Explain the meaning and significance of the given ratios

Reference no: EM13900914

Part 1

You have been asked by a local company to help put their profit and loss account into the proper format. The information you have been provided with is as follows:

Trading and profit and loss account items for the year ending 31 December 2003 (all figures in £000s)

Sales	4530
Loan interest	60
Closing stock	230
Distribution cost, including depreciation	150
Retained profit for the year	400
Gross profit	1380
Opening stock	360
Purchases	3020
Administrative costs, including depreciation	570
Cost of goods sold	3150
Rent and rates	200
Profit before interest	460
Balance sheet items at 31 December 2003 (all figures in £000s)
Vehicles, net of depreciation	280
Stock at 31 December 2003	230

Bank overdraft	182
Trade debtors	940
Trade creditors	425
Machinery and equipment, net of depreciation	185
Sundry debtors	60
Sundry creditors	40
Bank loan	500
Retained profit as at 31 December 2002	318
3000 shares at £100 each	300
Net profit for year to 31 December 2003	400
Cash	30
Premises	440
Shareholders' funds	1518

Part 2

Explain the meaning and significance of the following ratios that have been calculated from the financial information given in this question and for the previous year.

	2003	2002
ROCE	30.3%	14.2
Current ratio	1.94:1	1.64:1
Debtor days	76 days	63 days
Creditor days	51 days	72 days

Reference no: EM13900914

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