Sonko hardware tools company limited sells plumbing fixtures on terms of 2/10 net 30. Its financial statement for the last three years are as follows:
2012 2013 2014
Sh ‘000’ Sh ‘000’ Sh ‘000’
Cash 30,000 20,000 5,000
Accounts receivable 200,000 260,000 290,000
Inventory 400,000 480,000 600,000
Net fixed assets 800,000 800,000 800,000
1,430,000 1,560,000 1,695,000
Accounts payable 230,000 300,000 380,000
Accruals 200,000 210,000 225,000
Bank,loan, short term 100,000 100,000 140,000
Long term debt 300,000 300,000 300,000
Common stock 100,000 100,000 100,000
Retained earnings 500,000 550,000 550,000
1,430,000 1,560,000 1,695,000
Additional information:
Sales 4,000,000 4,300,000 3,800,000
Cost of goods sold 3,200,000 3,600,000 3,300,000
Net profit 300,000 200,000 100,000
Required
i. For each of the three years, calculate the following ratios: Acid test ratio, Average collection period, Inventory turnover, Total debt/ equity and net profit margin (6 marks)
ii. From the ratios calculated above, comment on the liquidity, efficiency, profitability and gearing positions of the company. (4 marks)
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