Financial Statement Analysis for Fort Sport Ltd.

This assignment content provides an overview of the three main financial statements used in accounting, including the Balance Sheet, Income Statement, and Cash Flow Statement. The formats of these statements differ depending on the type of business, with sole proprietorships preparing only a Profit & Loss account, while public limited firms produce all three major statements. Additionally, the assignment introduces financial ratios such as the Current Ratio, Quick Ratio, Gross Profit Ratio, Net Profit Ratio, and Return on Capital Employed, which are used to analyze a company's financial performance.

Unit 2: Managing Financial Resources and
Decisions - RESIT
Level : 4
Title Managing Financial Resources and Decisions
Learning
Outcom
e
Learning
Outcome
Assessme
nt
Criteria
In this assessment you will
have the opportunity to
present evidence that shows
Task
no. Evidenc
e
LO1
LO2
Understan
d the
sources of
finance
available
to a
business
Understan
d the
importanc
e of
financial
planning
and
informatio
n needs.
1.1
Identify the sources of finance
available to a business
1.2
Assess the implications of the
different sources
1.3
Evaluate appropriate sources of
finance for a business project
2.1
Analyse the costs of different
sources of finance
2.2
Explain the importance of
financial planning
2.3 Assess the information needs of
different decision makers
2.4 Explain the impact of finance on
the financial statements
Unit 2: Managing Financial Resources and Decisions May 2014 1

LO3
Be able to
make
financial
decisions
based on
financial
informatio
n
3.1 Analyse budgets and make
appropriate decisions.
3.2 Explain the calculation of unit
costs and make pricing decisions
using relevant information.
3.3 Assess the viability of a project
using
investment appraisal techniques.
LO4
Be able to
evaluate
the
financial
performan
ce of a
business.
4.1 Discuss the main financial
statements.
4.2 Compare appropriate formats of
financial statements for different
types of business.
4.3 Interpret financial statements
using appropriate ratios and
comparisons, both internal and
external.
title Managing Financial Resources
and Decisions
Purpose of this assignment –
This unit is designed to give learners a broad understanding of the sources and
availability of finance for a business organisation. Learners will learn how to evaluate
these different sources and compare how they are used. They will learn how financial
information is recorded and how to use this information to make decisions for example
in planning and budgeting. Decisions relating to pricing and investment appraisal are
also considered within the unit. Finally, learners will learn and apply techniques used
to evaluate financial performance.
Unit 2: Managing Financial Resources and Decisions May 2014 2

Scenario
You work as a finance manager within the Head Offices of Fort Sport Ltd.
You have been asked to assist the management team in preparing and forecasting the
company’s expansion. Fort Sport Ltd is a small private company who began trading in
April 2013. The company supplies fitness products online to the public; specialising in
mid range sporting goods and equipment. In 2014, it wishes to increase its activity in
the market and as such need to identify a variety of options for finance.
Your research has shown that the Bannatyne Group would be interested in investing in
Fort Sport Ltd. This could be an option for the company and will be something for you
to consider, however, in the event that this investment is not viable, other options of
finance must be explored.
The Bannatyne Group has been keen to enter into a deal of this nature as market
research indicates that internet related businesses are expected to grow in the UK and
globally.
Your line manager has asked you to explore the cost and profit implications of various
sources of finance that would be available to Fort Sport Ltd. In particular, the
executives within the group want to know what the costs would be if the group were
to accept the investment offer from the Bannatyne Group.
Please use the following case study as a
reference:-http://businesscasestudies.co.uk/beeson-gregory/raising-finance-for-smes/
intr.html#axzz2yDASkv00
Unit 2: Managing Financial Resources and Decisions May 2014 3

Task 1 (This tasks offers you an opportunity to achieve L.O. 1: 1.1, 1.2 and
1.3)
You have been asked to identify a range of sources of finance available to Fort Sport
Ltd. These can include raising funds through a combination of finance areas. Please
identify at least three sources (1.1).
You should also assess the implications of your choices: What are the legal,
financial and dilution of control implications (percentage ownerships); risks of
bankruptcy.(1.2)
After assessing the possible sources of finance, you must choose a source(s)that
would be appropriate for Fort Sport Ltd. You are required to:
 evaluate benefits of different sources for Fort Sport Ltd;
 match term of finance to term of project (1.3)
Unit 2: Managing Financial Resources and Decisions May 2014 4

