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Calculation Of Various Ratios

Question

A2Z Maritime is a ship-owning company that had some long term contracts that include land transport delivery, but these seem to be declining. However, there are several time charters that appear to be secure for long term. You have been asked to do some work for this company and feel that its financial position could be an issue. The outlook seems to be growth in trade and a modest increase in chartering rates. You have taken the comparative figures over the last three years of the company’s profit and loss and balance sheets and pencilled in some percentages (see table below).

A2z maritime summary of trading results For Year Ended 31 March

 

2003

2004

2005

 

$m

%

$m

%

$m

%

Total Chartering Revenue

Other Revenue

 

TOTAL REVENUE

127

91

130.1

95

141.1

97

12

9

7

5

4.7

3

139

100
  1. 1

100
  1. 8

100

Ship Operating Costs

Shore Operating Costs

 

TOTAL OPERATING COSTS

82.2

59

80.9

59

90.1

61

37.8

27

38

28

39.6

27

120

86
  1. 9

87
  1. 7

88

Gross Profit

Selling &Administration

 

Net operating Profit

19

14

18.2

13

16.1

12

8

6

9

7

9.4

7

11

8
  1. 2

6
  1. 7

5

Bank Loan

Sundry Creditors/payables

Accrued Expenses

 

Current Liabilities

10.7

16

9.6

13

14.1

16

14.2

22

17.7

24

22.3

25

1.4

2

1.5

2

1.7

2
  1. 3

40
  1. 8

39
  1. 1

43

Mortgage on Ships

Five-year loan at 5% per annum

 

Long term Liabilities

10

15

10

14

10

11

 

 

 

 

2.5

3

10

15

10

14
  1. 5

14

Proprietorship /Owner’s Equity

29.9

45

35.2

47

37.8

43

Total Funds Employed

66.2

100

74

100

88.4

100

Sundry Debtors(net)Receivables

Inventories/stock

 

Current Assets

18.2

28

17.7

24

23.6

27

14.6

22

15

20

17.1

19
  1. 8

50
  1. 7

44
  1. 7

46

Office Equipment

Land Transport

Ships

 

Fixed Assets

3.4

5

3

4

7.6

9

5.5

8

11.9

16

9.9

11

19.6

30

19.4

26

19.2

22
  1. 5

43
  1. 8

46
  1. 7

42

Intangible Assets/Long term Contracts

4.9

7

7

10

11

12

Total Funds Employed
  1. 2

100

74

100
  1. 4

100

 

  1. Calculate from above table the following ratios to the nearest per cent to illustrate trends:
  2. Indicate the questions that you would like to ask the company>List three points that you feel it would be prudent to discuss, giving your reasons.
  3. If you were a director on the board, what questions would you be asking the finance department and why?
  • Ratio of net profit to equity (Return on Owner’s capital)
  • Working Capital Ratio (Current Ratio)
  • Liquidity Ratio (Acid Test)
  • Debt/Equity Ratio
  • Breakeven Point% sales
  • Rate of Collection of Debtors.

 

Summary

The question belongs to Finance and it discusses about calculating working capital ratio, liquidity ratio and other ratios from given information.

Total Word Count 665

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