Select the choice which best completes the statement, or answers the question, by clicking on the corresponding letter.
Balance sheet of Broll Ltd as at xx. xx. xxxx
........................................Notes............................This year..........Last year ..............................................................£...................£.................£ Non current assets ______________________________________________________________ Tangible assets......................5................................10000...........11000 Intangible assets....................6................................50000...........56000 ______________________________________________________________ ................................................................................60000...........67000 Current assets Inventory................................7.........10000.................................7000 Amounts receivable ..........................10000.................................4000 Cash at bank and in hand..................3500...................................2000 _______________________________________________________________ .........................................................23500................................13000 _______________________________________________________________ Current liabilities Trade payables..................................4000..................................3000 Taxation.................................3..........2600..................................1400 Dividends ..............................4..........1600..................................1100 _______________________________________________________________ ...........................................................8200..................................5500 Net current assets....................................................15300..........7500 _______________________________________________________________ ....................................................................................75300.........74500 _______________________________________________________________ Financed by Share capital..........................8..................................70000..........70000 Retained profits......................9...................................5300...........4500 _______________________________________________________________ ...................................................................................75300.........74500 _______________________________________________________________
Income statement of Broll Ltd for the year to xx. xx.xxxx ........................................... Notes.............................This year......Last year ..............................................................£...................... £................£ Turnover................................1...................................60000.........45000 Cost of sales..............................................................40000..........30000 ________________________________________________________________ Gross profit.................................................................20000.........15000 Net operating expenses.........2...................................14000..........11500 ________________________________________________________________ Profit on ordinary activities before tax..........................6000............3500 Tax.........................................3...................................2600............1400 ________________________________________________________________ Profit on ordinary activities after tax.............................3400............2100 Dividends - interim................4..............1000 - final.....................................4..............1600...............2600............1100 ________________________________________________________________ Retained profit for the year.............................................800.............1000
Broll’s current ratio for the two years is 2.9:1 this year and 2.4:1 last year. This could indicate that:
Broll’s liquidity is improving.
Broll’s liquidity is worsening.
Broll is paying its debts faster
Broll has less fixed assets and more current assets.
Balance sheet of Broll Ltd as at xx. xx. xxxx
........................................Notes............................This year..........Last year ..............................................................£...................£.................£ Non current assets ______________________________________________________________ Tangible assets......................5................................10000...........11000 Intangible assets....................6................................50000...........56000 ______________________________________________________________ ................................................................................60000...........67000 Current assets Inventory................................7.........10000.................................7000 Amounts receivable ..........................10000.................................4000 Cash at bank and in hand..................3500...................................2000 _______________________________________________________________ .........................................................23500................................13000 _______________________________________________________________ Current liabilities Trade payables..................................4000..................................3000 Taxation.................................3..........2600..................................1400 Dividends ..............................4..........1600..................................1100 _______________________________________________________________ ...........................................................8200..................................5500 Net current assets....................................................15300..........7500 _______________________________________________________________ ....................................................................................75300.........74500 _______________________________________________________________ Financed by Share capital..........................8..................................70000..........70000 Retained profits......................9...................................5300...........4500 _______________________________________________________________ ...................................................................................75300.........74500 _______________________________________________________________
Income statement of Broll Ltd for the year to xx. xx.xxxx ........................................... Notes.............................This year......Last year ..............................................................£...................... £................£ Turnover................................1...................................60000.........45000 Cost of sales..............................................................40000..........30000 ________________________________________________________________ Gross profit.................................................................20000.........15000 Net operating expenses.........2...................................14000..........11500 ________________________________________________________________ Profit on ordinary activities before tax..........................6000............3500 Tax.........................................3...................................2600............1400 ________________________________________________________________ Profit on ordinary activities after tax.............................3400............2100 Dividends - interim................4..............1000 - final.....................................4..............1600...............2600............1100 ________________________________________________________________ Retained profit for the year.............................................800.............1000
Broll has increased sales and gross profit by 33% in the current year but net profit has increased by over 70%. This is likely to be caused by:
An increased profit margin on sales.
