Problems
Calculate the following financial ratios for Prospect plc for last year and this year. (Use
year-end figures where balance sheet items are involved.)
l Return on capital employed
l Return on ordinary shareholders’ funds
l Gross profit margin
l Operating profit margin
l Inventories turnover period
l Settlement period for trade receivables (days)
l Current ratio
l Acid test ratio
l Gearing ratio.
Use these ratios to comment on the performance and position of Prospect plc from
the point of view of:
(a)a 10% owner of the equity; and
(b)the business’s bank.3.6 The following are the financial statements of High Street Enterprises plc for last year
and this year:
Income statement for the year ended 31 December
Last year This year
£000 £000
Turnover 15,600 24,160
Cost of sales (8,740) (12,564)
Gross profit 6,860 11,596
Operating expenses (5,296) (8,572)
Operating profit 1,564 3,024
Interest payable – (132)
Profit before taxation 1,564 2,892
Taxation (316) (518)
Profit for the year 1,248 2,374
‘