Financial statements

1.

A)

2015 2014
Current Ratio = Current CR =
1 Current Ratio Assets: Current 475000/176000 CR=448000/20
a (liquidity) Liabilities = 3: 1 1500=2:1
Increased 3:1 2:1

Operating Profit Margin= OPM= OPM=

Operating Profit before Interest, (192850/723700 (169750/69400
1 Profit Margin taxes and )* 0) *
b (profitability) dividends/Sales * 100 100 100
192850/723700 169750/69400
= 0=
0.266477822 0.244596542
0.266477822*10
0= 0.244596542*1
27% 00=24%
Increased 27% 24%

ROSF (Return ROSF = Profit after

on tax/Share capital + ROSF = ROSF =
Shareholders reserves * 100 (116494/ (97725/
1 Fund) (110000+13000 (95000+67500
C (profitability) 0)) * 100 )) * 100
95000+67500
Common shares + 110000+130000 =
Retained earnings = 240000 162500
116494/240000 97725/162500
= =
0.485391667 0.601384615
0.485391667*10
0= 0.601384615*1
49% 00=60%
Decreased 49% 60%

Average
settlement
period for
trade
receivables DD=
1 (Debtor Days) Debtor Days=trade DD= 120000/69400
d (efficiency) receivables/credit sales 130000/723700 0
 130000/723700 120000/69400
= 0=
0.179632444 0.172910663
no of days
no of days =356 =356
0.179632444*35 0.172910663*3
6= 56=
64 days 62 days
Increased 64 days 62 days

Earnings per
1 Share EPS=profit after tax/no EPS= 116494/ EPS= 97725/
e (Investment) of ordinary shares issued (110000-25000) (95000-15000)
Common shares 110000-25000= 95000-15000=
Outstanding shares 85000 80000
1.37 1.22
Increased 1.37 1.22

XYZ Ltd. Analysis

The current ratio of XYZ Ltd. Increased from 2.22 in 2014 to 2.70 in 2015

The operating profit margin indicates that the company net income of 24 pence for
each pound of sales in 2014 rose to 27 pence for each pound of sales in 2015
(Investopedia, n.d.)

The Return on Shareholders Fund (ROSF) indicates that XYZ Ltd. made a profit of
60% in 2014 for every ordinary shareholders stake in its business which now
declined to about 49% in 2015 (Finance Learners , n.d.). This implies that there was
a decline in the profit available for shareholders in 2015

Debtor Days for XYZ Ltd. indicates that there was an increase on the average
number of days they were taking for credit. In 2014, debtors of XYZ Ltd. on the
average takes 62 days while in 2015 it rose to an average of 64 days (Wood &
Sangster, 2005).

Earnings per share for XYZ Ltd. rose from a profit of 1.22 per share a shareholder
invested in 2014 to 1.37 per share in 2015 (Wood & Sangster, 2005).

From the above I will recommend that XYZ can invest in XYZ Ltd. as the financial
statement of XYZ indicates an overall satisfactory performance based on their
current ratio, operating profit margin and earnings per share which shows a
progressive increase. Their statement also shows that XYZ Ltd. liquidity and
profitability increase in the period under review and as such XYZ Ltd. can meet up
with their obligations as at when due.
2.1

Bulls Corporation
Statement of Cash Flows
for the year ended 12/31/x1

Cash flows from operating activities

Net income 62,000
Adjustments for:
Depreciation and amortization 25,000
Gain on sale of equipment -7,500
Income tax Expense 4,000
83,500
Decrease in Prepaid Insurance 5,500
Decrease in Account receivables 9,500
Decrease in inventories 1,000
Increase in Account payables 16,500
Advertising Paid -30,000
2,500
Cash generated from operations 86,000

Cash flows from investing activities

Purchase of equipment -36,300
Purchase of Land -13,900
Proceeds from sale of equipment 48,700
Net cash used in investing activities -1,500
Cash flows from financing activities
Proceeds from issue of common stock 14,500
Repayment of Notes Payable -43,000
Dividends -25,500
Net cash used in financing activities -54,000

Net increase in cash and cash equivalents 30,500

Cash and cash equivalents at beginning of period 8,000
Cash and cash equivalents at end of period 38,500

2.2

1. Cash Collected from Clients

Sales 1,090,000
Add: Account Receivable B/F 29,500
1,119,500
Less: Account Receivable C/F 20,000

Cash Collected From Clients 1,099,500

2. Cash Paid for Advertising Expense

Add: Advertising Payable B/F 0

Advertising Expense 35,000
35,000
Less: Advertising Payable C/F 5,000

Cash Paid For Advertising 30,000

3. Cash Paid to Suppliers for Inventory

Add: Account Payable B/F 42,000

Purchases 673,000
715,000
Less: Account Payable C/F 58,500

Cash Paid to Suppliers 656,500

 Calculation for Purchases

Cost of Goods Sold 672,000

Add: Closing Inventory 38,000
710,000
Less: Opening Inventory 37,000

Purchases 673,000

3.1

Candles Limited
Statement of Cash Flows
for the year ended 12/31/x1

Cash flows from operating activities

Net income 48,000
Adjustments for:
Depreciation and amortization 20,000
Gain on sale of equipment -2,500
Income tax Expense 12,000
77,500
Decrease in Prepaid Expenses 7,000
Decrease in Account receivables 11,500
Decrease in inventories 7,000
Increase in Account payables 28,750
Decrease in Supplies 14,000
68,250
Tax Paid -20,250
Increase in Salaries Payable -42,000
-62,250
Cash generated from operations 83,500

Cash flows from investing activities

Purchase of equipment -6,500
Proceeds from sale of equipment 21,000
Purchase of Land -22,500
Proceeds from Investment 2,000
Net cash used in investing activities -6,000
Cash flows from financing activities

Share Issue Proceed

15,500
Decrease in Notes Payable -17,500
Dividends -48,500
Net cash used in financing activities -50,500

Net increase in cash and cash equivalents 27,000

Cash and cash equivalents at beginning of period 9,000
Cash and cash equivalents at end of period 36,000

3.2

Cash Collected from Customers

Sales 350,000
Add: Account Receivable B/F 26,500
376,500
Less: Account Receivable C/F 15,000

Cash Collected From Clients 361,500

3.3

Cash Paid to Suppliers for Inventory

Add: Account Payable B/F 46,250

Purchases 217,000
263,250
Less: Account Payable C/F 75,000

Cash Paid to Suppliers 188,250

Calculation for Purchases

Cost of Goods Sold 210,000

Add: Closing Inventory 42,000
252,000
Less: Opening Inventory 35,000

Purchases 217,000
References

Atrill, P. and McLaney, E. (2013) Accounting and Finance for Non - Specialists 8th Ed.
Harlow, Essex: Pearson Education Limited.

Finance Learners (n.d.). The Income Statement: Key Ratios - Profit and Operating
Margin. [Online] Available From:
http://financelearners.blogspot.com.ng/2011/06/return-on-shareholders-funds-rosf-
ratio.html (Accessed: 22 August 2016)

Investopedia (n.d.). The Income Statement: Key Ratios - Profit and Operating
Margin. [Online] Available From: http://www.investopedia.com/exam-guide/series-
65/quantitative-methods/income-statement-key-ratios-profit-operating-margin.asp
(Accessed: 22 August 2016)

Wood, F. & Sangster, A. (2005). Business Accounting, 10 th Ed. Harlow, Essex:

Pearson Education Limited