A reduction in the cost of goods sold.
A reduction in the tax charge.
A reduction in the other expenses as a percentage of sales.
None of the above.
Balance sheet of Broll Ltd as at xx. xx. xxxx
........................................Notes............................This year..........Last year ..............................................................£...................£.................£ Non current assets ______________________________________________________________ Tangible assets......................5................................10000...........11000 Intangible assets....................6................................50000...........56000 ______________________________________________________________ ................................................................................60000...........67000 Current assets Inventory................................7.........10000.................................7000 Amounts receivable ..........................10000.................................4000 Cash at bank and in hand..................3500...................................2000 _______________________________________________________________ .........................................................23500................................13000 _______________________________________________________________ Current liabilities Trade payables..................................4000..................................3000 Taxation.................................3..........2600..................................1400 Dividends ..............................4..........1600..................................1100 _______________________________________________________________ ...........................................................8200..................................5500 Net current assets....................................................15300..........7500 _______________________________________________________________ ....................................................................................75300.........74500 _______________________________________________________________ Financed by Share capital..........................8..................................70000..........70000 Retained profits......................9...................................5300...........4500 _______________________________________________________________ ...................................................................................75300.........74500 _______________________________________________________________
Income statement of Broll Ltd for the year to xx. xx.xxxx ........................................... Notes.............................This year......Last year ..............................................................£...................... £................£ Turnover................................1...................................60000.........45000 Cost of sales..............................................................40000..........30000 ________________________________________________________________ Gross profit.................................................................20000.........15000 Net operating expenses.........2...................................14000..........11500 ________________________________________________________________ Profit on ordinary activities before tax..........................6000............3500 Tax.........................................3...................................2600............1400 ________________________________________________________________ Profit on ordinary activities after tax.............................3400............2100 Dividends - interim................4..............1000 - final.....................................4..............1600...............2600............1100 ________________________________________________________________ Retained profit for the year.............................................800.............1000
The receivables have gone up by two and a half times whereas sales have gone up by a third. This would indicate that we would expect:
The receivables collection days to have decreased.
No change in receivables collection days.
The receivables collection days to have decreased.
Balance sheet of Broll Ltd as at xx. xx. xxxx
........................................Notes............................This year..........Last year ..............................................................£...................£.................£ Non current assets ______________________________________________________________ Tangible assets......................5................................10000...........11000 Intangible assets....................6................................50000...........56000 ______________________________________________________________ ................................................................................60000...........67000 Current assets Inventory................................7.........10000.................................7000 Amounts receivable ..........................10000.................................4000 Cash at bank and in hand..................3500...................................2000 _______________________________________________________________ .........................................................23500................................13000 _______________________________________________________________ Current liabilities Trade payables..................................4000..................................3000 Taxation.................................3..........2600..................................1400 Dividends ..............................4..........1600..................................1100 _______________________________________________________________ ...........................................................8200..................................5500 Net current assets....................................................15300..........7500 _______________________________________________________________ ....................................................................................75300.........74500 _______________________________________________________________ Financed by Share capital..........................8..................................70000..........70000 Retained profits......................9...................................5300...........4500 _______________________________________________________________ ...................................................................................75300.........74500 _______________________________________________________________
Income statement of Broll Ltd for the year to xx. xx.xxxx ........................................... Notes.............................This year......Last year ..............................................................£...................... £................£ Turnover................................1...................................60000.........45000 Cost of sales..............................................................40000..........30000 ________________________________________________________________ Gross profit.................................................................20000.........15000 Net operating expenses.........2...................................14000..........11500 ________________________________________________________________ Profit on ordinary activities before tax..........................6000............3500 Tax.........................................3...................................2600............1400 ________________________________________________________________ Profit on ordinary activities after tax.............................3400............2100 Dividends - interim................4..............1000 - final.....................................4..............1600...............2600............1100 ________________________________________________________________ Retained profit for the year.............................................800.............1000
The acid test or quick ratio for Broll for each of the two years is:
