Task 4(c):

Calculate and interpret with writing the financial statements at Appendix I using
appropriate ratios. Comparison should be made with prior year result and externally
with Grayline. You should show clearly your working for the computation of ratios.
Citiylink Bus Company 2010:
Profitability ratios:
(i)Gross profit margin = (Gross profit / Sales x 100) %
= (76819 / 172482 x 100) %
= 44.54 %
(ii)Net profit margin = (Net profit / Sales x 100) %
= (464526 / 172482 x 100) %
= 269.32 %
Liquidity ratios:
(i)Current ratio = Current asset / Current liability
= 1963366 / 91767
= 21.4 : 1
(ii)Acid test ratio = (Current asset Inventory) / Current liability
= (1963366 1318991) / 91767
= 644375 / 91767
= 7.02 : 1

Efficiency ratios:
(i)Debtors collection period = (Total debtors / Credit sales) x 365 Days
= (2211 / 172482) x 365 Days
= 4.68 Days or 5 Days
(ii)Creditors payment period = (Total creditors/Credit purchase)x 365 Days
= (88056 / 95663) x 365 Days
= 335.98 Days or 336 Days
Gearing ratios:
(i)Debt to asset = (Total liabilities / Total assets x 100) %
= {(3129233+1963366) / (91767+622078) x 100} %
= (5092599 / 713845 x 100) %
= 713.4 %
(ii)Debt to equity = (Total debt / Total equity x 100) %
= {(3129233+1963366) / 4378754 x 100} %
= (5092599 / 412590 x 100) %
= 1234.3 %
Investment ratios:
(i)Return on equity = (Net income / Equity x 100) %
= (464526 / 4378754 x 100) %
= 10.61 %

(ii)Return on investment = {Net income / (Equity + Long term liability) x 100} %

= {464526 / (4378754+622078) x 100} %
= (464526 / 5000832 x 100) %
= 9.29 %

Citiylink Bus Company 2011:

Profitability ratios:
(i)Gross profit margin = (Gross profit / Sales x 100) %
= (83225 / 191597 x 100) %
= 43.44 %
(ii)Net profit margin = (Net profit / Sales x 100) %
= (332473 / 191597 x 100) %
= 173.53 %
Liquidity ratios:
(i)Current ratio = Current asset / Current liability
= 2337585 / 415847
= 5.62 : 1
(ii)Acid test ratio = (Current asset Inventory) / Current liability
= (2337585 1524230) / 415847
= 813355 / 415847
= 1.96 : 1

Efficiency ratios:
(i)Debtors collection period = (Total debtors / Credit sales) x 365 Days
= (34479 / 191597) x 365 Days
= 65.68 Days or 66 Days
(ii)Creditors payment period= (Total creditors/Credit purchase) x 365 Days
= (411224 / 108372) x 365Days
= 1385.01 Days or 1385 Days
Gearing ratios:
(i)Debt to asset = (Total liabilities / Total assets x 100) %
= {(415847+608305) / (3297486+2337585) x 100} %
= (1024152 / 5635071 x 100) %
= 18.17 %
(ii)Debt to equity = (Total debt / Total equity x 100) %
= {(415847+608305) / 4610919 x 100} %
= (1024152 / 4610919 x 100) %
= 22.21 %
Investment ratios:
(i)Return on equity = (Net income / Equity x 100) %
= (332473 / 4610919 x 100)%
= 7.21 %

(ii)Return on investment = {Net income / (Equity + Long term liabilty) x 100} %

= {332473 / (4610919+608305) x 100} %
= (332473 / 5219224 x 100) %
= 6.37 %

Grayline 2011:
Profitability ratios:
(i)Gross profit margin = (Gross profit / Sales x 100) %
= (626479 / 1483762 x 100) %
= 42.22 %
(ii)Net profit margin = (Net profit / Sales x 100) %
= (274261 / 1483762 x 100) %
= 18.48 %
Liquidity ratios:
(i)Current ratio = Current asset / Current liability
= 2946353 / 585732
= 5.03 : 1
(ii)Acid test ratio = (Current asset Inventory) / Current liability
= (2946353 2024153) / 585732
= 922200 / 585732
= 1.57 : 1

Efficiency ratios:
(i)Debtors collection period = (Total debtors / Credit sales) x 365 Days
= (558874 / 1483762) x 365 Days
= 137.48 Days or 137 Days
(ii)Creditors collection period = (Total creditors / Credit purchase) x 365 Days
= (516948 / 857283) x 365 Days
= 220.10 Days or 220 Days
Gearing ratios:
(i)Debt to asset = (Total liabilities / Total assets x 100) %
= {(585732+575848) / (2818804+2946353) x 100) %
= (1161580 / 5765157 x 100) %
= 20.15 %
(ii)Debt to equity = (Total debt / Total equity x 100) %
= {(585732+575848) / 4603577 x 100} %
= (1161580 / 4603577 x 100) %
= 25.23 %
Investment ratios:
(i)Return on equity = (Net income / Equity x 100) %
= (274261 / 4603577 x 100) %
= 5.96 %

(ii)Return on investment = {Net income / (Equity + Long term liability) x 100} %

= {274261 / (4603577+575848) x 100} %
= (274261 / 5179425 x 100) %
= 5.30 %