1. Interpretation of Accounts Hardy December 2010

2. Key Areas for Analysis- Overview  From question, 5 ratios!!  Profitability  Liquidity  Management  Return on Capital  For exam critical, you must explain- draw from the question

3. Look at the question  Manufacturing company  Falls in share price, property values  Impairment losses $6m, charge to CofS $1.5m  Investment losses $1.6m  Redundancy $1.3m  Increase in bank rate

4. Profitability  Gross profit  Gross profit/sales 20092010 Gross Profit10000/36000=27.8%4000/29500=13.6% Gross profit (Severance & impairment) 10000/36000=27.8%4000/(29500- 1500- 1300)=15% Net profit3500/36000=9.7%(2100)/36000 Net profit (Severance & impairment) 3500/36000=9.7%[(2100)+1500+1600+1 300]/36000=6.4%

5. Liquidity  Current ratio  Current assets/current liabilities  Acid ration  (Current ratios-inventory)/current liabilities

6. Liquidity 20092010 Current ratio4800/4600= 104%6200/3400= 182% Acid Ratio2900/4600=63%4000/3400=118%

7. Management Ratios  Receivables days  (Receivables/sales)*365  Inventory days  (Inventory/ Cost of sales)*365  Payables days  (Payables/cost of sales)*365  Working capital cycle  Receivable days + inventory days – payables days

8. Management Ratios 20092010 Receivables days(2800/36000)365= 28 (2200/29500)365= 27 Inventory days(1900/26000)365= 27 (2200/25500)365= 32 Payables days(2800/26000)365= 39 (3400/25500)365= 49 WC Cycle28+27-39= 1627+32-49=10

9. Return on Capital  Return on capital employed  Gross profit/capital  Net profit/capital

10. Return on capital employed 20092010 Gross return on capital employed 10000/(23000+50 00)=35.7% 4000/21600=18.5 % Net return on capital employed 3500/28000= 12.5% Net return on capital employed 3500/28000= 12.5% [(2100)+1500+1600+ 1300]/28000= 8.2%

11. Banking Ratios  Interest Cover  Profit before interest/Interest  Gearing  Debt/Equity or Debt/(Debt+Equity)

12. Banking Ratios 20092010 Interest Cover5500/500= 11(1900)/600= Interest Cover5500/500= 11[(1900)+1500+1600+ 1300]/600=4 Gearing (Debt/equity) 5000/23000= 21.7%4000/17600= 22.7% Gearing (Debt/debt+equity) 5000/28000= 17.9%4000/21600= 18.5%