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Key Ratios Case Solution Worksheet

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Accounting

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June 2002 Examiner's Solution
C a s e S o l u t i o n 1
1. Compute and contrast the following key ratios for the two companies and ESCTA.
i. Current ratio
ii. Quick ratio
iii. Gross profit margin
iv. Profit margin ratio
v. Fixed to current asset ratio
vi. Inventory turnover
vii. Average collection period
viii. Debt ratio
(16 marks)
NBSG
Donkins
ESCTA Average
Current ratio (times)
1.51
2.14
1.53
Quick ratio(times)
1.0
1.8
1.0
Gross profit margin
36%
54%
46%

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Profit margin
5.88%
32.38%
14.67%
Fixed to current asset ratio
30.19%
23.95%
24.14%
Inventory turnover (times)
3.61
4.0
4.26
Average collection period (days)
118
240
51
Debt ratio
50.7%
37.7%
52.8%
2. Prepare some brief notes on NBSG's ratio performance against both Donkins and the ESCTA average, identifying and
commenting on:
i. areas in which NBSG's performance exceeds Donkins or ESCTA average.

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June 2002 Examiner's Solution Case Solution 1 1. i. ii. iii. iv. v. vi. vii. viii. Compute and contrast the following key ratios for the two companies and ESCTA. Current ratio Quick ratio Gross profit margin Profit margin ratio Fixed to current asset ratio Inventory turnover Average collection period Debt ratio (16 marks) NBSG Donkins ESCTA Average 1.51 2.14 1.53 1.0 1.8 1.0 36% 54% 46% Current ratio (times) Quick ratio(times) Gross profit margin Profit margin 5.88% 32.38% 14.67% 30.19% 23.95% 24.14% 3.61 4.0 4.26 118 240 51 50.7% 37.7% 52.8% Fixed to current asset ratio Inventory turnover (times) Average collection period (days) Debt ratio 2. Prepare some brief notes on NBSG's ratio performance against both Donkins and the ESCTA average, identifying and commenting on: i. areas in which NBSG's performance exceeds Donkins or ESCTA average. ii. 3. 4. Average debtor days NBSG's achievement of 118 days is poor in absolute terms, but compares very favourably against Donkin's abysmal 240 days performance. The latter raises the issue of poor credit control or the threat of bad debts. Debt ratio NBSG's gearing of 50.7% compares modestly favourably against ESCTA average of 52.8%. The latter indicates that, on average, companies within the sector have higher levels of debt than NBSG. areas in which Donkins' performance exceeds both NBSG and ECTA average. Current ratio Donkins is very strong at 2.14, as against NBSG's 1.51 and ESCTA averag ...
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