Task 2 (This tasks offers you an opportunity to achieve LO2: 2.1, 2.2, 2.3, and
2.4)
Analyse the financial costs of your chosen sources of finance for Fort Sport Ltd.
(2.1)
With reference to the financial planning of this task, you will need to explain in a report
format why financial planning is important for the success of Fort Sport Ltd.(2.2)
Assess different information needs for each decision maker within Fort Sport
Ltd: Identify and assess the information that is needed for a range of decision makers.
(2.3)
Explain how the loan and investments (purchase of ordinary shares) impacts the
balance sheet and income statement (2.4)
Unit 2: Managing Financial Resources and Decisions May 2014 5

Task 3 (This tasks offers you an opportunity to achieve LO3: 3.1, 3.2, and
3.3)
Task 3a. Analyse budgets and make appropriate decisions:
The CEO of Fort Sport Ltd has asked you to prepare a Cash Budget for the four months
ending October 2014, and identify whether the business has a surplus or a deficit. If
Fort Sport Ltd has a surplus, suggest two ways in which it could utilise this and if it has
a deficit, suggest two ways it could deal with this.(3.1)
The CEO of Fort Sport Ltd has asked you to prepare the Cash Budget based on the
following information:
1. The Bank Balance on 1st July 2014 will be £50,000.
2. Total monthly sales for the four month period ending October 2014 are
forecasted as:
£
July 150,000
August 100,000
Sept 125,000
October 120,000
3. Cash purchases during the relevant period are:
£
July 52,000
August 32,000
Sept 74,000
October 82,000
4. A new supplier has offered Fort Sport Ltd two months credit starting July 2014;
this means that materials bought on credit in July will be paid for in September and so
Unit 2: Managing Financial Resources and Decisions May 2014 6

on. Fort Sport Ltd plan to make the following credit purchases from this supplier:
£
July 46,000
August 20,000
Sept 30,000
October 20,000
5. Fort Sports Ltd pay rent of £15,000 per month quarterly in advance. Payments
are due on 1st July, 1st October etc.
6. Other expenses are forecasted as follows:
£
July 10,000
August 15,000
September 20,000
October 20,000
7. Fort Sports Ltd is repaying a bank loan at the rate of £10,000 per month. The last
installment is due in September 2014.
Task 3b.
Fort Sport Ltd is considering selling high quality ‘luxury’ exercise equipment.
Its costs for 500 units are as follows:
Total Direct Cost £20,000
Fixed Cost £10,000
Total Cost £30,000
Fort Sport is currently reviewing its selling prices and is considering cost-plus pricing
based on:
Either a 33.33 % mark-up on cost price (i.e. profit is 33.33 per cent of cost price)
Or a 20 % return on capital employed.
Unit 2: Managing Financial Resources and Decisions May 2014 7

Fort Sport will choose the method that provides the highest return.
Fort Sport Ltd has capital employed of £10,000.
Calculate the unit price based on both costing methods, and select the price you think
is most appropriate. Explain why you think it is the appropriate price.
You may round up your figures to nearest £1 when calculating your answers. (3.2)
…………………………………………………………………………………………………………………..
Task 3c.
Fort Sport Ltd has been presented with 3 new product opportunities. You have been
asked to identify which product the company should produce and sell.
You need to use the Payback Period and Net Present Values (NPV) for each of the
products. Based on the table below, identify which new product (A, B or C) you would
select for manufacturing and selling by the organisation.
Yr. Product A Product B Product C
0 Investment £50,000 Investment £50,000 Investment £35,000
1 Cash
Inflow
£20,000 £23,750 £20,000
2 Cash
Inflow
£17,500 £23,750 £15,000
3 Cash
Inflow
£25,000 £23,750 £12,500
4 Cash
Inflow
£32,500 £23,750 £25,000
Total £95,000 £95,000 £72,500
The estimated cost of capital is 10% per annum.
Note –The discount factors are as follows:
Year 1 = 0.909
Year 2 = 0.826
Year 3 = 0.751
Year 4 = 0.683
To assist Fort Sport Ltd to make a decision, you are required to calculate the following
Unit 2: Managing Financial Resources and Decisions May 2014 8

for each of the three projects. (3.3)
• Payback period
• The accounting rate of return(ARR)
• The net present value (NPV)
Unit 2: Managing Financial Resources and Decisions May 2014 9

