1.

The following are the financial statements for Aero Asia Sdn Bhd for the year ended
30 September 2018.
Aero Asia Sdn Bhd
Statement of Profit or Loss and Comprehensive Income
for the Year Ended 30 September 2018

2018 (RM) 2017 (RM)

Sales 3 074 000 2 567 000

Less: Cost of goods sold 2 088 000 1 711 000

Gross profit 986 000 856 000

Less: Operating expenses

Selling expenses 100 000 108 000
Administrative expenses 194 000 187 000
Depreciation expense 48 000 44 000
Net profit before taxes 644 000 517 000
Less: Taxes (24%) 155 000 124 000
Net profit after taxes 489 000 3 93 000

Aero Asia Sdn Bhd

Statement of Financial Position as at 30 September 2018
Non-current assets 2018 (RM) 2017 (RM)
Property, plant and equipment 7 900 000 7 900 000
Motor vehicles 240 000 220 000
Less: Accumulated depreciation 92 000 44 000
Total non-current assets 8 048 000 8 076 000

Current assets
Inventories 942 000 828 000
Accounts receivable 325 000 426 000
Cash at bank 3 177 000 1 865 000
Cash in hand 39 000 43 000
Total Assets 12 531 000 11 238 000

Financed by:
Stockholder’s equity 10 000 000 9 000 000
Retained earnings 2 132 000 1 835 000
Total Stockholder’s equity 12 132 000 10 835 000

Current Liabilities
Accounts Payable 312 000 298 000
Notes payable 75 000 88 000
Accruals 12 000 17 000
Total equity and liabilities 12 531 000 11 238 000
Additional information: The opening inventories for year 2017 is RM800 000. While, the
opening debtors for year 2017 is RM400 000.

Required:
(a) Perform a horizontal and vertical analysis of the Statement of Comprehensive
Income.

(b) Calculate and comment on the following ratios for year 2017 and 2018:
(i) Profitability ratio (Gross profit ratio, net profit ratio and ROI)
(ii) Liquidity ratio (Current ratio and Acid test ratio)
(iii) Activity ratio (Stock turnover ratio and Debtors turnover ratio)

ANSWER
The following are the financial statements for Aero Asia Sdn Bhd for the year ended
30 September 2018.
Aero Asia Sdn Bhd
Statement of Profit or Loss and Comprehensive Income
for the Year Ended 30 September 2018

Vertical Vertical Horizontal Horizontal

2018 2017 Analysis Analysis
(RM) (RM) (RM) (%)
Sales 100% 100% 507 000 ↑ 19.75%

Less: Cost of goods sold 67.92% 66.65% 377 000 ↑ 22.03%

Gross profit 32.07% 33.35% 130 000 ↑ 15.19%

Less: Operating expenses

Selling expenses 3.25% 4.21% (8 000) ↓ 7.41%
Administrative exp 6.31% 7.28% 7 000 ↑ 3.74%
Depreciation expense 1.56% 1.71% 4 000 ↑ 9.1%
Net profit before taxes 20.95% 20.14% 127 000 ↑ 24.56%
Less: Taxes (24%) 5.04% 4.83% 31 000 ↑ 25%
Net profit after taxes 15.91% 15.31% 96 000 ↑ 24.43%
Ratio Analysis
2018 2017
Profitability Ratio Profitability Ratio
Gross profit ratio @ Gross profit margin Gross profit ratio @ Gross profit margin
= Gross profit x 100% = Gross profit x 100%
Net sales Net sales

= 986 000 x 100% = 856 000 x 100%

3 074 000 2 567000

= 32.08% = 33.35%

This indicates that the amount of gross profit This indicates that the amount of gross
is 32.08% for every RM1.00 sales profit is 33.35% for every RM1.00 sales

Net profit ratio @ Net profit margin Net profit ratio @ Net profit margin
= 489 000 x 100% = 393 000 x 100%
3 074 000 2 567 000

= 15.91% = 15.31%

This indicates that the amount of net profit is This indicates that the amount of net profit
20.95% for every RM1.00 sales is 20.14% for every RM1.00 sales

Return on Capital Employed (ROCE) @ Return on Capital Employed (ROCE) @

Return on Investment (ROI) Return on Investment (ROI)
= Net profit x 100% = Net profit x 100%
Capital employed* Capital employed*

= 489 000 x 100% = 393 000 x 100%

12 132 000* 10 835 000*

= 4.03% = 3.63%

* Capital employed = Total assets - current * Capital employed = Total assets -

liabilities @ Owner’s equity + Non-current current liabilities @ Owner’s equity +
liabilities Non-current liabilities

The capital has been used by the business to The capital has been used by the business
generate income of 5.1% to generate income of 4.77%

2. Liquidity ratio 2. Liquidity ratio

Current ratio @ Working capital ratio Current ratio @ Working capital ratio
= Current assets = ≥ 1 time = Current assets = ≥ 1 time
Current liabilities Current liabilities

= 4 483 000 = 11.24 times = 3 162 000 = 7.85 times

399 000 403 000
This shows that the current assets can cover This shows that the current assets can
the current liabilities 11.24 times cover the current liabilities 7.85 times

Quick ratio @ Acid test ratio Quick ratio @ Acid test ratio
= Current assets–stock- prepaid assets = ≥ 1 time = Current assets–stock- prepaid assets = ≥ 1 time
Current liabilities Current liabilities

= 4 483 000–942 000 = 8.87 times = 3 162 000–828 000 = 5.79 times
399 000 403 000

This shows that the current assets can cover This shows that the current assets can
the current liabilities 8.87 times cover the current liabilities 5.79 times
after taking out the least liquid items after taking out the least liquid items

3. Activity ratio 3. Activity ratio

Stock turnover ratio Stock turnover ratio
= Cost of Goods Sold = No of times = Cost of Goods Sold = No of times
Average stock* Average stock*

= 2 088 000 = No of times = 1 711 000 = No of times

(828 000 + 942 000)/ 2* (800 000 + 828 000)/ 2*

= 2 088 000 = 2.36 times = 1 711 000 = 2.1 times

885 000* 814 000*

*Average stock = Opening + Closing stock *Average stock = Opening + Closing stock
2 2
The average frequency of stock movement for The average frequency of stock movement
the year is 2.36 times. for the year is 2.1 times.

Debtors/ Receivables turnover ratio Debtors/ Receivables turnover ratio

= Net sales = No of times = Net sales = No of times
Average debtors Average debtors

= 3 074 000 = No of times = 2 567 000 = No of times

(426 000 + 325 000)/ 2 (400 000 + 426 000)/ 2

= 3 074 000 = 8.19 times = 2 567 000 = 6.22 times

375 500 413 000

The receivables are collected 8.19 times The receivables are collected 6.22 times
during the year. during the year.