Financial Analysis of Sweet Menu Restaurant and Blue Island Restaurant

This assignment content appears to be a financial management report that includes various financial statements and ratios. The report presents a profit and loss account, balance sheet, and cash flow statement for two businesses, Sweet Menu Restaurant and Blue Island Restaurant. Additionally, it provides payback period and net present value (NPV) calculations for two investment proposals. Finally, the report analyzes several key financial ratios, including profitability, liquidity, and solvency ratios, to provide insights into the financial performance of both businesses.

MFRD

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Sources of finance available to a business.......................................................................1
1.2 Implication of sources of finance.....................................................................................2
1.3 Appropriate sources of finance for Sweet Menu Restaurant............................................3
TASK 2............................................................................................................................................4
2.1 Cost of different sources of finance..................................................................................4
2.2 Importance of financial planning for Sweet Menu restaurant..........................................4
2.3 Information needed by decision maker of Sweet Menu Restaurant.................................5
2.4 Impact of sources of finance identified on financial statements......................................5
TASK 3............................................................................................................................................6
3.1 Analyze of the cash budget in order to take appropriate decisions..................................6
3.2 Calculation of unit cost and relevant pricing decisions....................................................6
3.3 Viability of two projects using various investment methods...........................................6
TASK 4............................................................................................................................................7
4.1 Main elements of financial statements.............................................................................7
4.2 Different statements used by different organization........................................................7
4.3 Calculation of various ratios.............................................................................................8
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
APPENDIX....................................................................................................................................12

INTRODUCTION
Financial management refers to the management of funds in an effective and efficient
manner in order to accomplish the objectives of the organizations. It is a function that is directly
associated with the top management. In other words it could be said that finance is the science
that manage all the activities related to banking, investment made by the company in order to
achieve the desired objective. Therefore, the following report depict about the various sources of
finance available with the company to raise its capital. In this cost of various sources of finance
available with the company is also gadfly. In this report impact of various sources of finance on
financial statements are discussed. In this report four month budget of the company is going to
be analyzed to find out the actual position of the company. At last, various ratios are calculated
and compared in order to find out the position of the both the companies.
TASK 1
1.1 Sources of finance available to a business.
There are various types of internal and external sources of finance of available with the
company which in turn will aid the company to meet its various requirement of finance.
Internal sources of finance
 Friends and family: - It is one of the internal sources of finance of available with the
company in order to raise its finance. Company can borrow money from its friends or any
family members. It is one of the easiest methods to raise finance. Sale of fixed assets: - Company can also raise its finance by selling out the obsolescent
assets. By selling unwanted assets company will be able to meet its both short term and
long term requirement of funds depending upon the size of the assets (Beaver, McNichols
and Rhie, 2005.
External sources of finance
 Issue of shares and debenture: - In order to meet the long term requirement of finance
company can issue shares and debentures to the general public. By issuing shares and
debenture company can raise large amount of capital within a short period of time.
 Hire purchase: - in this method company can raise its finance by hiring the assets or
property. In this method company can use the use the asset without purchasing it. This
method can be used by the company in order to meet its long term requirement of
1

finance. In this method company can use the assets or property by simple paying regular
installments.
 Bank loan: - it is a method of raising funds for a short and long time period. In this
method company borrows the funds from the bank by paying a high rate of interest. At
the time of taking Loan Company also need to submit same collateral securities in order
to avail the loan.
 Credit card: - It is method of raising funds for short period of time. It is a card issued by
the bank. By using this card company can withdraw up to a certain amount of money
from its bank account and can pay back to bank after.
 Overdraft: - It is a method of withdrawing the money from the bank account at the time
when available balance goes below zero. By using this method company can be able to
meet its short term requirement of funds.
 Government grants: - It is a method in which government pays subsidy to a recipient for
business or personal purpose. Government grants are not required to pay back to the
government.
 Leasing: - it is a method of using the assets or property for some period of time without
purchasing it. This method is used for meeting long term requirement of the finance. In
this method company pays some amount of money to the lessor annually as a rent for
using the property.
1.2 Implication of sources of finance
Sources Legal implication Finance
implication
Insolvency
implication
Issue of dilution
Bank loan Company need to
follow a legal
procedure in
order to avail the
loan. At the same
time company
also need to
Company will be
able to meet its
huge amount of
cash one at the
time. But at the
same time
company also
Bank can recover
its money back by
selling the
collateral security
of the company in
the case of
bankruptcy.
Ownership of the
amount
withdraws by the
bank changes.
Company has full
right to use the
fund raiser in any
2

