Interpretation of accounting ratios：練習問題

A retail business has a gross profit margin of \(40\%\) and a profit margin of \(5\%\). What does the significant difference between these two ratios primarily indicate?

A company has a current ratio of \(2.5:1\) and a liquid (acid test) ratio of \(0.8:1\). What does this combination of ratios primarily suggest about the company's working capital management?

The following information is available for a business:

Profit for the year: \(\$45,000\)
Interest on bank loan: \(\$5,000\)
Non-current liabilities: \(\$50,000\)
Owner's Capital: \(\$150,000\)

What is the return on capital employed (ROCE)?

A company's current ratio is \(2.0:1\), while its liquid (acid test) ratio is \(0.5:1\). Explain what this significant difference between the two ratios indicates about the composition of the company's current assets.

A company reports a gross margin of \(45\%\) but a profit margin of only \(4\%\). Explain what this wide discrepancy suggests about the business's operational efficiency and its control over overhead expenses.

Bright Spark Ltd. is an electronics retailer. The following information is available for the year ended 31 March 2024:

• Revenue: \( \$ \) 500,000
• Gross profit: \( \$ \) 175,000
• Cost of sales: \( \$ \) 325,000
• Opening inventory (1 April 2023): \( \$ \) 40,000
• Closing inventory (31 March 2024): \( \$ \) 60,000
• Trade receivables (31 March 2024): \( \$ \) 55,000
• Trade payables (31 March 2024): \( \$ \) 30,000
• Credit sales: 80% of total revenue
• Credit purchases: 90% of total purchases. (Total purchases can be derived from Cost of Sales and Inventory figures.)

Industry Averages for electronics retailers:

• Rate of inventory turnover: 7 times
• Trade receivables turnover: 45 days
• Trade payables turnover: 30 days

Required:

(a) Calculate the following ratios for Bright Spark Ltd. for the year ended 31 March 2024, showing all your workings:

• Average Inventory
• Rate of inventory turnover (times)
• Trade receivables turnover (days)
• Trade payables turnover (days)

(b) Compare Bright Spark Ltd.'s performance against the industry averages for these three ratios. Suggest one specific action Bright Spark Ltd. could take to improve its inventory turnover and one action to improve its trade receivables turnover.