Performing ratio analysis

Performing ratio analysis

Class Group Exercise (students to work in groups of 3)

The following financial statements were prepared for the management of MNM Ltd. The statements contain some information that will be disclosed in note form in the general purpose financial statements to be issued.

Additional information

1. The balances of certain accounts at the beginning of the year are:

2. Total assets and total equity at the beginning of the year were $387 500 and $190 500 respectively.

3. Income tax expense for the year was $31 500. Net finance expenses were $3150.Required

Identify and calculate the ratios that a financial analyst might calculate to give some indication of the following:

a.the entitys earning ability (ROE ROA Profit Margin Gross Profit Margin)b.the extent to which internal sources have been used to finance asset acquisitions (Debt Ratio)c.the rapidity (how fast) with which accounts receivable are collected (Days Debtors)d.the ability of the entity to meet unexpected demands for working capital (Quick asset ratio)e.the ability of the entitys earning to cover its interest commitments (Interest coverage ratio)f.the length of time taken by the entity to sell its inventories (Days Inventory).

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