4MBS401: WORKING EXAMPLE OF CALCULATION OF FINANCIAL RATIOS The profit and loss account and balance sheet of Short Straw Plc for 2000 and 2001 are as follows: Balance Sheet as at 31 December 2000 £000 £000 Fixed assets Current assets Stock Trade debtors Cash Prepayments Creditors: amounts falling due within one year Trade creditors Overdraft Taxation Dividends 3,600 1,905 70 25 5,600 22,130 8,900 4,675 34 13,609 2001 £000 £000 35,343
1,265 1,015 1,800 4,080
3,165 4,906 2,100 3,400 13,571
Net current assets (liabilities) Total assets less current liabilities Financed by: Creditors: amounts falling due after more than one year Debentures Capital and reserves Ordinary shares (£1 each) Retained profit
1,520 23,650
38 35,381
3,700 13,000 6,950 23,650
11,500 13,000 10,881 35,381
Profit and loss account for the year ended 31 December 2000 £000 Turnover Cost of sales Gross profit Net operating expenses Profit before interest and taxation Interest payable Profit before taxation Taxation Profit after taxation Dividends Retained profit Required: (a) Calculate the following ratios of Short Straw Plc for 2000 and 2001: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) Gross profit margin Operating profit margin Return on capital employed Current ratio Acid ratio Stockholding period Debtor collection period Creditor payment period Gearing (1) Gearing (2) Earnings per share 30,112 14,258 15,854 10,214 5,640 650 4,990 1,015 3,975 1,800 2,175 2001 £000 50,856 22,057 28,799 17,258 11,541 2,110 9,431 2,100 7,331 3,400 3,931
(b) Based upon the ratios calculated in (a) above, what do you judge to be the company’s financial position.