Task 2

	Income Statement for ABC Box Co Year Ending June 2014	Income Statement for XYZ Box Co Year Ending June 2014
Income	250 000	300 000
Admin Expenses	75 000	80 000
Selling Expenses	35 000	50 000
Purchases	60 000	80 000
Opening Stock	80 000	80 000
Closing Stock	40 000	20 000
Overdraft	10 000	50 000

1.       Calculate the following for each company:

a.       Gross profit for ABC Box Co

b.      Gross Profit for XYZ Box Co

c.       Net Profit for ABC Box Co

d.      Net Profit for XYZ Box Co

e.      Gross Profit ratio for ABC Box Co (show working)

f.        Gross Profit ratio for XYZ Box Co (show working)

g.       Comment on the Gross Profit ratio for each company

h.      Net Profit ratio for ABC Box Co (show working)

i.         Net Profit ratio for XYZ Box Co (show working)

j.        Comment on the Net Profit ratio for each company

k.       If the Net Profit ratio for XYZ Box Co was 5% for the year ending 2015, give two possible reasons for this change.

Balance Sheet for ABC Box Co

As at 30/6/2012

Current Assets	Current Liabilities
Cash                                  $10 000	Overdraft                           $10 000
Acc Receivable                  $30 000	Acc Payable                       $30 000
Inventory                            $40 000	Non-current Assets
Non-current Assets	Mortgage                            $100 000
Mortgage                            $250 000
	Owner’s Equity                 $190 000
Total                                  $330 000	Total                                  $330 000

 Additional information:

-          Industry average current ratio 2.2:1

-          Industry average debt-to-equity ratio 50%

-          Net profit for year ending 2012 is $30 000

-          Sales for year ending 2012 $210 000

1.       Calculate the following for ABC Box Co

a.         The Current ratio (show working)

b.      Comment on the Current ratio for ABC Box Co

c.       Suggest TWO strategies to improve the Current ratio

d.      Calculate the Debt-to-Equity ratio for ABC Box Co (show working)

e.      Comment on the Debt-to-Equity ratio for ABC Box Co

f.        Suggest TWO strategies to improve the Debt-to-Equity ratio

g.       Calculate the Return on Equity ratio (show working)
h.   Calculate the Accounts Receivable Turnover ratio (show working)

MCQ

1. What are the internal sources of finance available to a business? 
a) Shares, retained profits, loans 
b) Leasing, factoring, venture capital 
c) Retained profits, owners equity, new partner 
d) Commercial bills, shares, leasing 

2. What is the advantage of a bank overdraft for a small business? 

a) Higher costs than a loan 
b) Lower costs than a loan 
c) High level of flexibility 
d) Low level of flexibility 

3. Which of the following best describes factoring? 

a) Selling accounts receivable 
b) Selling accounts payable 
c) Selling inventory 
d) Selling current assets 

4. What is a disadvantage of raising capital through a share issue? 

a) Only certain people can buy shares 
b) The high cost of issuing shares 
c) The shares can be bought and sold on the stock exchange 
d) The ownership of the business can become diluted 

5. What source of finance is most appropriate for a large expansion? 

a) Mortgage 
b) Overdraft 
c) Factoring 
d) Debentures