1.6:1 this year
1.1:1 last year
2.9:1 this year
2.4:1 last year
a and b
a and d
b and c
Balance sheet of Broll Ltd as at xx. xx. xxxx
........................................Notes............................This year..........Last year ..............................................................£...................£.................£ Non current assets ______________________________________________________________ Tangible assets......................5................................10000...........11000 Intangible assets....................6................................50000...........56000 ______________________________________________________________ ................................................................................60000...........67000 Current assets Inventory................................7.........10000.................................7000 Amounts receivable ..........................10000.................................4000 Cash at bank and in hand..................3500...................................2000 _______________________________________________________________ .........................................................23500................................13000 _______________________________________________________________ Current liabilities Trade payables..................................4000..................................3000 Taxation.................................3..........2600..................................1400 Dividends ..............................4..........1600..................................1100 _______________________________________________________________ ...........................................................8200..................................5500 Net current assets....................................................15300..........7500 _______________________________________________________________ ....................................................................................75300.........74500 _______________________________________________________________ Financed by Share capital..........................8..................................70000..........70000 Retained profits......................9...................................5300...........4500 _______________________________________________________________ ...................................................................................75300.........74500 _______________________________________________________________
Income statement of Broll Ltd for the year to xx. xx.xxxx ........................................... Notes.............................This year......Last year ..............................................................£...................... £................£ Turnover................................1...................................60000.........45000 Cost of sales..............................................................40000..........30000 ________________________________________________________________ Gross profit.................................................................20000.........15000 Net operating expenses.........2...................................14000..........11500 ________________________________________________________________ Profit on ordinary activities before tax..........................6000............3500 Tax.........................................3...................................2600............1400 ________________________________________________________________ Profit on ordinary activities after tax.............................3400............2100 Dividends - interim................4..............1000 - final.....................................4..............1600...............2600............1100 ________________________________________________________________ Retained profit for the year.............................................800.............1000
As sales have gone up by a third and receivables two and a half times you would expect receivables collection days to have:
Gone up in proportion to sales
Gone up in proportion to receivables
Gone up by some other proportion
Balance sheet of Broll Ltd as at xx. xx. xxxx
........................................Notes............................This year..........Last year ..............................................................£...................£.................£ Non current assets ______________________________________________________________ Tangible assets......................5................................10000...........11000 Intangible assets....................6................................50000...........56000 ______________________________________________________________ ................................................................................60000...........67000 Current assets Inventory................................7.........10000.................................7000 Amounts receivable ..........................10000.................................4000 Cash at bank and in hand..................3500...................................2000 _______________________________________________________________ .........................................................23500................................13000 _______________________________________________________________ Current liabilities Trade payables..................................4000..................................3000 Taxation.................................3..........2600..................................1400 Dividends ..............................4..........1600..................................1100 _______________________________________________________________ ...........................................................8200..................................5500 Net current assets....................................................15300..........7500 _______________________________________________________________ ....................................................................................75300.........74500 _______________________________________________________________ Financed by Share capital..........................8..................................70000..........70000 Retained profits......................9...................................5300...........4500 _______________________________________________________________ ...................................................................................75300.........74500 _______________________________________________________________
Income statement of Broll Ltd for the year to xx. xx.xxxx ........................................... Notes.............................This year......Last year ..............................................................£...................... £................£ Turnover................................1...................................60000.........45000 Cost of sales..............................................................40000..........30000 ________________________________________________________________ Gross profit.................................................................20000.........15000 Net operating expenses.........2...................................14000..........11500 ________________________________________________________________ Profit on ordinary activities before tax..........................6000............3500 Tax.........................................3...................................2600............1400 ________________________________________________________________ Profit on ordinary activities after tax.............................3400............2100 Dividends - interim................4..............1000 - final.....................................4..............1600...............2600............1100 ________________________________________________________________ Retained profit for the year.............................................800.............1000
As the cost of sales and the trade payables have both gone up by a third you would expect the payables days to have:
Gone up by a third
Stayed the same
Moved up by some other proportion.
