1. CHAPTER 44 Assessment and Interpretation of Accounts
10/04/2019
CHAPTER 44 Assessment and Interpretation of Accounts
Calculation of Main Ratios / Returns etc
Based on Qs 3 to 9 pages 415 and 416 in the Textbook
This is the Title Slide
R. DELANEY

2. Q3: Rate of Stock Turnover
R. Delaney
Q3: Rate of Stock Turnover
Business A
Rate of Stock Turnover = Cost of Goods Sold divided by Average Stock = 240,000 / 80,000 = 3 times
Business B
Average Stock = Opening Stock (50,000) + Closing Stock (30,000) divided by 2 = 40,000
Therefore rate of stock turnover is Cost of Goods Sold (160,000) / Average Stock, (40,000) = 4 times
Business C
Average Stock = Opening Stock (30,000) + Closing Stock divided(15,000) by 2 = 22,500
Therefore rate of stock turnover is Cost of Goods Sold (78,750) / Average Stock, (22,500) = 3.5 times

3. Current Ratio = Ratio of Current Assets to Current Liabilities.
R. Delaney
Q4 Current Ratio
Current Ratio = Ratio of Current Assets to Current Liabilities.
Business A
80,000 : 40,000 = 2:1. This is the ideal ratio
Business B
45,000 : 30,000 = 1.5. This is the minimum desirable ratio.
Business C
60,000 : 72,000 = This is less than the minimum desirable ratio

4. Q5 Acid / Quick Test Ratio
R. Delaney
Q5 Acid / Quick Test Ratio
Acid Test Ratio = Ratio of Current Assets less Closing Stock to Current Liabilities
Business A
Current Assets less Closing Stock = 30,000
Therefore Acid Test Ratio is 30,000 : 20,000 = 1.5 : 1. This is more than the desirable minimum ratio of 1:1
Business B
Current Assets less Closing Stock = 60,000
Therefore Acid Test Ratio is 60,000 : 60,000 = 1 : 1. This is the desirable minimum ratio of 1:1

5. Q5 (cont) Business C Current Assets less Closing Stock = 40,000
R. Delaney
Q5 (cont)
Business C
Current Assets less Closing Stock = 40,000
Therefore Acid Test Ratio is 40,000 : 50,000
= 0.8 : 1.
This is less than the desirable minimum ratio of 1:1

6. Q6 Gross Profit Percentage / Margin
R. Delaney
Q6 Gross Profit Percentage / Margin
Gross Profit Percentage (Margin) =
Gross Profit X 100
(Net) Sales
Business A
50, X 100 = 10%
500,000
Business B
75, X 100 = 5%
1,500,000
Business C
60, X 100 = 25%
240,000

7. Q7 Net Profit Percentage / Margin
R. Delaney
Q7 Net Profit Percentage / Margin
Net Profit Percentage (Margin) =
Net Profit X 100
(Net) Sales
Business A
25, X 100 = 5%
500,000
Business B
50, X 100 = 3.33%
1,500,000
Business C
30, X 100 = 12.5%
240,000

8. Q8 Return On Capital Employed
R. Delaney
Q8 Return On Capital Employed
Return on Capital Employed =
Net Profit X 100
Capital Employed
Business A
25, X 100 = 25%
100,000
Business B
25, X 100 = 1.67%
1,500,000
Business C
30, X 100 = 9.09%
330,000

9. Q9 Gross Profit Mark-Up Gross Profit Mark Up = Gross Profit X 100
R. Delaney
Q9 Gross Profit Mark-Up
Gross Profit Mark Up =
Gross Profit X 100
Cost of Good Sold
Business A
32, X 100 = 33.68%
95,000
Business B
22, X 100 = 20%
110,000
Business C
60, X 100 = 54.55%