UESTION FIVE RATIO ANALYS Required Undertake a detailed anal

UESTION FIVE: RATIO ANALYS Required Undertake a detailed analysis of the results of Goldtrack Limited using ratio analysis. (a) Organise part one of your analysis under the headings of Profitability, Solvency and Liquidity (12 marks) Then in part two compare the results of your analysis with the Industry averages provided above. (b) (10 marks) (c) Then describe your understanding of the results of the company for 2016 compared with the previous period and compared with industry averages. (12 marks) TOTAL OF 34 MARKS Goldtrack Heights Balance Sheet 30-Jun-16 30-Jun-15 Assets Current Assets Accounts Receivable Cash at bank Prepayments Inventory 138,000 156,000 2,000 122,000 180,000 8,000 34,000 330,000 30,000 340,000 Non-Current Assets Plant and machinery (net of depreciation) 960,000 1,290,00 860,000 1,200,000 Total Assets Liabilities Current Liabilities Accounts Payable Non-Current Liabilities Loan 140,000 160,000 98,000 300,000 238,000 1,052,000 460,000 740,000 Total Liabilities Net Assets Owners\' Equity Share Capital Retained Earnings 400,000 652,000 1,052,000 300,000 440,000 740,000 Total Owners\' Equity

Solution

a.

Profitability ratio:

Gross profit margin = Gross profit / Sales

2016 = $490000/ $780000 = 62.82%

2015 = $420000/ $660000 = 63.64%

Net Profit margin = Net profit/ sales

2016 = $234000/ $780000 = 30%

2015 = $190000/ $660000 = 28.79%

Solvency Ratio:

Debt to total assets ratio = Total debt/ Total assets

2016 = $238000/ $1290000 = 18.45%

2015 = $460000/ $1200000 = 38.33%

Return on Assets = Net profit after tax / Total assets

2016 = $234000/ $1290000 = 18.14%

2015 = $190000/ $1200000 = 15.83%

Return on Equity = Net profit after tax / Total owners\' equity

2016 = $234000/ $1052000 = 22.24%

2015 = $190000/ $740000 = 25.68%

Liquidity ratio:

Current ratio = Current assets/ Current liabilities

2016 = $330000/ 140000 = 2.36

2015 = $340000/ 160000 = 2.13

Quick ratio = (Current assets - Inventory)/ Current liabilities

2016 = ($330000 - $34000)/ $140000 = 2.11

2015 = ($340000 - $30000)/ $160000 = 1.94

b.

c.

The gross profit margin has reduced from 2015 but is still above the industry average.

The net profit margin has increased from 2015 and is now at par with the industry average.

Debt to total assets ratio has reduced from 2015 which is a good indicator and is also below the industry average.

The return on total assets is above the same in 2015 and industry average which is a better performance indicator.

The return on equity has reduced from same in 2015 but is still above the industry average of it.

The current ratio has improved from 2015 but is still not good as compared to the industry average.

The quick ratio has improved from that in 2015 and is much better than compared to the industry average.

Overall, most of the performance metrics suggest that, Goldtrack limited has a good track record.

	Year 2016	Industry averages	Performance of Stock
Gross profit margin	62.82%	60%	Better
Net Profit margin	30%	30%	Neutral
Debt to total assets ratio	18.45%	28%	Better
Return on assets	18.14%	17%	Better
Return on Equity	22.24%	7%	Better
Current ratio	2.36	3	Not good
Quick ratio	2.11	1	Better