submit the
collateral security
with the bank
(Bellas, Toudas
and Papadatos,
2007).
need to pay high
rate of monthly or
annual interest
which in turn
increases the cost
of the company.
manner.
Credit card No legal
procedure need to
be followed by
the company at
the time of
rasping finance.
Company will be
able to withdraw
a certain amount
of money at a
time but after a
certain period of
it need to be paid
back.
Bank can seize
the accounts of
the company if it
is not able
recover its
money.
Ownership
remains with the
company only.
Overdraft Company is also
not required to
follow a legal
procedure at the
time of availing
overdraft facility.
Company can
withdraw money
from the bank
even if its account
balance is zero.
But at the same
time it increases
the liabilities of
the company.
Bank can recover
the money from
the company by
filling a case
against him.
Ownership of the
funds raised by
the company
remains with
itself.
Issue of share A proper legal
procedure need to
be followed by
the company at
the time of
issuing shares to
the general
Company can
generate large
amount of finance
one at the time
which it need not
required to pay
back. But at the
At the time of
insolvency
company is not
able to pay
dividend to the
shareholders
(Paramasivan and
Ownership of the
shares issued by
the company
changes. As and
when share are
issued ownership
transfers to
3

public. same time
company need to
pay interest and
dividend to the
shareholder
which in turn
reduces the profit
margin of the
company.
Subramanian,
n.d.).
shareholder.
Government grant Company need to
fill up only a
small document
to avail the
government
subsidiary.
Company can use
this subsidiary for
the purpose of
research or
development. But
company need to
use the subsidiary
for the particular
objective only. It
can't use it for
any other
purpose.
Company need to
use the subsidiary
for the same
purpose for which
company has
taken government
grants. And if it is
not able to use it
for the same
purpose than
government will
take back the
amount of
subsidiary given.
Ownership of the
subsidiary
provided by the
government
changes.
Sale of assets A legal procedure
need to be
followed by the
company if they
are raising their
finance by selling
a heavy amount
Company will be
able to raise its
finance by selling
the assets. But at
the same time
assets of the
company will also
By selling the
assets of the
company
creditors and
other person can
recover its money
back at the time
Ownership of the
assets sold out
changes. The
purchaser of the
assets becomes
the actual owner
of the asset.
4

of asset. reduces (Bentz,
2007).
of insolvency.
Higher purchase
and leasing
A complete legal
procedure need to
be followed by
the company. A
legal contract has
been made
between lessor
and the lessee in
order to use the
assets.
Company can use
the assets without
purchasing it. But
at the same time
rent in form of
installments need
to pay whose total
cost increases the
actual cost of the
asset.
At the time of
insolvency actual
owner of the
property can take
back its property.
Ownership of the
asset leased
remains with the
actual owner of
the assets only.
1.3 Appropriate sources of finance for Sweet Menu Restaurant
There are various sources of finance which Sweet Menu Restaurant can considered in
order to raise its funds for expanding its business. But the most appropriate sources of finance
which Restaurant can use in order to fulfill their requirement of £3, 00,000 to £5, 00,000 are
Sources Advantages Disadvantages Suitability
Issue of shares and
debentures
Sweet Menu
Restaurant can issue
shares and debentures
in order to raise its
finance. In this method
company is not
required to pay back
the amount borrowed
after sometime. It
always remains with
the company.
Company need to pay
high interest and
dividend to the
shareholders in lieu of
the share issued out of
the profit earned by
the company. If
company faces the
condition of losses
than also it need to pay
interest to the share
and debentures holders
This is one of the
safest methods of
raising the funds. This
method can be used by
the Sweet Menu
Restaurant to raise its
capital by £5, 00,000
in order to expand its
business by opening
new branches.
5

