TUTORIAL: RATIO ANALYSIS

Question 1:

A. The following are the financial statements for Yin Yan Sdn. Bhd. The company operates
a plastic-related business.

Comparative Income Statement with Industry Average

for the Year Ended 31 December 2019
Yin Yan Sdn. Bhd. Industry Average
(RM) (%)
Net sales
(Cash sales = RM330,000) 600,000 100
Cost of goods sold 384,000 74.2
Gross profit 216,000 25.8
Sales and administrative expensive 194,000 22.5
Profit from operations 22,000 3.3
Other expenses
(Interest expenses RM3,000) (4,000) 0.2
Profit before tax 18,000 3.1
Income tax expenses (5,000) 0.7
Net profit 13,000 2.3

Comparative Statement of Financial Position

as at 31 December 2018 and 2019
2019 2018
(RM) (RM)
Current assets:
Cash 15,000 10,000
Marketable securities 10,000 15,000
Accounts receivable (net) 35,000 25,000
Inventory 55,000 40,000
Prepaid expenses 5,000 120,000 5,000 95,000

Non-current assets 80,000 45,000

Total Assets 200,000 140,000

Liabilities and equity:

Current liabilities 60,000 50,000
Non-current liabilities 15,000 10,000
Owners’ equity 125,000 80,000
Total Liabilities and Equity 200,000 140,000

The average ratios for the plastics industry in year 2019 are as follows:

Ratio Industry average

Accounts receivable turnover 9.5 times
Average collection period 38 days
Inventory turnover 4.8 times
Return on asset 4.0 %
Return on equity 11.4 times

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 Required:

Calculate AND compare the following financial ratios for Yin Yan Sdn. Bhd. with the
industry average for year 2019.

i) Return on asset

ii) Return on equity

iii) Accounts receivable turnover

iv) Average collection period

v) Inventory turnover

B. The objective of accounting is to provide information to users for decision-making. The

decision makers need to understand the profitability, liquidity and cash flows of the
organization, so that it can make operational and/or financing decisions about the
business.

Required:

a) List all the THREE (3) techniques that can be used to analyse the financial statement
of a company.

b) Explain TWO (2) of the techniques in a).

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Question 2:

Consider the following financial information for Gold Berhad, a manufacturer of food industry
as at 31 December 2020.

Gold Berhad
Statement of Financial Position as at 31 December
2020 2019
RM '000 RM'000
Non-Current Assets
Property, Plant and Equipment 460,000 360,000
Total Non-Current Assets 460,000 360,000

Current Assets
Inventories 28,400 30,400
Trade Receivables 56,800 29,400
Cash and Cash Equivalents 32,960 24,800
Total Current Assets 118,160 84,600

Total Assets 578,160 444,600

Equity and Liabilities

Equity
Share Capital 160,000 100,000
Share Premium 20,000 10,000
Retained Earnings 130,580 127,000
Total Equity 310,580 237,000

Non-Current Liabilities
Long-Term Loan 200,000 180,000
Total Non-Current Liabilities 200,000 180,000

Current Liabilities
Trade payables 31,800 26,600
Current Tax Payables 1,500 1,000
Total Current Liabilities 33,300 27,600

Total Equity and Liabilities 543,880 444,600

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 Gold Berhad
Statement of Profit or Loss for the year ended 31 December
2020 2019
RM'000 RM'000
Revenue 172,800 162,200
Cost of Sales 137,980 134,148
Gross Profit 34,820 28,052

Administartive Expenses 4,920 4,292

Distribution Costs 9,500 8,160
Finance Costs 10,600 9,200
Income Tax 1,420 800
Profit after tax 8,380 5,600

The average ratios for the food industry in year 2020 are as follows:

Ratio Industry average

Current ratio 3.7
Acid test ratio 2.5
Net profit margin ratio 4.8 %
Inventory turnover ratio 4.5 times
Debt ratio 41 %

Required:

a) Calculate the following financial ratios for year 2020 AND briefly analyse the financial
performance of Gold Berhad with the industry average for year 2020.

i. Current ratio

ii. Acid test ratio

iii. Net profit margin ratio

iv. Inventory turnover ratio

v. Debt ratio

b) Explain TWO (2) main advantages of financial statement analysis as a tool of assessing
the financial performance of a business.

Note: All workings should be shown.

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Question 3:

Consider the following financial information for Aspire Berhad, a manufacturer of food industry
as at 31 December 2020.

Aspire Berhad
Statement of Financial Position as at 31 December
2020 2019
RM '000 RM'000
Non-Current Assets
Property, Plant and Equipment 920,000 720,000
Total Non-Current Assets 920,000 720,000

Current Assets
Inventories 78,000 60,800
Trade receivables 56,800 58,800
Cash and cash equivalents 32,960 49,600
Total Current Assets 167,760 169,200

Total Assets 1,087,760 889,200

Equity and Liabilities

Equity
Share capital 320,000 200,000
Share premium 40,000 20,000
Retained earnings 261,160 254,000
Total Equity 621,160 474,000

Non-Current Liabilities
Long-term loan 400,000 360,000
Total Non-Current Liabilities 400,000 360,000

Current Liabilities
Trade payables 63,600 53,200
Current tax payables 3,000 2,000
Total Current Liabilities 66,600 55,200

Total Equity and Liabilities 1,087,760 889,200

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 Aspire Berhad
Statement of Profit or Loss for the year ended 31 December
2020 2019
RM'000 RM'000
Revenue 345,600 324,400
Cost of Sales 275,960 268,296
Gross Profit 69,640 56,104

Administrative Expenses 9,840 8,584

Distribution Costs 19,000 16,320
Finance Costs 21,200 18,400
Income Tax 2,840 1,600
Profit after tax 16,760 11,200

Dividends paid 9,600 6,800

Required:

c) Calculate the following financial ratios for both years AND briefly analyse the financial
performance of Aspire Berhad.

i. Current ratio

ii. Acid test ratio

iii. Profit margin ratio

iv. Operating expenses to sales ratio

v. Debt to total assets ratio

d) Explain TWO (2) limitations of financial statement analysis as a tool for business
performance and decision making.

Note: All workings should be shown.