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Ratio Analysis and Interpretation

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Question 5 (10)
The following information is applicable to questions 5.1 to 5.4:
Ladders Ltd had their financial year end on 31 July 2015. The manager of the business you work for has tasked you to do an analysis of Ladders Ltd as he wants to go into a supplier agreement with them and needs to be sure that they are profitable and have good working capital efficiency before he signs such a large agreement. Assume that all purchases are on credit. Below you will find extracts from the financial statements of Ladders Ltd:
Extract from the statement of comprehensive income:
R15 000 000
Cost of sales
R11 000 000
Operating expenses
R2 000 000
R1 200 000
R216 000
Net profit
R584 000
Extract from the statement of financial position:
Total assets
R8 500 000
R1 300 000
Other current assets
R2 400 000
Total liabilities
R8 400 000
Accounts payable
R3 200 000
Question 5.1 (1)
What was Ladders Ltd's gross profit for 2015?
Question 5.2 (2)
What was the company's return on assets (ROA) for 2015?
Question 5.3 (3)
Calculate the average payment period for the 2015.
Question 5.4 (4)
Calculate the current ratio for Ladders Ltd and comment on how this may impact on your business if you were to become a supplier that sells on credit to Ladders Ltd.

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Solution Summary

This solution illustrates how to compute a company's gross profit, return on assets, average payment period and current ratio.

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