(Brigham, 2013).
Sale of assets By using this method
Sweet Menu restaurant
can raise its capital by
disposing out the
unwanted/ obsolescent
assets. In this method
company can raise its
finance without
borrowing from
anyone.
Loss can be faced by
the company if
company is not able to
sell the asset at its
depreciated value.
This method is also
useful for the Sweet
Menu Restaurant in
order to expand its
business. They can
also use this method
for purchasing the new
assets.
Bank loan By using this method
Sweet Menu
Restaurant can be able
to raise finance for
both short and long
period of time by
simply paying the
collateral security. It is
one of the safe
methods of raising
funds.
Company need to pay
high rate of interest to
the bank which
reduces the profit
margin of the
company. At the same
time company also
need to submit the
collateral security.
This is a method
suitable for expanding
the business, purchase
of assets, paying
dividend to the
shareholder or for
conducting the
research.
TASK 2
2.1 Cost of different sources of finance
To open the proposed new branches, Sweet Menu Restaurant can raise its finance by issuing
the shares and debentures or by selling the fixed asset. But at the same time, use of this method
will enhance the cost of the company.
 Issue of shares and debentures: - Sweet Menu restaurant can raise their finance by
issuing shares and debentures to the general public. But at the same time it increases the
cost of the company. Company need pay high rate of dividend and interest to the equity
6

and debentures holders even if the company is facing loss condition (Dontoh, Ronen and
Sarath, 2008). This in turn reduces the profit margin of the company.
 Sale of fixed assets: - By selling the fixed assets company can raise its finance to expand
its business and at the same time is able to meet its short term and middle term
requirement of finance. But at the same time it can impact the cost of the company.
Assets of the company will be reduced. If company is not able to sell its assets at the
deprecated value than in that case company can face loss condition.
 Bank loan: - By taking bank Loan Company will be able to meet requirement of finance.
But at the same time it increases the various types of fixed and variable cost of the
company like arrangement fee, late payment charges, and admin charges. At the same
time company also need to be paid high rate of interest to the bank.
 Overdraft: - By using this method company can withdraw money from the bank even if
its account balance is zero. But at the same time it increases the cost of the company.
Company need to pay higher rate of interest on the amount withdrawn if it exceeds the
certain limit. Normally cost of interest and other fee paid increases the actual cost of
amount withdrawn. Thus, at the same time company need to have good credit score than
only it can avail the overdraft facility.
 Issue of share: - By issuing the shares company can meet long term requirement of
finance. But at the same it increases its cost. Company need to invest on the
advertisement, printing and posting share certificates, hosting annual meeting, providing
financial statements and many more cost. At the same time company also need to pay
dividend to the shareholder which reduces the profit margin of the company.
2.2 Importance of financial planning for Sweet Menu restaurant
Financial planning of all the activities in advance will aid the Sweet Menu restaurant to
achieve various desired goals and objectives easily.
 Able to distribute finance properly to each and every department: - Financial
planning of all the activities in advance aids the company to distribute the finance
available with the company properly in each and every department. This in turn will aid
the Sweet Menu restaurant to avoid the condition of excessive and shortage of finance
(Eccles and Holt, 2005).
7

 Flow of funds can be managed: - Financial planning also aids the company to manage
the inflow and outflow of funds from within and outside the organization. This in turn
will assist the company to maintain the balance between receipt and payment.
 Reduces the condition of uncertainty :-Planning of all the financial activities in
advance will assist the Sweet Menu restaurant to reduce the level of uncertainty which
could be faced by the restaurant due to change in business environment.
 Maximum utilization of resources can be made: - Planning of all the activities in the
company, Sweet Menu restaurant will be able to utilize the available resources to the full
extend. Utilization of the resources to the full extent will aid the company to reduce the
wastage of the company (Sullivan, 2009).
 To manage income more efficiently: - Financial planning will aid the Sweet Menu
Restaurant to easily manage income generated by the company in more efficient manner.
Managing all the income efficiently will assist the company increase its profit margin.
 To increase the cash flow and monitor spending habits and expenses: - Planning of
all the financial activities in advance will assist the Sweet Menu Restaurant to monitor
the spending habits and expenses of the company. At the same time it increases the flow
of cash within the organizations.
 To build a long term capital base and shape financial future:- Financial planning of
all the activities will help the Sweet Menu restaurant to build a long term capital base
which in turn shapes the financial future activities of the company.
 Sale forecast: - Sweet Menu Restaurant will also be to forecast its sales by planning all
the financial activities in advance.
2.3 Information needed by decision maker of Sweet Menu Restaurant
Various types of information are needed by different decision maker of the Sweet Menu
restaurant. Some of them are listed below:-
 Shareholders: - Shareholders are one of the valuable persons to the organization. These
individual invest their personal saving in order to avail high return on investment by the
company (Efendi, Srivastava and Swanson, 2007). These shareholders invest in company
by seeing its financial position. Therefore, in order to see the position of the company
shareholders wants all types of financial statements. They also prefer these statements in
8

