Compute the following ratios for 2005 and 2006: i. Gross profit margin ii. Return on capital employed iii. Net profit margin iv. Current ratio

Here are the computations for the requested ratios for 2005 and 2006: Data from Financial Statements: | Item | 2006 (N'000) | 2005 (N'000) | | :------------------------------------ | :----------- | :----------- | | Turnover | 2,713,285 | 3,089,973 | | Gross profit | 805,866 | 1,135,347 | | Profit on ordinary activities before tax | 284,168 | 532,666 | | Profit on ordinary activities after tax | 214,330 | 341,491 | | Inventories | 1,456,182 | 1,380,730* | | Receivables | 579,826 | 310,322 | | Bank and cash balances | 525,574 | 79,059 | | Payable (Due within one year) | 1,479,217 | 1,557,347 | | Capital and reserves | 1,973,818 | 992,463 | Note: For 2005 Inventories, "1,380,73" is interpreted as N1,380,730 to be consistent with other figures in thousands. Calculations: i. Gross profit margin The formula for gross profit margin is: Gross Profit Margin = Gross ProfitTurnover × 100\% Step 1: Calculate for 2006. Gross Profit Margin_2006 = (805,866)/(2,713,285) × 100\% = 29.70\% Step 2: Calculate for 2005. Gross Profit Margin_2005 = (1,135,347)/(3,089,973) × 100\% = 36.74\% 2006: 29.70% 2005: 36.74% ii. Return on capital employed (ROCE) The formula for ROCE is: ROCE = Profit on ordinary activities before taxCapital Employed × 100\% Capital Employed is taken as "Capital and reserves" from the statement of financial position. Step 1: Calculate for 2006. ROCE_2006 = (284,168)/(1,973,818) × 100\% = 14.40\% Step 2: Calculate for 2005. ROCE_2005 = (532,666)/(992,463) × 100\% = 53.67\% 2006: 14.40% 2005: 53.67% iii. Net profit margin The formula for net profit margin is: Net Profit Margin = Profit on ordinary activities after taxTurnover × 100\% Step 1: Calculate for 2006. Net Profit Margin_2006 = (214,330)/(2,713,285) × 100\% = 7.90\% Step 2: Calculate for 2005. Net Profit Margin_2005 = (341,491)/(3,089,973) × 100\% = 11.05\% 2006: 7.90% 2005: 11.05% iv. Current ratio The formula for current ratio is: Current Ratio = Current AssetsCurrent Liabilities Step 1: Calculate Current Assets and Current Liabilities for 2006. Current Assets_2006 = Inventories + Receivables + Bank and cash balances Current Assets_2006 = 1,456,182 + 579,826 + 525,574 = 2,561,582 Current Liabilities_2006 = Payable (Due within one year) = 1,479,217 Step 2: Calculate Current Ratio for 2006. Current Ratio_2006 = (2,561,582)/(1,479,217) = 1.73:1 Step 3: Calculate Current Assets and Current Liabilities for 2005. Current Assets_2005 = Inventories + Receivables + Bank and cash balances Current Assets_2005 = 1,380,730 + 310,322 + 79,059 = 1,770,111 Current Liabilities_2005 = Payable (Due within one year) = 1,557,347 Step 4: Calculate Current Ratio for 2005. Current Ratio_2005 = (1,770,111)/(1,557,347) = 1.14:1 2006: 1.73:1 2005: 1.14:1 Drop the next question! 📸