Problem-
You are the banking manager for Wholly Donuts Pty Ltd. The proprietor has an appointment to see you next week to discuss plans to open another store in a neighboring suburb. To fund the expansion, the entity needs an injection of loan capital. Prior to the meeting you have requested Wholly Donuts Pty Ltd's financial statements as set out below:
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Wholly Donuts Pty Ltd
Income Statements for the years ending 30 June:
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2012
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2011
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Income
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Sales (all credit)
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$480,000
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$530,000
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Cost of sales
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300,000
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360,000
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Gross profit
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180,000
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170,000
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Less expenses
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Selling expenses
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50,000
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55,000
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Administrative expenses
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30,000
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40,000
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Interest expense
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6,000
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4,000
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Profit before tax
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94,000
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71,000
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Income tax
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21,000
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18,000
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Profit after tax
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$73,000
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$53,000
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Wholly Donuts
Statements of Financial Position as at 30 June:
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2012
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2011
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Assets
Cash $ 30,000 $ 20,000
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Accounts receivable
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18,000
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20,000
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Inventory
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12,000
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16,000
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Total current assets
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60,000
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56,000
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Property, plant and equipment
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130,000
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170,000
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Other assets
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40,000
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32,000
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Total non-current assets
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170,000
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202,000
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Total assets
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$230,000
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$258,000
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Liabilities
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Accounts payable
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15,000
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25,000
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Total current liabilities
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15,000
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25,000
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Loan (due 2018)
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50,000
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50,000
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Total non-current liabilities
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50,000
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50,000
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Total liabilities
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65,000
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75,000
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Equity
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Share capital
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165,000
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183,000
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Total liabilities and equity
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$230,000
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$258,000
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A. Calculate the following ratios for the years ending 30 June 2012 and 30 June 2011. As no financial date is available for the year ending 30 June 2010, use year-end figures instead of average figures. Show your calculations/workings.
i Return on equity
ii Return on assets
iii Net profit margin
iv Gross profit margin
v Accounts receivable turnover
vi Inventory turnover
vii Current ratio
viii Acid test ratio
ix Gearing ratio
B. i Based on your analysis write a report on the financial performance and position of Wholly Donuts Pty Ltd.
ii What other information would you like to possess before making your recommendation?
iii What are the limitations of undertaking an assessment of an entity based on ratios?
Additional information-
This problem belongs to Accounting and it discuss about calculating return on equity, return on assets, net profit margin, gross profit margin, current ratio, acid test ratio, etc and writing a report based on the analysis of the ratios.