order to decide whether the company is in a position to pay them high return on
investment or not.
 Employees: - They are the persons who work for the betterment of the restaurant. They
simply want healthy working environment, job securities and respect from all the other
members present in the organization. They only want to see the income and expenditure
account of the company to find out whether the company is generating profit or not.
 Suppliers: - they are the persons who supply raw material to the Sweet Menu restaurant.
They simply want to see the financial statements of the company in order to decide
whether the company is in a position to pay them for the goods supplied by them or not
(Ross, 2008).
 Government: - Government is a body of individual who affects the working of the
organization. They simply want to see the financial statement and company's audit report
in order to find out the company’s position. And at the same time find out the amount of
tax need to be paid by the company out of the profit earned.
 Customer: - Customers are the persons who want value for the money spend. These
individual is not required any types of financial statements for taking decisions. They
simply want best quality products at reasonable rates.
 Banker: - Bankers are the persons who provide loan and other facility to the company.
These bankers simply want the financial statements and balance sheet of the company in
order to decide whether company is in a position to pay back the loan or not.
 Community: - Community simply prefers annual report of the company in order to find
out the CSR of the company in order to take various necessary decisions.
 Owner: - Owner is a person who actually has started the business by investing its
personal saving into it. They use financial statements and balance sheet in order to see
how much profit it is generating and whether company is growing or not.
 Manager: - Manager is the individual who works for the wealth of the company. They
want financial statements and balance sheet in order to find out the growth rate of the
company. At the same time it also uses these statements to develop various strategies to
achieve the company set target and objective.
9

2.4 Impact of sources of finance identified on financial statements
 Sale of fixed assets: - Entry of sale of fixed assets will be shown on the asset side of the
balance sheet. This will be deducted from the fixed assets sold and at the same time cash
will also increase.
 Friends and family: - No entry will be made for the borrowing made by the friends and
family. But if interest is paid to them than in that case its entry will be shown in
expenditure side of the profit and loss account under the head of interest paid (Lennard,
2007).
 Issue of shares and debentures: - Entry of issue of shares and debentures will be shown
on the liability side of the balance sheet under the head of Share capital.
 Hire purchasing: - Only entry of installment paid by the Sweet Menu restaurant will be
shown on the expenditure side in the profit and loss account (Refer to appendix 1).
TASK 3
3.1 Analyze of the cash budget in order to take appropriate decisions
After analyzing the cash budget of the company it could be concluded that inflow and
outflow of the funds is constantly changing. In the month of September it is seen that payment
made by the company was more than the double of the income generated by the company. Thus,
at the same time it seen that payment paid by the Blue Island Restaurant is less as compared to
the sales made for the two months. But again in the month of December payment of the company
increases as compared to the income generated. Therefore, at last it could be concluded that
company is not using appropriate strategies. This in turn is creating imbalance in the flow of
funds.
3.2 Calculation of unit cost and relevant pricing decisions
(Enclosed in appendix 2)
Unit price = 16-4-2= £10
From the following calculation it could be analyzed that per unit cost of every meal is
£10. This cost is calculated by deducting the Mark up price and VAT from the Final price of per
meal.
10

3.3 Viability of two projects using various investment methods
 Payback period: - this method is used by the company in order to find out after how
many years company will be able to recover the amount of money invested on a
particular proposal. Thus, after calculating the payback period of both the proposal it
could be concluded that proposal 1 is better as compared to that of proposal 2. Since,
Blue Island restaurant is able to recover its money invested in only 2 years if it chooses
the proposal 1 (Enclosed in appendix 3).
 Net present value: - this method is used by the company in order to calculate the flow of
cash considering the discounted factors. At the same time it also helps the company to
find out the time period after which company is able to recover its money invested.
Therefore, from the following analyze it could be concluded that proposal 2 is more
valuable as compared to proposal 1 (Enclosed in appendix 4)
Thus, Blue Island restaurant should move on with proposal 2 in both the cases.
TASK 4
4.1 Main elements of financial statements
 Income statements: - Income statements are the statements which are prepared by the
company in order to find out the income and expenditure made by the company at the end
of every financial year. These statements are used by the employees, government and
shareholders of the company in order to find out its current market position.
 Balance sheet: - Balance sheet is one of the main statements used by the company in
order to find out its financial position (Mason, 2007). This statement includes all types of
assets and liability available with the company. Assets are recorded on the right side of
the balance sheet known as debit side. Similarly, liability is recorded on the left side of
the balance sheet known as credit side. These statements are used by managers, investor,
and suppliers in order to decide the actual position of the company.
 Cash flow statements: - These statements are prepared by the company in order to
analyze the flow of funds from the organization. These statements are prepared by
dividing the flow of cash into three different activities (i.e. operating, investing and
financing activities). Thus, these statements are used by the shareholders, investor, board
of director, managers in order to conclude the actual flow of cash from and within the
11

