Financial Stability Ratios FAI Exercise 1 Tutorial Answers

Profitability
Ratios 2013 2014 Interpretation

7155 x 100% During the year 2013-14 period, the businesses’ ROE
Return on Equity 65800 increased from 18.5% to 21.7%. This means the owner is
(ROE) 18.5% 2 getting more return from his capital.
= 21.7%
7155 x 100% During the year 2013-14 period, the businesses’ NPM
Net Profit 72790 increased from 6.7% to 9.8%. This means the business is
Margin (NPM) 6.7% = 9.8% getting better at controlling its overall expenses.

23360 x 100% During the year 2013-14 period, the businesses’ GPM
Gross Profit 72790 decreased from 34% to 32%. This means the business is
Margin (GPM) 34% = 32% getting better at controlling its COGS expenses.

9920 x 100% During the year 2013-14 period, the businesses’ SER
Selling Exp. 72790 decreased from 16.5% to 13.6%. This means the business
Ratio (SER) 16.5% = 13.6% is getting better at controlling its selling expenses.

4535 x 100% During the year 2013-14 period, the businesses’ GER
General Exp. 72790 decreased from 8.8% to 6.2%. This means the business is
Ratio (GER) 8.8% = 6.2% getting better at controlling its general expenses.

1750 x 100% During the year 2013-14 period, the businesses’ FER
Financial Exp. 72790 increased from 2% to 2.4%. This means the business is
Ratio (FER) 2% = 2.4% getting better at controlling its financial expenses.
Stability
Ratios 2013 2014 Interpretation

8875 During the year 2013-14 period, the business’ WCR has
Working Capital 10420 decreased from 1.03:1 to 0.85:1. This means the business’
1.03: 1 = 0.85:1 ability to pay its current liabilities is getting worse.

58420 x 100% During the year 2013-14 period, the business’ TDR has
Total Debt 94020 decreased from 80.2% to 62.1%. This means the business’
80.2% = 62.1% total debt has reduced. In addition, the business’ still
exceeds the maximum limit of 50%
49610 During the year 2013-14 period, the business’ STR has
365/
Stock Turnover 5125 decreased from 29.2 days to 26.4 days. This mean the
29.2 days = 26.5 days business is getting faster at selling their goods.

36485 During the year 2013-14 period, the business’ DTR has
365/
Debtor Turnover 5125 increased from 24.8 days to 51.3 days. This means the
24.8 days = 51.3 days business is getting slower at collecting its debt.

1750+7155 During the year 2013-14 period, the business’ ICR has
Interest 1750 increased from 2.5 times to 5.1 times. This means the
Coverage 2.5 times = 5.1 times business’ ability to pay its interest has become better. In
addition, it satisfied the minimum requirement of 5 times.