Reference no: EM133067940

Practical demonstration:

Monica works as a financial analyst for XYZ Ltd. The owner of the business wants her to perform an extensive analysis of financial statements. 

The owner wants the screenshots of the financial statement analysis performed as well as the notes in the presentation. The key elements that the owner is going to discuss in the presentation are as follows:

• the company's earning power
• the extent to which internal sources have been used to finance acquisitions of assets
• the speed with which accounts receivable are collected
• the ability of a business to quickly meet the unexpected demands for working capital
• the ability of the entity's earnings to cover its interest commitments
• the length of time taken by the business to sell its inventory

The financial statements of XYZ Ltd are shown below: 

Statements of Financial Performance For the year ending 30th June 2016
Net sales revenue	$567,000
Less: Cost of goods sold	$378,000
GROSS PROFIT	$189,000
Less: Operating expenses (including tax and interest)	$126,000
OPERATING PROFIT AFTER INCOME TAX	$63,000

Statements of Financial Performance For the year ending 30 June 2016
CURRENT ASSETS
Cash in bank		$25,200
Accounts receivable	$199,500
Less: Allowance for doubtful debts	$12,600	$186,900
Inventory		$168,000	$380,100
NON-CURRENT ASSETS
Land		$42,000
Building	$126,000
Less: Accumulated depreciation	$25,200	$100,800
Store equipment	$31,500
Less: Accumulated depreciation	$14,700	$16,800	$159,600
			$539,700
CURRENT LIABILITIES
Provision for preference dividends		$2,520
Provision for ordinary dividends		$16,800
Accounts payable		$180,600
Accrued expenses		$8,400	$208,320
NON-CURRENT LIABILITIES
Ten mortgages payable			$42,000
SHAREHOLDERS' EQUITY
Share capital: 60 preference shares Ordinary shares Retained profits		$42,000 $168,000 $210,000 $79,380	$289,380
			$539,700

Required: 

This task is to be performed in the classroom in front of the trainer/assessor. You trainer/assessor will observe you perform the following tasks: 

1. Using these statements of financial positions provided above, calculate in MS Excel, the ratios that give an indication of the following:

• a company's earning power
• the extent to which internal sources have been used to finance acquisitions of assets
• the speed with which accounts receivable are collected
• the ability of a business to meet quickly unexpected demands for working capital
• the ability of the entity's earnings to cover its interest commitments
• the length of time taken by the business to sell its inventory.

1. Provide a brief discussion on the suitability of the ratios mentioned for each case above.