organization. These statements also aid the manager to prepare various strategies
accordingly.
4.2 Different statements used by different organization
 Public organization: - Public organizations are the organizations whose all operation
and activities are managed by the government. These organization need to prepare all
types of financial statements along with the company audit report. They are required to
prepare all these accounts in order to pay dividend to shareholders and at the same time to
calculate the amount of tax need to be paid by the company.
 Private organization: - These are the organization whose all operations are controlled
and managed by the private individual only without the government interference. These
organizations are also required to prepare all type of financial statements if the company
is a listed company (Mayer, Schoors and Yafeh, 2005). Different type of accounts is
prepared by different types of private company (i.e. sole proprietorship, partnership and
joint stock Company. Preparation of company audit report is not necessary by this
organization, but many organizations prepare in order to find out whether any fraud
practice has taken place or not.
 Non-profit organization: - These organizations are the types of charitable institutions
which work for the betterment of the society. These organizations are managed and
controlled by the single individual or a group of private individual. These organizations
are required to prepare only receipt and payment account. And if they want they can
prepare trial balance and profit & loss account.
4.3 Calculation of various ratios
(Enclosed in appendix 5)
After calculating the various ratios the following things could be concluded
 Profitability Ratio: - After the calculation it is analyzed that gross profit ratio of Blue
Island restaurant is more favorable as compared to that of Sweet Menu restaurant. The
reason behind this could be that Blue Island restaurant is able to reduce the cost of
production.
 Liquidity Ratio: - Similarly after calculating the Liquidity Ratios of the company it is
seen that liquid position of the Blue Island restaurant is better as compared to Sweet
Menu restaurant. Because the lower liquidity ratio indicates that company is having high
12

liquid cash available with it, which is a good sign. The reason behind this could be that
company is able to properly manage all its financial activities. Because large availability
of liquid cash aids the company to easily remove the urgent requirement of funds
(Penman, 2007).
 Solvency Ratio: - Likewise after calculating the solvency ratio of both the company it
can be concluded that financial position of Blue Island Restaurant in term of solvency is
much better as compared to that of Sweet Menu restaurant. Since, lower solvency ratio
indicates that company's financial position is good (Melis, 2007).
Therefore, at last it could be could be concluded that financial position of Blue Island
Restaurant is more favorable as compared to that of Sweet Menu restaurant in terms of
profitability, solvency and liquidity.
CONCLUSION
The following report emphasizes on the various sources of finance available with the
company in order to raise its capital. In this report budget is also analyzed to find out the flow of
cash. In this report two proposal are also analyzed in order to find out the best one of it. At last,
various ratios of the company are calculated to compare the financial position of both the
restaurant. Thus, it is concluded that financial position of Blue Island restaurant is good.
13