Balance sheet of Broll Ltd as at xx. xx. xxxx
........................................Notes............................This year..........Last year ..............................................................£...................£.................£ Non current assets ______________________________________________________________ Tangible assets......................5................................10000...........11000 Intangible assets....................6................................50000...........56000 ______________________________________________________________ ................................................................................60000...........67000 Current assets Inventory................................7.........10000.................................7000 Amounts receivable ..........................10000.................................4000 Cash at bank and in hand..................3500...................................2000 _______________________________________________________________ .........................................................23500................................13000 _______________________________________________________________ Current liabilities Trade payables..................................4000..................................3000 Taxation.................................3..........2600..................................1400 Dividends ..............................4..........1600..................................1100 _______________________________________________________________ ...........................................................8200..................................5500 Net current assets....................................................15300..........7500 _______________________________________________________________ ....................................................................................75300.........74500 _______________________________________________________________ Financed by Share capital..........................8..................................70000..........70000 Retained profits......................9...................................5300...........4500 _______________________________________________________________ ...................................................................................75300.........74500 _______________________________________________________________
Income statement of Broll Ltd for the year to xx. xx.xxxx ........................................... Notes.............................This year......Last year ..............................................................£...................... £................£ Turnover................................1...................................60000.........45000 Cost of sales..............................................................40000..........30000 ________________________________________________________________ Gross profit.................................................................20000.........15000 Net operating expenses.........2...................................14000..........11500 ________________________________________________________________ Profit on ordinary activities before tax..........................6000............3500 Tax.........................................3...................................2600............1400 ________________________________________________________________ Profit on ordinary activities after tax.............................3400............2100 Dividends - interim................4..............1000 - final.....................................4..............1600...............2600............1100 ________________________________________________________________ Retained profit for the year.............................................800.............1000
The fixed asset turnover ratio has improved from 0.7:1 to 1:1. This indicates in the case of Broll:
More sales this year
Lower fixed assets
Better use of fixed assets
Balance sheet of Broll Ltd as at xx. xx. xxxx
........................................Notes............................This year..........Last year ..............................................................£...................£.................£ Non current assets ______________________________________________________________ Tangible assets......................5................................10000...........11000 Intangible assets....................6................................50000...........56000 ______________________________________________________________ ................................................................................60000...........67000 Current assets Inventory................................7.........10000.................................7000 Amounts receivable ..........................10000.................................4000 Cash at bank and in hand..................3500...................................2000 _______________________________________________________________ .........................................................23500................................13000 _______________________________________________________________ Current liabilities Trade payables..................................4000..................................3000 Taxation.................................3..........2600..................................1400 Dividends ..............................4..........1600..................................1100 _______________________________________________________________ ...........................................................8200..................................5500 Net current assets....................................................15300..........7500 _______________________________________________________________ ....................................................................................75300.........74500 _______________________________________________________________ Financed by Share capital..........................8..................................70000..........70000 Retained profits......................9...................................5300...........4500 _______________________________________________________________ ...................................................................................75300.........74500 _______________________________________________________________
Income statement of Broll Ltd for the year to xx. xx.xxxx ........................................... Notes.............................This year......Last year ..............................................................£...................... £................£ Turnover................................1...................................60000.........45000 Cost of sales..............................................................40000..........30000 ________________________________________________________________ Gross profit.................................................................20000.........15000 Net operating expenses.........2...................................14000..........11500 ________________________________________________________________ Profit on ordinary activities before tax..........................6000............3500 Tax.........................................3...................................2600............1400 ________________________________________________________________ Profit on ordinary activities after tax.............................3400............2100 Dividends - interim................4..............1000 - final.....................................4..............1600...............2600............1100 ________________________________________________________________ Retained profit for the year.............................................800.............1000
Although profits have increased the dividend cover has fallen from 1.9 times last year to 0.8 times this year. This indicates that:
Shareholders should be concerned about the level of profits having fallen.
Shareholders should be happy because they are being paid out more.