Task 4 (This tasks offers you an opportunity to achieve LO4: 4.1, 4.2, and
4.3)
You have been asked to prepare a report for the Managing Directors of Fort Sport Ltd.
They will attend the Bannatyne Group Head Office to meet with key decision makers in
the venture capitalist department. They have asked you to provide them with an
explanation of the purpose of the Trading Profit and Loss Account or Income
Statements and the Balance Sheet. How would Fort Sport’s capital appear in the
balance sheet and the income statement? (4.1)
Compare appropriate formats for financial statements for different business
organisations. That is, compare the balance sheet formats and also compare the
income statements/profits and loss accounts formats. (4.2)
XYZ Ltd runs a chain of small shops and you have just received the following
extracts from the audited accounts for the period ending 30th September 2013.
PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 30th SEPT 2013
£ 000 £000
Sales 800
Cost of goods sold (150)
Gross Profit 650
Wages 400
Other Expenses 20
(420)
Net Profit 230
STATEMENT OF FINANCIAL POSITION AS AT 30 SEPT 2013 (Balance Sheet)
£000 £000
Fixed Assets 650
Current Assets
Stock 300
Debtors 100
Bank 280
Unit 2: Managing Financial Resources and Decisions May 2014 10

680
Total Assets 1330
Financed by:
Equity and Liabilities
Share Capital 500
+Net Profit 230
Total equity capital 730
Non-Current Liabilities 150
Current Liabilities
Creditors 450
Total Equity and Liabilities 1330
Required:
(a) Calculate the following accounting ratios for XYZ Ltd:
• Current ratio
• Acid test ratio
• Return on capital employed (ROCE)
• Gross profit margin
• Net profit margin
For each ratio, include the formula in words and your workings and explain what each
ratio measures. (4.3)
Unit 2: Managing Financial Resources and Decisions May 2014 11

Answer Sheet
Unit 2: Managing Financial Resources and Decisions May 2014 12

Task 1 (L.O. 1: 1.1 and 1.2)
Please type your answer here
1.1 Sources of finances
There can be range of finance available to Fort Sports Ltd. These are explained as follows:
 Internal sources - These are available inside the business. Retained earnings can be used which are the
portions of profits available as reserves and are not distributed as dividends among the shareholders
(Brian, Eric and Byeonghee, 2001). Savings or capital can also be utilized by the owner of the company.
Sale of assets is another option under which company can have the money through selling of property,
land, machines etc. Another source which they can adopt is purchasing the sports equipments on credit
and making payments to the creditors afterwards (Byard and Cebenoyan, 2007).
 External sources - Bank loan is the most easy source available and can be taken at flexible rate of
interests. They can also go for issuing shares among the public and can raise money on allotment of
shares. Leasing and hire purchasing is also an option which can deliver them the funds. Putting their
assets on leasing will arrange finance for fulfilment of short term objectives (Gloy and LaDue, 2003).
Hire purchasing is also a mode through money can be arranged under which business can purchase an
asset on monthly instalments for use in their operations. Money can be generated through arranging
group of investors also under which they people will make investment in the business of the sports
equipment firm (McMenamin, 2002).
1.2 Implications of sources
There can be positive and negative implications associated with internal and external sources mentioned
above. Each of the source carries a costs with it. Bank loan is a good option as it is easy to adopt and money
can be arranged in quick span of time (Anderson and Coleman, 2000). But it comes with the obligation of
interest payments. Issue of shares is also effective as it will engage more shareholders for the business. But it
will require payment of dividend to the shareholders and in case of non-payment it will dissatisfy them. Selling
of assets will generate the money quickly but business will loose an asset which can prove valuable to them if
retained for future (Damodaran, 2012).
Internal financing is regarded as free of cost sources of finance but they are limited in nature and can be
used for attaining short term objectives. While on the other side external financing comes with the obligation of
payment of interests or other expenses charged (Kwok, 2002). They are generally adopted for fulfilling long
term objectives. Hence this indicates that financial mangers are needed to be very careful while selecting the
funds for the business and it should be done keeping in mind the size and scale of their operations.
Unit 2: Managing Financial Resources and Decisions May 2014 13