REFERENCES
Books and Journals
Beaver, W. H., McNichols, M. F. and Rhie, J. W., 2005. Have financial statements become less
informative? Evidence from the ability of financial ratios to predict bankruptcy. Review
of Accounting Studies. 10(1). pp. 93-122.
Bellas, A., Toudas, K. and Papadatos, K., 2007. The consequences of applying International
Accounting Standards (IAS) to the financial statements of Greek companies. In 30th
Annual Congress of European Accounting Association, Lisbon-Portugal.
Bentz, R. P., 2007. Acquiring and managing financial resources.
Brigham, E. ,2013. Financial Management: Theory and Practice. Cengage Learning.
Dontoh, A., Ronen, J. and Sarath, B., 2008. Financial statements insurance.
Eccles, T. and Holt, A., 2005. Financial statements and corporate accounts: the conceptual
framework. Property Management. 23(5). pp. 374-387.
Efendi, J., Srivastava, A. and Swanson, E. P., 2007. Why do corporate managers misstate
financial statements? The role of option compensation and other factors. Journal of
Financial Economics. 85(3). pp. 667-708.
Lennard, A., 2007. Stewardship and the Objectives of Financial Statements: A Comment on
IASB's Preliminary Views on an Improved Conceptual Framework for Financial
Reporting: The Objective of Financial Reporting and Qualitative Characteristics of
Decision-Useful Financial Reporting Information 1. Accounting in Europe. 4(1). pp.51-
66.
Mason, C.M., 2007. Informal sources of venture finance. In The life cycle of entrepreneurial
ventures (pp. 259-299). Springer US.
Mayer, C., Schoors, K. and Yafeh, Y., 2005. Sources of funds and investment activities of
venture capital funds: evidence from Germany, Israel, Japan and the United Kingdom.
Journal of Corporate Finance. 11(3). pp.586-608.
Melis, A., 2007. Financial statements and positive accounting theory: The early contribution of
Aldo Amaduzzi. Accounting, Business & Financial History. 17(1). pp.53-62.
Penman, S. H. and Penman, S. H., 2007. Financial statement analysis and security valuation (p.
476). New York: McGraw-Hill.
Ross, S. A., 2008. Modern financial management-/Stephen A. Ross...[et al.]. New York [etc.]:
McGraw-Hill/Irwin.
14

Sullivan, D. T., 2009. Managing financial resources. Advanced Practice Nursing: Essential
Knowledge for the Profession. pp. 203.
Online
Paramasivan,C. and Subramanian,T., n.d. Financial Management [pdf]. Available
through:<http://vcmdrp.tums.ac.ir/files/financial/istgahe_mali/moton_english/
financial_management_%5Bwww.accfile.com%5D.pdf> [Assessed on 25th December
2015].
15

APPENDIX
[2.3]
Profit and loss account for the year ended 31st December…
Operating profit
Less: interest paid to debentures holders ….
Less: interest paid to friends and family ….
Less: Installment paid ….
Profit before tax
Tax
Profit after tax
Dividend paid
Retained profit for the year
….
….
….
…..
….
…...
…...
Balance sheet as at 31st December...
NON-CURRENT ASSETS
Machinery
Less:- Sale of asset
…...
…...... …....
CURRENT ASSETS
Cash(+) ….....
EQUITIES
90,000 ordinary share capital
@ £10 per share
9%, debentures @ £10 per
debenture
…...
….....
NON-CURRENT LIABILITY
Loan …....
[3.2]
16

Particular Cost
Cost of meal £10
Mark up pricing 40.00%
VAT 20.00%
Cost of meal £10
Mark up pricing £4
VAT £2
Final price £16
[3.3]
Payback period
Year
Proposal 1
Cash flows
Proposal 2
Cash flows
0 (£1,200) (£1,200)
1 £800 (£400) £300 (£900)
2 £600 £200 £400 (£500)
3 £400 £600 £500 £0
4 £200 £800 £600 £600
5 £50 £850 £500 £1,100
Residual Value £0 £850 £50 £1,150
Net present value
Proposal 1 DF @10% Present value Proposal 2 DF@10%
Present
value
Initial
investment (£1200) (£1200)
1 £800 0.909 £727.2 £300 0.909 £272.7
2 £600 0.826 £495.6 £400 0.826 £330.4
3 £400 0.751 £300.4 £500 0.751 £375.5
4 £200 0.683 £136.6 £600 0.683 £409.8
17

5 £50 0.621 £31.1 £500 0.621 £310.5
Residual Value £0 0.621 £0 £50 0.621 £31.1
NPV £491 £530
[4.3]
Ratio analyzes
Ratios Sweet Menu
Restaurant Blue Island Restaurant
PROFITABILITY
RATIO
Gross profit £222,500 £198,000
Net sales £350,000 £299,000
Gross profit ratio
Gross profit
ratio=Gross profit/Net
sales*100
63.57% 66.22%
Net profit £85,000 £94,800
Net sales £350,000 £299,000
Net profit ratio Net profit Ratio=Net
profit/Net sales/100 24.28% 31.70%
LIQUIDITY RATIO
Current assets £68,000 £41,000
Current liability £195,000 £123,000
Current ratio Current ratio=Current
assets/Current liability 0.35 0.33
Liquid assets £24,000 £10,000
Current liability £195,000 £123,000
18