Financial statements

1.
A)

1
a

Current Ratio
(liquidity)

1
b

Operating
Profit Margin
(profitability)

Current Ratio = Current

Assets: Current
Liabilities
Increased
Operating Profit Margin=
Profit before Interest,
taxes and
dividends/Sales * 100

Increased
ROSF (Return
on
Shareholders
1 Fund)
C (profitability)

ROSF = Profit after

tax/Share capital +
reserves * 100

Common shares +
Retained earnings

Decreased

1
d

Average
settlement
period for
trade
receivables
(Debtor Days)
(efficiency)

Debtor Days=trade
receivables/credit sales

2015
CR =
475000/176000
= 3: 1
3:1
OPM=
(192850/723700
)*
100
192850/723700
=
0.266477822
0.266477822*10
0=
27%
27%

ROSF =
(116494/
(110000+13000
0)) * 100

2014
CR=448000/20
1500=2:1
2:1
OPM=
(169750/69400
0) *
100
169750/69400
0=
0.244596542
0.244596542*1
00=24%
24%

ROSF =
(97725/
(95000+67500
)) * 100
95000+67500
=
162500
97725/162500
=
0.601384615

110000+130000
= 240000
116494/240000
=
0.485391667
0.485391667*10
0=
49%
49%

0.601384615*1
00=60%
60%

DD=
130000/723700

DD=
120000/69400
0

130000/723700
=
0.179632444

Increased

1
e

Earnings per
Share
(Investment)

EPS=profit after tax/no

of ordinary shares issued
Common shares
Outstanding shares
Increased

no of days =356
0.179632444*35
6=
64 days
64 days

120000/69400
0=
0.172910663
no of days
=356
0.172910663*3
56=
62 days
62 days

EPS= 116494/
(110000-25000)
110000-25000=
85000
1.37
1.37

EPS= 97725/
(95000-15000)
95000-15000=
80000
1.22
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

Net cash used in investing activities

48,700
-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
Advertising Expense
Less: Advertising Payable C/F

0
35,000
35,000
5,000

Cash Paid For Advertising

30,000

3. Cash Paid to Suppliers for Inventory

Add: Account Payable B/F
Purchases
Less: Account Payable C/F

42,000
673,000
715,000
58,500

Cash Paid to Suppliers

656,500

Calculation for Purchases

Cost of Goods Sold
Add: Closing Inventory
Less: Opening Inventory

672,000
38,000
710,000
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

Decrease in Account receivables
Decrease in inventories

7,000
11,500
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
Proceeds from Investment
Net cash used in investing activities

-22,500
2,000
-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
Add: Account Receivable B/F
Less: Account Receivable C/F

350,000
26,500
376,500
15,000

Cash Collected From Clients

361,500

3.3
Cash Paid to Suppliers for Inventory
Add: Account Payable B/F
Purchases
Less: Account Payable C/F

46,250
217,000
263,250
75,000

Cash Paid to Suppliers

188,250

Calculation for Purchases

Cost of Goods Sold
Add: Closing Inventory
Less: Opening Inventory

210,000
42,000
252,000
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-rosfratio.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/series65/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