Financial Ratios Calculations

1. (a)  The following information represents the financial position and financial results of AMETEX Limited for the year ended 31 December 2002.

AMETEX Limited Trading, profit and loss account for the year ended 31 December 2002
	Sh.”000”	Sh.”000”
Sales – Cash           - Credit Less: cost of sales Opening stock Purchases Less: closing stock Gross profit Less expenses: Depreciation Directors’ emoluments General expenses Interest on loan Net profit before tax Corporation tax at 30% Net profit after tax Preference dividend Ordinary dividend Retained profit for the year	210,000 660,000 870,000 (150,000) 13,100 15,000 20,900   4,000 4,800 10,000	300,000 600,000 900,000 720,000 180,000 (53,000) 127,000 (38,100) 88,900 14,800 74,100

AMETEX Limited Balance Sheet as at 31 December 2002
	Sh.”000”	Sh.”000”	Sh.”000”
Fixed Assets Current Assets:      Stocks      Debtors      Cash Current Liabilities:      Trade creditors      Corporation tax payable      Proposed dividend	150,000 35,900   20,000 60,000 63,500 14,800	205,900 138,300	213,900   67,600 281,500
Financed by: Ordinary share capital (Sh.10 par value) 8% preference share capital Revenue reserves 10% bank loan		100,000 60,000 81,500   40,000	______ 281,500

Additional information:

            1.         The company’s ordinary shares are selling at Sh.20 in the stock market.

 g         2.         The company has a constant dividend pay out of 10%.

            Required:

            Determine the following financial ratios:

(i)                 Acid test ratio.                                                                         (  2 marks)

(ii)               Operating ratio                                                                                    (  2 marks)

(iii)             Return on total capital employed                                            (  2 marks)

(iv)             Price e arnings ratio.                                                                (  2 marks)

(v)               Interest coverage ratio                                                             (  2 marks)

(vi)             Total assets turnover                                                               (  2 marks)

                                                                                                            (Total: 10 marks)

Acid test ratio

Total current asset –inventory-anything prepaid-accruals

                                      Total current liability

                       205900-150000                 =40.419

                                 138300

Operating ratio                                                     

Cost of goods sold +operating expenses            100

                    sales

           126000+    20900=

             320000

                                                              45.906%

                   

Total assets turnover

                         sales

                         total assets=

                                           320000          =0.7622 TIMES

                                                      419800                                            

Return on total capital employed

                                                                        123000                       =43.69%

EBIT                                                              281500

                    Capital employed                                               

Interest coverage ratio                                                      123000                                 30.75:1

                         EBIT                                                                     4000

                                             INTEREST EXPENSES

Price e arnings ratio.

MARKET VALUE PRICE PER SHARE

EARNINGS PER SHARE

                                                      20   / 10                                   =2TIMES

                                                      

Interest coverage ratio

Interest coverage ratio = interests expense / profit before tax and interest expenses

                                          =4,000/ 127,000 + 4000

                                          = 0.031

Total Asset Turnover = Net sales revenue / average total assets (or closing assets)

                                    =  900000/ 419800

                                    = 2.14