Financial management revision question and answer

Ushindi Limited presented the following financial statements on 30 June 2004.

Income statement for the year ended 30 June 2004
Additional information:
1. An analysis of the industry in which the company operates reveals the following industrial averages:

Current ratio 1.5:1
Quick ratio 0.8:1

2. The purchases for the year were Sh.2,160,000 while the cost of sales was Sh.3,000,000.
3. The market price of the company‟s shares as at 30 June 2004 was Sh.5.

Required:
(a) Compute the following ratios for Ushindi Limited:

(i) Return on capital employed
(ii) Turnover of capital
(iii) Operating expenses ratio.
(iv) Accounts receivable turnover in days
(v) Dividend yield.
(vi) Price earnings ratio
(vii) Market value to book value ratio
(viii) Current ratio

(b) Compare the company‟s liquidity performance with that of the industry.
ANSWER

A

 

B
The firms liquidity position is below the industry average indicating poor working capital management policy

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