Shareholders should investigate whether the higher dividends fit with the firm’s future investment needs.
None of the above.
Balance sheet of Broll Ltd as at xx. xx. xxxx
........................................Notes............................This year..........Last year ..............................................................£...................£.................£ Non current assets ______________________________________________________________ Tangible assets......................5................................10000...........11000 Intangible assets....................6................................50000...........56000 ______________________________________________________________ ................................................................................60000...........67000 Current assets Inventory................................7.........10000.................................7000 Amounts receivable ..........................10000.................................4000 Cash at bank and in hand..................3500...................................2000 _______________________________________________________________ .........................................................23500................................13000 _______________________________________________________________ Current liabilities Trade payables..................................4000..................................3000 Taxation.................................3..........2600..................................1400 Dividends ..............................4..........1600..................................1100 _______________________________________________________________ ...........................................................8200..................................5500 Net current assets....................................................15300..........7500 _______________________________________________________________ ....................................................................................75300.........74500 _______________________________________________________________ Financed by Share capital..........................8..................................70000..........70000 Retained profits......................9...................................5300...........4500 _______________________________________________________________ ...................................................................................75300.........74500 _______________________________________________________________
Income statement of Broll Ltd for the year to xx. xx.xxxx ........................................... Notes.............................This year......Last year ..............................................................£...................... £................£ Turnover................................1...................................60000.........45000 Cost of sales..............................................................40000..........30000 ________________________________________________________________ Gross profit.................................................................20000.........15000 Net operating expenses.........2...................................14000..........11500 ________________________________________________________________ Profit on ordinary activities before tax..........................6000............3500 Tax.........................................3...................................2600............1400 ________________________________________________________________ Profit on ordinary activities after tax.............................3400............2100 Dividends - interim................4..............1000 - final.....................................4..............1600...............2600............1100 ________________________________________________________________ Retained profit for the year.............................................800.............1000
Based on the profits made by Broll and the investment made by the shareholders, having regard to the current economic climate and using whatever ratios or techniques you wish, identify which of the statements below best describes Broll as an investment.
A good investment that has seen considerable improvement in the last year.
A poor investment showing poor returns despite improvements in the last year.
A good investment showing good returns and considerable improvement.
Balance sheet of Broll Ltd as at xx. xx. xxxx
........................................Notes............................This year..........Last year ..............................................................£...................£.................£ Non current assets ______________________________________________________________ Tangible assets......................5................................10000...........11000 Intangible assets....................6................................50000...........56000 ______________________________________________________________ ................................................................................60000...........67000 Current assets Inventory................................7.........10000.................................7000 Amounts receivable ..........................10000.................................4000 Cash at bank and in hand..................3500...................................2000 _______________________________________________________________ .........................................................23500................................13000 _______________________________________________________________ Current liabilities Trade payables..................................4000..................................3000 Taxation.................................3..........2600..................................1400 Dividends ..............................4..........1600..................................1100 _______________________________________________________________ ...........................................................8200..................................5500 Net current assets....................................................15300..........7500 _______________________________________________________________ ....................................................................................75300.........74500 _______________________________________________________________ Financed by Share capital..........................8..................................70000..........70000 Retained profits......................9...................................5300...........4500 _______________________________________________________________ ...................................................................................75300.........74500 _______________________________________________________________
Income statement of Broll Ltd for the year to xx. xx.xxxx ........................................... Notes.............................This year......Last year ..............................................................£...................... £................£ Turnover................................1...................................60000.........45000 Cost of sales..............................................................40000..........30000 ________________________________________________________________ Gross profit.................................................................20000.........15000 Net operating expenses.........2...................................14000..........11500 ________________________________________________________________ Profit on ordinary activities before tax..........................6000............3500 Tax.........................................3...................................2600............1400 ________________________________________________________________ Profit on ordinary activities after tax.............................3400............2100 Dividends - interim................4..............1000 - final.....................................4..............1600...............2600............1100 ________________________________________________________________ Retained profit for the year.............................................800.............1000
When looking at trends which of the following should you take into account.