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Betty has opened a children bookstore, Beau's Books, in Ballarat for five years. She is interested to know the performance of her business. The statement of financial position and income statement for the year ended 30 June 2018 and 2019 are shown below:
Beau's Books
Statement of Financial Position
As at 30 June
2019
2018
($)
Assets
Cash
500
1,000
Accounts receivable
2,000
4,000
Inventory
3,000
Non-current assets (net)
10,500
12,000
Total assets
15,000
20,000
Liabilities and shareholders' equity
Accounts payable
Long-term borrowings
6,000
Capital
9,000
10,000
Total liabilities and shareholders' equity
Sales revenue
80000
90000
less: cost of sales
25000
30000
Gross profit
55000
60000
less: operating expenses
20000
less: income tax
10000
12000
Net profit
25,000
18,000
Additional information:
The industry average of the financial stability ratio for similar businesses is also provided:
debt ratio
45%
assets turnover ratio
4.0
Quick Ratio
1.0
Inventory turnover
6
Current Ratio
2
Required
(a) Calculate the following ratios for 2018 and 2019:
(a) Short term liquidity ratios (any two)
(b) Efficiency Ratios (any two)
(c) Profitability Ratio (any one)
(b) Make an analysis of the business performance by commenting on the liquidity, Efficiency and profitability performance of the business based on the ratios calculated above in part (a). Make sure that you compare the ratios of this business with the industry average as a part of your analysis of the business performance.
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