accounting ratios

1- Gross profit percentage = gross profit ÷ sales × 100%

2014:24,000 ÷64,000× 100% = 37.5%

2015:32,400 ÷108,000× 100% = 30%

2- Current ratio = current asset ÷ current liabilities

2014:23,900 ÷14,200 = 1.68 : 1 times

2015:31,000 ÷20,400 = 1.52 : 1 times

3- Quick ratio = (current asset – inventories) ÷ current liabilities

2014:(23,900 –12,000) ÷14,200 = 0.84 : 1 times

2015:(31,000 –15,000) ÷20,400 = 0.78 : 1 times

4- Debtors collection period = trade Debtors ÷ credit sales × 365

2014:10,500 ÷64,000×365= 60 days

2015:14,000 ÷108,000× 365 = 47 days

5- creditors payment period = trade creditors ÷ *credit purchase × 365

2014:6,800 ÷*42,000 ×365= 59 days

2015:9,400 ÷*78,600× 365 = 44 days

*purchase = Cost of sales + (closing inventory – opining inventory)

2014: 40,000 + (12,000 – 10,000) = *42,000

2015:75,600 + (15,000 – 12,000) = *78,600

6- Gearing ratio = debt ÷ ( debt + equity ) × 100%

2014:60,000 ÷ (60,000 + 26,000 ) × 100% = 70%

2015: 60,000 ÷ (60,000 + 49,000) × 100% = 55%

required :- based on the above accountin ratios , answer the following question ?

1- Explain what you can deduce from the ratios as at 31 December 2015 and

from comparing them with those for 2014. ( comment on accounting ratios )

2- State two points which could cause the movement in the gross profit

percentages between the two years and explain how they could bring the

change about.

3- State the extent to which you agree or disagree with the following and give

brief reasons for your answers:-

a) The current ratio and the quick ratio help to assess whether a company is

able to meet its debts as they fall due. Therefore the higher these ratios are

the better placed the company is.

b) A high gearing ratio is advantageous to shareholders, because they benefit

from the income produced by investing the money borrowed.