HRM 11416 Assignment B: Balance Sheet as at 31 October 2016

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* Calculate the following ten ratios for both companies, clearly showing the ratio formula and figures used: -
The return on capital employed = net operating profit /employed capital (MyAccountingCourse, 2017)
=99/540
ROCE for Andrew =0.183 or 18.3%
The return on capital employed for Charlotte =24/ 969
=0.024 or 2%
Gross profit for Andrew = revenue – cost of sales
=596-394
=202
Gross profit percentage Andrew =gross profit / total revenue x 100
=202/596 x 100
=33.89%
Gross profit for Charlotte = revenue – cost of sales
= 678-526
=152
Gross profit percentage charlotte = gross profit / total revenue x 100
152/678 x100
= 22.41%
Operating profit Andrew – gross profit – administrative expenses and selling and distribution expenses (Investinganswers, 2017)
=202- (36+53)
=113
Operating profit percentage Andrew = operating profit/revenue x 100
=113/596 x 100
=18.9%
Operating profit charlotte- gross profit – administrative expenses and selling and distribution expenses
=152- (45+56)
=43
Operating profit percentage charlotte = operating profit/revenue x 100
=43/678 x 100
=6.34%
Profit of the year Andrew = profit before tax – tax
=113-14
=99
Profit of the year charlotte = profit before tax –tax
=43-19
=24
Current ratio Andrew = current assets/ current liabilities
=(138+69+96)/(60+10)
= 4.32
Current ratio charlotte = current assets/ current liabilities
=(167+98+9)/(120+1+30)
=1.81
Inventory days Andrew = inventory/ cost of sales
= 138/ 394 x365
=127.75
Inventory days Andrew = inventory/ cost of sales
=167/526 x365
=114.49
Trade Receivables collection period (days) Andrew = 356/ accounts receivables (Bragg, 2017)
= 365/ 69
=5.28
Trade Receivables collection period (days) Charlotte = 356/ accounts receivables
=365/98
=3.72
Trade Payables payment period (days) Andrew= 365/ Trade Receivables
= 365/60
=6.08
Trade Payables payment period (days) Charlotte= 365/ Trade Receivables
=365/120
=3.04
Gearing ratio % Andrew =long term liabilities/ capital employed x 100
= 70/ 540x 100
=12.96%
Gearing ratio % Andrew =long term liabilities/ capital employed x 100
=231/1049 x100
=22.12%
Interest cover Andrew =earnings before interact and taxes/ interest expense
= 170
Interest cover Charlotte =earnings before interact and taxes/ interest expense (Kennon, 2017)
=69/ 1
=69
* Using the ratios calculated in part (a) prepare a report for the investor providing analysis of the performance and position of Andrew and Charlotte. Your answer should suggest reasons for any difference in performance.
As an investor, understanding if a company is doing well is a crucial skill. This is relative to the risks involved in making investments in dead-end companies that cost the investors millions. A balance sheet is an easy way of establishing if a company is strong or is weak financially (DiLallo, 2017). As such, the ability to read a balance sheet is one of the subtle ways of establishing if one should invest in a company or keep searching for other opportunities. The balanc...