ACCA MA · Guided practice (Show me how)
Chapter 28: Financial Performance Measurement
Performance measurement - ratios, and measuring a division
Parts (a) and (b). Statements of financial position as at 31 December, and income statements for the years then ended.
| 2007 $ | 2006 $ | |
|---|---|---|
| Non-current assets | 1,341 | 826 |
| Inventory | 1,006 | 871 |
| Receivables | 948 | 708 |
| Cash | 360 | 100 |
| Total current assets | 2,314 | 1,679 |
| Total assets | 3,655 | 2,505 |
| Share capital and reserves | 2,190 | 1,401 |
| Non-current liabilities | 500 | 400 |
| Current liabilities | 965 | 704 |
| Total equity and liabilities | 3,655 | 2,505 |
| 2007 $ | 2006 $ | |
|---|---|---|
| Revenue | 7,180 | 5,435 |
| Cost of sales | 5,385 | 4,212 |
| Gross profit | 1,795 | 1,223 |
| Distribution costs | 335 | 254 |
| Administrative expenses | 670 | 507 |
| Profit from operations | 790 | 462 |
| Finance costs | 50 | 52 |
| Profit before taxation | 740 | 410 |
| Tax expense | 262 | 144 |
| Profit after taxation | 478 | 266 |
Calculate the profitability, liquidity and gearing ratios for 2007. Use these definitions, which are the ones the chapter's worked answer uses:
- net profit margin = profit from operations / revenue; gross profit margin = gross profit / revenue
- return on capital employed = profit from operations / (share capital and reserves + non-current liabilities); asset turnover = revenue / capital employed
- current ratio = current assets / current liabilities; quick ratio = (current assets - inventory) / current liabilities
- inventory days = inventory / cost of sales x 365; receivables days = receivables / revenue x 365; payables days = current liabilities / cost of sales x 365
- gearing = non-current liabilities / share capital and reserves
Part (c). A division reports a profit of $50,000 on net assets in its statement of financial position of $400,000. The company has a target rate of return of 10%.
(a) Profitability
Calculate the four profitability ratios for 2007.
(b) Liquidity and gearing
Calculate the liquidity ratios and the gearing ratio for 2007.
(c) The division
Calculate the division's return on investment and its residual income for the year.
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