1.3 Evaluating the sources
As a private limited firm Fort Sports Ltd can arrange money from the following sources:
Arranging investors - Generating group of investors for making money is effective as it will decrease the financial burden to great extent. Apart from that risk within the business will also be
minimized. But the drawback is that management will feel lost of control and monitoring over operations (Vance, 2002). Along with it can also create conflicts among the partners.
Issue of shares - Fort Sports can issue its shares in the market and can arrange the money from the shareholders. Drawback associated with that is the costs of dividend ( Weygandt
and et. al., 2009). Shareholders will ask for dividend and non-payment of it can dissatisfy them and they can withdraw also.
Selling of assets - It is easy to apply and implement as there are no complications in it. But the thing is business will loose an assets which if retained can deliver valuable results in future.
Bank loan - It is the most common mode of creating the funds as every bank can give finance. These days loans are available at very flexible rate of interests (Nikbakht and et.
al., 2006). But the disadvantage is that whether the business is running good or bad, bank will always ask for interests to be paid.
Retained profits - Firm can use their profits for making investment in other business activities. But this approach will eliminate all the surplus and reserves within the company because they
cannot profits all the time (Prior, 2004).
Task 2 (LO2: 2.1, 2.2, 2.3)
2.1 Costs of sources
Internal sources of finance are not enclosed with any type of explicit costs. Money from the internal
sources will impact the solvency of the business which can be difficult to manage (Prowle, Harradine and
Latham, n.d.,). Retained earnings will come with the cost of loosing the surplus and reserves. Under issues of
shares they will have to bear the costs of payment of dividend to the shareholders. Purchasing goods on credit is
very effective for short period of time but in case if the business fails, there will be no healthy relations with the
creditors (Jones and McCaffery, 2004).
External sources will result in arising of many types of costs. Bank loan is very effective source but it is
backed with the cost of interests which can be tough for the business. These days loans are available at very flexible rate of interests but the
disadvantage is that whether the business is running good or bad, bank will always ask for interests to be paid (Jerreling, 2006).
2.2 Importance of financial planning
Financial planning is done with the respect of achieving the financial objectives in the business. It will
help the Fort Sports in effectively managing the cash flow within their business. The planning will ensure
making sound investment decisions in various projects (Jain and Yadav, 2005). Making right decisions in right
investment will offer valuable results for the business. Further many growth and expansion programs can be
designed and implemented. It offers an direction and framework for all the business functions. Amount of tax
Unit 2: Managing Financial Resources and Decisions May 2014 14

payments, savings, expenditures can be estimated easily through the financial planning (Jones and McCaffery,
2004). Apart from that it maintain control over all the expenses and costs. It also facilitates prediction of
uncertainties which can acts as hindrance in the future growth and development of the company. Skills of
eliminating the liabilities and issues comes up with this kind of planning (Prowle, Harradine and Latham, n.d).
At last it can be said that it offers perfect management of income, revenue and losses. Therefore it is very
important aspect of the business and company cannot survive with it.
2.3 Information needs of decision makers
There are various people inside and outside the firm which need information to take various decisions.
Internal decision makers - Employees of the Fort Sports will need the information to make their decisions
related to their retention, experience, learning etc. They look for grasping better salary, learning and
development from working inside the company (Prior, 2004). Managers also take decision on the basis of the
information such as performance of employees, business operations etc.
External decision makers - These are the individuals which are outside of the firm.
 Shareholders - These people are very valuable for the business. Shareholders seeks for getting great
amount of returns from the amount which they invest (Nikbakht and et. al., 2006). They need
information about the dividend prices and policies of the company.
 Creditors - Creditors are the ones who lend the funds. These people examine the financial position of
the organization so that they can analyze whether the company is capable of repaying the credit or not.
 Suppliers - It is been expected from the suppliers that they get attractive prices for the inputs and raw
materials supplied by them to the firm (Vance, 2002). It helps the firm in maintaining healthy
relationship with the suppliers.
 Government - Government authorities wants to keep an eye on business practices of the company. They
analyze the accounting practices and make sure that they perform all activities under the ethical
framework (Kwok, 2002).
2.4 Impact of finance
Bank loan is a type of liability for the business. It will increase the liabilities side in the balance sheet
of the firm (Anderson and Coleman, 2000). Interest on loan will be charged in the income statement that is the
profit & loss account. Issue of shares will increase the equity share capital in the liability side of the balance
sheet. Payment of dividend will be charged in the income statement and will appear in cash flow from financing
activities. Retained earnings will decrease the amount of reserves and surplus under the balance sheet also
affecting the cash flow from financing activities (McMenamin, 2002).
Unit 2: Managing Financial Resources and Decisions May 2014 15

