whether he should retain the shares as investment or dispose them off. The following are the income statement and the balance sheet of the company.
    Income Statement Amount Amount
    Sales and other Income 19,000 15,000
    Less: Expenses
    Operating and other expenses 15,400 11,400
    Depreciation 700 650
    Interest 1850 1750
    17,950 13,800

    Profit for the year 1,050 1,200
    Taxes 500 200
    Profit after taxes 550 1,000
    Proposed dividend 200 400

    Balance Sheet Amount Amount
    Sources of funds
    Share capital@ Rs. 10 each 4,200 2,600
    Reserves and Surplus 7,550 1,200
    12.5% Convertible Debentures - 500
    16% Secured Loans 10,100 8,700
    15% Unsecured Loans 1,000 3,300
    22,850 16,300

    Application of Funds
    Fixed Assets 14,800 11,200
    Less: Depreciation 2,700 2,000
    12,100 9,200
    Advance on a/c. of WIP 1,000 200
    13,100 9,400

    Inventories 8,600 7,100
    Debtors 1,400 550
    Cash and Bank 850 680
    Loans and Advances 3,000 1,600
    Total Current Assets 13,850 9,930
    Less: Current Liabilities 4,100 3,030
    Net Working Capital 9,750 6,900
    22,850 16,300

    Please advise him using Ratio Analysis.

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    https://brainmass.com/business/financial-ratios/retain-shares-investment-dispose-them-off-588396

    Solution Preview

    Explanation/Analysis
    Sales and other income grew by 26.67% whereas GP declined from 24% to 18.95%. Growth is sales and other income might have appeared because of increase in other income against which the gross margin was less. RONW ...

    Solution Summary

    On the basis of this critical analysis of profitability and liquid position of the company it appears that the shares of the company may turn out to be a growth share. However, it is necessary to look into the overall condition of the industry, its cyclical and profitability trend, etc.

    $2.19