Calculate Profitability, Liquidity, Efficiency, and Financial Leverage Ratios for XYZ Ltd
What are the profitability ratios for XYZ Ltd in 2021 and 2022?
Gross profit margin: In 2022 is 10%, In 2021 is 5.48%. The net profit margin: In 2022 is 6.25%, In 2021 is 3.29%.
How can we calculate the profitability, liquidity, efficiency, and financial leverage ratios based on the given data?
Profitability Ratios:
The profitability ratios can be calculated using the information provided in the Statement of Profit or Loss.
Liquidity Ratios:
The liquidity ratios can be calculated using the information given in the Statement of Financial Position.
Efficiency Ratios:
The efficiency ratios can be calculated using different combinations of the information given.
Financial Leverage Ratios:
The financial leverage ratios can be calculated using the information given in the Statement of Financial Position.
Profitability Ratios:
The gross profit margin can be calculated by dividing the gross profit by the sales and multiplying by 100. In 2022, it would be (40,000 / 400,000) * 100 = 10% and in 2021, it would be (20,000 / 365,000) * 100 = 5.48%. The net profit margin can be calculated by dividing the profit for the year by the sales and multiplying by 100. In 2022, it would be (25,000 / 400,000) * 100 = 6.25% and in 2021, it would be (12,000 / 365,000) * 100 = 3.29%.
Liquidity Ratios:
The current ratio can be calculated by dividing the total current assets by the total current liabilities. In 2022, it would be 345,000 / 215,000 = 1.6 and in 2021, it would be 314,600 / 204,600 = 1.54. The quick ratio can be calculated by dividing the total current assets minus the inventories by the total current liabilities. In 2022, it would be (345,000 - 91,200) / 215,000 = 1.16 and in 2021, it would be (314,600 - 80,000) / 204,600 = 1.18.
Efficiency Ratios:
The inventory turnover can be calculated by dividing the cost of sales by the average inventory. In 2022, it would be 5.45 times and in 2021, it would be 5.31 times.
Financial Leverage Ratios:
The debt-to-equity ratio can be calculated by dividing the total liabilities by the total equity. In 2022, it would be 1.65 and in 2021, it would be 1.86.
Based on these ratios, we can see that XYZ Ltd has shown improved profitability, liquidity, and efficiency from 2021 to 2022. The financial leverage ratio has decreased, indicating a reduction in financial risk and improved stability.