QUESTION 1
The following information was obtained from the books of Chambers Ltd.
Condensed Statement of Profit or Loss for the year ended March 31,
2024 2023
$000 $000
Turnover 75,000 63,000
Operating Profit 34,000 28,000
Interest 2,400 3,000
Profit before Tax 31,600 25,000
Tax 7,900 6,250
Profit After Tax 23,700 18,750
Statement of Financial Position as at March 31,
2024 2023
$000 $000
Non-Current Assets 92,600 58,300
Current Assets 61,630 46,560
154,230 144,860
Capital and Reserves
Ordinary Shares (@0.75 13,500 13,500
General Reserves 1,000 1,000
Retained Earnings 91,380 76,480
Non-Current Liabilities 24,000 30,000
Current Liabilities 31,850 38,380
154,230 144,860
Required:
a. Compute the following ratios for 2023 and 2024:
i. Gearing
ii. Debt to equity
iii. Time interest earned (TIE)
iv. Operating profit margin
v. Net profit margin
vi. Return on capital employed
(6 marks)
b. The Regional Commercial Bank (RCB) is processing a mortgage application to purchase
additional warehouse space by Chambers Ltd. As the Loans Officer at RCB, evaluate the
solvency and profitability of Chambers Ltd, using the ratios calculated in (a) above
(18 marks)
c. Outline THREE limitations inherent when using financial ratios to assess a company.
(6 marks)