Task 3 (LO3: 3.1, 3.2 and 3.3)
3.1 Analyze budgets
Cash budget for Fort Sport Lt
Cash Budget for Six months (£)
Particulars July August September October
Opening Balance Of Cash 50000 83000 126000 101000
Cash Sales 150000 100000 125000 120000
Total Revenue Earned 200000 183000 251000 221000
Payment To Creditors 0 0 46000 20000
Cash Purchases 52000 32000 74000 82000
Rent 45000 0 0 45000
Bank Loan Instalment 10000 10000 10000 0
Other Expenses 10000 15000 20000 20000
Total Expenditure Occurred 117000 57000 150000 167000
Balance At The End Of The Month 83000 126000 101000 54000
Above budget of Fort Sport is reflecting surplus at the end of every month but there are so many
fluctuations which are not favourable for the business. This shows that they will not be able to manage their
expenses and costs (Gloy and LaDue, 2003). It can also be noticed that reason for such variation is the quarterly
payment of rent which is making reduction in the closing balance. Apart from that they are required to adopt
appropriate pricing strategies so that they can have effective sales figures in the business (Byard and
Cebenoyan, 2007).
3.2 Calculation of unit pricing
Table 1: Calculation of Unit Costs
Material in production £ 20,000.00
labor charges £ 10,000.00
Total cost £ 30,000.00
No. of unit 500
Cost per unit £ 60.00
On the basis of above calculation it can be said that Fort Sport is planning for production of 500 units
under which they are keeping a per unit cost of 60£. Unit price can be calculated on the basis of two costing
methods which are as follows:
Unit 2: Managing Financial Resources and Decisions May 2014 16

First option
On the basis of mark up value
Table 2: Calculation of sales price
Total Cost £ 30,000.00
Profit percentage (30% On Cost) £ 9,999.00
Sales price £ 39,999.00
Sales value Per Unit £ 80.00
Profit earned in this strategy £ 9,999.00
Second option
Table 3: Computation of profit
capital
employed 10000
rate of return 20%
profit 2000
On the basis on return on capital employed
Table 4: Computation of sales price
Total Cost £ 30,000.00
profit ( Return on capital employed) £ 2,000.00
Sales price £ 32,000.00
Sales value Per Unit £ 64.00
Profit earned in this strategy £ 2,000.00
On the basis of the above two methods applied it can be derived that Profit earned in second option is lesser
than the first option. Hence it is suggested that company should adopt the method of mark up pricing. Price of
80 £ is more valuable for their business and it can give many positive results.
3.3 Investment appraisal techniques
Payback Period
Calculation of payback period for Product A, B and C
Year Product A Product B Product C
Cash flow (£) Cumulative Cash flow (£) Cumulative Cash flow (£) Cumulative
Unit 2: Managing Financial Resources and Decisions May 2014 17

value value value
Initial Cost 50,000 50,000 35000
1 20,000 20,000 23,750 23,750 20,000 20,000
2 17,500 37500 23,750 47500 15,000 35000
3 25,000 62500 23,750 71250 12,500 47500
4 32,500 95,000 23,750 95,000 25,000 72,500
Pay back period= Initial Investment
Cash Inflow per period
For uneven cash flows,
Pay back period=A + B
C
Where,
A is the last year with a negative cumulative cash flow;
B is the absolute value of cumulative cash flow at the end of the period A;
C is the total cash flow during the period after A.
For product A
Pay back period=2+12500
25000
Pay back period=2+.5 years
Pay back period=2.5 years
For product B
Pay back period=2+ 2500
23750
Pay back period=2+0.11
Pay back period=2.11 years
For product C
Pay back period=2+ 0
0
Pay back period=2 year
Accounting rate of return
Computing accounting rate of return for product A, B and C
Unit 2: Managing Financial Resources and Decisions May 2014 18

Year Product A Product B Product C
Cash flow (£) Cash flow (£) Cash flow (£)
1 20,000 23,750 20,000
2 17,500 23,750 15,000
3 25,000 23,750 12,500
4 32,500 23,750 25,000
Average income 23750 23,750 18125
Initial investment 50000 50000 35000
ARR = Avg. Income/
Avg. Investment
47.5% 47.5% 51.785%
Net Present Value
Calculation of NPV for product A
Year Cash flow (£) P.V. factor@ 10% Present Value (£)
1 20,000 0.909 18180
2 17,500 0.826 14455
3 25,000 0.751 18775
4 32,500 0.683 22198
Total Present value 73608
Initial investment (50,000)
Net Present value 23608
Calculation of NPV for product B
Year Cash flow (£) P.V. factor@ 10% Present Value (£)
1 23,750 0.909 21589
2 23,750 0.826 19618
3 23,750 0.751 17837
4 23,750 0.683 16222
Total Present value 75226
Initial investment (50,000)
Net Present value 25226
Unit 2: Managing Financial Resources and Decisions May 2014 19

