2.1 Discuss three limitations of using ratio analysis (5)
2.2 You are provided with Lubulu Ltd’s financial statement as set out below.
Statement of Financial position for Lubulu Ltd
Asset 2x20
Property, plant and equipment at cost price 1 350 000
Accumulated depreciation (300 000)
PPE at carrying value 1 050 000
Investment in shares 825 000
Non- current assets 1 875 000
Inventories 150 000
Tarde receivables 250 000
Cash and cash equivalent 725 000
Current Assets 1 125 000
Total assets 3 000 000
Equity and liabilities
Share capital 1 250 000
Retained earnings 500 00
Ordinary shareholder’s equity 1 750 000
Preference shares 225 000
Shareholder’s’ equity 1975 000
Long-term debt 400 000
Deferred tax liability 145 000
Non-current liabilities 545 000
Trade payables 380 000
Dividends payable 100 000
Current liabilities 480 000
Total equity and liabilities 3 000 000
Statement of comprehensive income for Lubulu Ltd
2x20
Turnover 2 450 000
Cost of sales and services rendered (1 450 000)
Gross profit 1 000 000
Operating expenses (250 000)
Operating profit 750 000
Investment income 80 000
Finance cost (65 000)
Profit before tax 765 000
Tax (306 000)
Profit after tax 459 000
Preference share dividends (15 750)
Attributable earnings 443 250
Ordinary dividend (150 000)
Retained earnings (for the year) 293 250
Calculate the following ratios based on the information that has been provided (do not use average
ratios):
2.2.1 Gross Profit margin (3)
2.2.2 Interest cover ratio (3)
2.2.3 Return on ordinary shareholders’ equity (3)
2.2.4 Quick ratio (3)
2.2.5 Return on total assets (after interest and tax) (3)
2.2.6 Current ratio (2)
2.2.7 Debt equity ratio (3)
2.2.8 Comment on the liquidity position of the company (5
