Ms Fan Liu is keen to invest in a business in a small town in New Zealand. Ideally she would like one with a net income of around $160,000 to $200,000. A broker provided details of Jomel Trading, a wholesale business in Marton which is currently on the market. The agent has provided her with a copy of the financial statements for the year ended 31 March 2018, which includes comparative figures for the 2017 year. The accountant of Jomel Trading has provided you with some financial ratios for the 2017 year and the current industry averages. These can be located in Appendix C.
i. Use the financial statements in Appendix A to complete the ratio analysis for 2018. (20 marks)
Note: The ratio calculations must be shown in the Appendix C, ANALYSIS RATIOS on page 5 of this document. Your calculations on this sheet may be typed or hand written and then attached at the end of your report. Calculations should not appear in the body of the report. A list of analysis ratios for use with Cunningham is included in Appendix B. The comparative ratios for 2017 are already given in Appendix C.
Prepare a report for Ms Liu using ratios from Appendix C:
ii. Comment on the ability of the business to generate a profit. Analyse the business’s profitability indicating possible reasons the business has seen a deterioration in their profitability. (25 marks)
iii. Discuss how well the business uses the resources at its disposal. (25 marks)
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