Mega Printing Press Ltd. has been established 5 year ago in Kathmandu valley. You are given the following financial statements of the recent year and you also derive the relevant industry average ratios of the industry for the recent year. You need to consider the following industry average and financial statements for Mega Printing Press Ltd. to answer the questions that follow:
Balance Sheets of Mega Printing Press
| Assets | 2024 |
|---|
| Cash and bank | Rs 80,000 |
| Accounts receivable | 900,000 |
| Inventories | 1,420,000 |
| Total current assets | Rs 2,400,000 |
| Net fixed assets | Rs 1,200,000 |
| Total assets | Rs 3,600,000 |
| Liabilities and Equity | 2024 |
|---|
| Accounts payable | Rs 400,000 |
| Notes payable | 300,000 |
| Accruals | 300,000 |
| Total current liabilities | Rs 1,000,000 |
| Long-term debt | Rs 500,000 |
| Common stock (100,000 shares) | 1,800,000 |
| Retained earnings | 300,000 |
| Total Liabilities and equity | Rs 3,600,000 |
Income Statements of Mega Printing Press
| 2024 |
|---|
| Sales | Rs 7,035,600 |
| Less Cost of goods sold | Rs 5,800,000 |
| Other expenses | 612,960 |
| Depreciation | 120,000 |
| Total operating costs | Rs 6,532,960 |
| EBIT | Rs 502,640 |
| Less Interest expenses | 80,000 |
| EBT | Rs 422,640 |
| Less Taxes (40%) | 169,056 |
| Net income | Rs 253,584 |
Ratio Analysis
| Financial Ratios | 2024 | Industry Average |
|---|
| Current ratio | — | 2.1 times |
| Quick ratio | — | 1.1 times |
| Inventory turnover | — | 5.5 times |
| Days sales outstanding | — | 60 days |
| Fixed assets turnover | — | 6 times |
| Total assets turnover | — | 2.25 times |
| Debt ratio | — | 50% |
| Times interest earned | — | 6 times |
| Net Profit margin | — | 3.6% |
| ROA | — | 9% |
| ROE | — | 17.9% |
a. Who are the users of ratio analysis and why do they use ratio analysis explain.
b. Calculate the 2024 current and quick ratios based on the projected balance sheet and income statement data. Comment on firm's liquidity position.
c. Calculate the 2024 inventory turnover ratio, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. Comment on firm's utilization of assets.
d. Calculate the 2024 debt ratio and times-interest-earned. Compare and comment on firm's financial leverage.
e. Calculate the 2024 net profit margin, return on assets, and return on equity. Is the company's profitability position satisfactory? Explain.