Calculation of NPV for product C
Year Cash flow (£) P.V. factor@ 10% Present Value (£)
1 20,000 0.909 18180
2 15,000 0.826 12390
3 12,500 0.751 9388
4 25,000 0.683 17075
Total Present value 57033
Initial investment (35,000)
Net Present value 22033
Recommendation
From the above calculation it can be observed that accounting rate of return and payback period applied are focussing on project C to be adopted. While the results of NPV method are
deviating from the results of above two methods. The results are indicating that net present value of product B is greater than product A and product C. Hence it can be said that company should
implement project B because results of NPV method can be trusted as it take into consideration the time value of money.
Task 4 (LO4: 4.1, 4.2, and 4.3)
Please type your answer here
4.1 Main financial statements
There are three type of main financial statements. Documents are prepared to record all the financial
events and transactions related to the business. Main purpose behind their preparation are as follow:
Balance Sheet - This document is prepared to list all the assets and liabilities within the business. It shows the
real value of all the assets and liabilities (Brian, Eric and Byeonghee , 2001). Statement is a true indicator of the
financial position. Fixed assets such as land, property, plant etc and current assets such as cash, bank, inventory
etc are reflected at their true values. It also include some of the intangible assets such patents, copyrights,
goodwill etc. Liabilities include the rent, money borrowed, creditors etc.
Income statement - This statement reflects the income, losses and profits within the organization. Main
objective behind the preparation of this document is that it can show where the company has spend all its
money. It will provide the information regarding earning per share and business events.
Cash flow statement - The statement brings out the cash outflow and cash inflow within the business. The main
purpose behind its preparation is to show the cash flow from three types of activities investing, financing and
operating (Jones and McCaffery, 2004). It reflect the increase or decrease in funds. Operating activities
computes the cash flow from income and losses. Financing activities determines the cash flow from selling
stocks, loans etc within the business. Investing activities takes into consideration purchase of investment
securities and long term assets (Brian, Eric and Byeonghee , 2001).
Unit 2: Managing Financial Resources and Decisions May 2014 20

4.2 Formats of statements
Every form of business uses different formats for developing the financial statements. In a business like partnership, partners prepare their individual partner capital accounts. Along with
that profit & loss appropriation accounts are also developed. In case of public limited firms, it is essential to produce all the three major statements ( Format of a Financial
Statement, 2013). They are to be produced on the basis of IFRS (International Financial Reporting Standard) and GAAP (Generally
Accepted Accounting Principles). Profit & loss account for a service providing company is different from the retailing and producing bodies. In business of sole
proprietorship, the owners generally does not construct all the financial statements. They only prepares profit and loss account. The reason is that they are the only owners and they can control
the business alone. Business which are of small size prepare small size balance sheets reflecting only the major assets and liabilities. Companies bigger in size and which operates on large scale
maintain large size balance sheet valuing all the assets and liabilities.
4.3 Ratios
Calculation of financial ratios
Ratios Formulas 2013
Current Assets 680
Current Liability 450
Current Ratio Current Assets/ Current Liability 1.51
Quick assets
Current Assets 680
Less: Inventory -300
Liquid assets 380
Current Liability 450
Quick Ratio Current Assets – Inventory/ Current
Liability
.844
Profitability Ratios
Gross Profit 650
Sales 800
Gross Profit Ratio GP/Sales 26%
Profit margin
Profit for the year 230
Sales 800
Net profit ratio Profit for the year/ Sales 28%
Unit 2: Managing Financial Resources and Decisions May 2014 21

Return on capital employed:
Total assets 1330
Current liability 450
Capital employed Total assets – Current liability
¿ 1330−450
880
net profit 230
Return on capital employed: (Net Profit)/ (Capital employed) 26%
 Current ratio and Quick ratio - Both the ratios are showing very convincing results for Fort Sport Ltd. They are very near to the ideal ratio and this suggest that company is well
meeting its short term obligations (Byard and Cebenoyan, 2007).
 Net profit ratio - It shows the relationship between the sales and net profit. The ratio is showing good results and this suggest that they effectively managing their expenses and
costs.
 Return on capital employed - It is about 26% which is quite satisfactory. Company is getting good amount of returns on the capital which they are employing ( Gloy and
LaDue, 2003).
 Gross profit ratio - This ratio seems to be positive and depicting that firm is effectively managing all its affairs. It is showing the relationship between the sales and gross profit.
Unit 2: Managing Financial Resources and Decisions May 2014 22