Chapter8Q - Financial accounting for decision makers (5th...

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Unformatted text preview: Financial accounting for decision makers (5th edition) Atrill and McLaney Exercise Chapter 8 SeaSwift plc builds luxury yachts for the international market. The most recently published inco me statement and balance sheet are set out below. Since the business builds the yachts specifically to customers requirements, it carries no inventories of finished yachts. Income statement for the year ended 31 December 2008 £ million Revenue Cost of sales (including raw materials inventories usage £253 millio n Note: Raw material purchases totalled £255 millio n) Gross profit Operating costs Operating profit Interest payable Profit before taxat ion Taxat ion Profit for the year (478) 359 (224) 135 (30) 105 (27) 78 837 Balance Sheet as at 31 December 2008 £ million cost Non­current assets Freeho ld land Plant and machinery 550 253 – (226) 550 27 £ million depreciation £ million Financial accounting for decision makers (5th edition) Atrill and McLaney Exercise Motor vehicles 102 905 Current assets Inventories Trade receivables Prepaid expenses Cash Total assets 43 96 12 25 176 799 (56) (282) 46 623 Equity Ordinary share capital – 200 000 shares of £1 each Retained profit Non­current liabilities 10% secured loan notes Current liabilities Trade payables Accrued expenses Taxation Total equity and liabilities 45 18 27 90 799 300 200 209 409 A dividend totalling £20 millio n was paid on ordinary shares for the year. SeaSwift plc’s ordinary shares had a market value of £5.10 on 31 December 2008. Fo llowing the publicat ion of the 2007 financial statements, SeaSwift plc’s finance director carried out a ratio analysis o f the business’s financial performance and posit ion and derived the fo llowing ratios: Financial accounting for decision makers (5th edition) Atrill and McLaney Exercise SeaSwift plc Accounting ratios for the years ended 31 December 2007 Profitability ratios Return on capital emplo yed (%) Return on ordinary shareho lders’ funds (%) Gross profit margin (%) Operating profit margin (%) Activity ratios Sales revenue to capital emplo yed (times) Inventories ho lding period (days) Trade receivables collection period (days) Trade payables co llect ion period (days) Liquidity ratios Current Quick assets Gearing ratios Gearing (%) Interest cover (times) Investors’ ratios Earnings per share (£) Price/earnings (times) Dividend yie ld (%) Dividend cover (times) 0.23 15.2 2.4 3.1 52.4 2.9 0.99 : 1 0.73 : 1 1.08 78.8 56.2 83.9 14.9 13.1 43.8 13.8 Financial accounting for decision makers (5th edition) Atrill and McLaney Exercise Required: Calculate the same ratios for 2008 as are given above for 2007 then go on to discuss changes that have taken place over the two years. ...
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