The following information relates to the business of Lightsabre Electronics. A shareholder would like some detailed feedback about the profitability and financial structure of the business at 30 June 2015.
| 30 June 2015 | 30 June 2014 | |
| Revenues (sales and services on credit) | 580 000 | 575 000 |
| Interest Expense | 23 000 | 26 500 |
| Income Tax Expense | 44 600 | 53 000 |
| Total Assets | 540 000 | 555 000 |
| Profit (after income tax) | 52 500 | 56 100 |
| Preference Share Capital | 62 000 | 62 000 |
| Ordinary Share Capital | 110 000 | 100 000 |
| Total Liabilities | 300 000 | 330 000 |
REQUIRED:
- Calculate the following ratios for 2015:
- Return on Ordinary Equity
- Return on Total Assets (7 marks)
- In your own words explain what the following ratios show in relation to the company’s profitability and financial stability:
| 30 June 2015 | 30 June 2014 | |
| Profit Margin | 9.1% | 9.8% |
| Debt Ratio | 55.6% | 59.5% |
| Times Interest Earned | 5.2 times | 5.1 times |
(6 marks)
- In your own words, discuss three (3) general limitations of financial statement analysis
(6 marks)
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