BUSF_A01.qxd

Problems

(Problems 3.1 and 3.2 are basic-level problems, whereas problems 3.3 to 3.6 are more

advanced and may contain some practical complications.)

3.1*Counterpoint plc, a wholesaler, has the following accounting ratios for last year and this

year:

Last year This year

Return on capital employed (ROCE) (%) 28.25 13.51

Return on ordinary shareholders’ funds (ROSF) (%) 51.95 18.35

Gross profit margin (%) 50.00 40.00

Operating profit margin (%) 20.00 10.00

Settlement period for trade receivables (days) 73 91

Settlement period for trade payables (days) 37 46

Current ratio 1.63 : 1 1.37 : 1

Acid test 0.72 0.60

Gearing (%) 56.31 58.55

On the basis of these ratios, comment on the performance of the business this year as

compared with last year.

3.2 The following are the highly simplified financial statements of Duration Ltd for last year:

Income statement for the year ended 31 December

£000

Turnover 80

Cost of sales (60)

Gross profit 20

Operating expenses (10)

Operating profit 10

Balance sheet as at 31 December

£000

Non-current assets 70

Current assets 20

Total assets 90

Equity (share capital and reserves) 78

Current liabilities 12

Total equity and liabilities 90

Calculate as many accounting ratios as the information provided will allow.

Problems

Sample answers to
problems marked with
an asterisk appear in
Appendix 4.

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