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Topics: Balance sheet, Financial ratio, Generally Accepted Accounting Principles Pages: 4 (1544 words) Published: November 1, 2014

Question 1 - Discussion
Explain potential issues of using annual report information in decision-making (15 marks)
Question 2 - Discussion
Explain potential limitations of using ratio analysis
(15 marks)
In answers to each of the above, include international implications. Your own research is required – consider what you have learned so far in this module. Question 2: DG ltd
The following information has been extracted from the recently published accounts of DG. Income Statement for the year ended 30 April 2013 2012
£000's £000's
Revenue 11,200 9,750
Cost of Sales (8,460) (6,825)
Gross Profit 2,740 2,925
Administrative (2,195) (2,545)
Operating Profit 545 380
Interest Payable (80) (60)
Profit Before Taxation 465 320
Statement of Financial Position as at 30 April
2013 2012
£000's £000's
Non-Current Assets 1,850 1,430
Current Assets Inventories 640 490
Trade Receivables 1,230 1,080
Cash 80 120
Current Assets 1,950 1,690
Total Assets 3,800 3,120
Non-Current Liabilities Debentures 800 600
Current Liabilities Trade Payables 750 690
Taxation 30 20
Dividends 65 55
Overdraft 110 80
Total Liabilities 1,755 1,445
Equity Share Capital 800 800
Reserves 1,245 875
Total Equity 2,045 1,675
Total Equity and Liabilities 3,800 3,120
The following ratios are those calculated for DG, based on its published accounts for the previous year, and also the latest industry average ratios: DGIndustry
30 April 2012 average
ROCE (capital employed=equity and non-current liabilities)16.70%18.50% Operating Margin3.90%4.73%
Gross profit margin30.00%35.23%
Current ratio2.001.90
Quick ratio1.421.27
Inventory turnover days26 days24 days
Accounts receivable collection period40 days52 days
Accounts payable collection period37 days49 days
Required:
Write a report to your board of directors analysing the performance of DG. In doing so compare the results against the previous year and against the industry average. All ratio calculations must be...
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