Questions and answers relating to Accounting

Tiger Limited produces spare parts for aviation industry. The income statements and statements of financial position for 2021 and 2022 are as follows:

Income statements for the year ended 31 December

2021

2022

£'000

£'000

Revenue

2230

1980

Cost of sales

-1340

-987

Gross profit

890

993

Operating expenses

-480

-430

Depreciation

-132

-95

Operating profit

278

468

Interest payable

-30

0

Profit before taxation

248

468

Taxation

-82

-151

Profit for the year

166

317

Statements of financial position as at 31 December

2021

2022

ASSETS

£'000

£'000

Non-current assets

Property, plant and equipment

1540

1503

Current assets

Inventories

530

320

Trade receivables

356

207

Cash

-

40

886

567

Total assets

2426

2070

EQUITY AND LIABILITIES

Equity

Ordinary share capital

1350

1350

Retained earnings

372

409

1722

1759

Non-current liabilities

Borrowings - bank loan

100

-

Current liabilities

Trade payables

285

176

Other payables and accruals

53

60

Taxation

68

75

Short-term borrowings

198

-

604

311

Total equity and liabilities

2426

2070

1. Calculate the following ratios for 2021 and 2022 from the income statements and statements of financial position provided above (ratio formulas included at the end of the booklet).

• Return on capital employed
• Gross profit margin
• Operating profit margin
• Current ratio
• Quick ratio
• Average inventories turnover period
• Average settlement period for receivables
• Average settlement period for trade payables

1. Using the information provided in the financial statements and the ratios that you have calculated, write a management report to the board of directors commenting on the company’s operations for the financial year ended 31st December 2022 compared to the previous year.