MKBerry Is the Managing Director of CE Ltd CE Ltd's Latest Financial Statementsare as Follows

question 93

Essay

M.K.Berry is the managing director of CE Ltd.a small,family-owned company that manufactures cutlery.His company belongs to a trade association that publishes a monthly magazine.The latest issue of the magazine contains a very brief article based on the analysis of the accounting statements published by the 40 companies that manufacture this type of product.The article contains the following table:
$$\begin{array} { | l | r | } \hline & \begin{array} { r } \text { Average for All Companies } \\\text { In the Industry } \end{array} \\\hline \text { Return on Shareholders' Eqquity } & 33 \% \\\hline \text { Return on Total Assets } & 29 \% \\\hline \text { Gross Margin Percentage } & 30 \% \\\hline \text { Current Ratio } & 1.9 : 1 \\\hline \text { Average Sale Period } & 37 \text { days } \\\hline \text { Average Collection Period } & 41 \text { days } \\\hline\end{array}$$
CE Ltd's latest financial statementsare as follows:
$\begin{array}{|l|r|}\hline&\text {CE LTd.}\\&\text {Income Statemen}\\&\text {For the year end 31 October}\\&\text {(in thousands)}\\\hline\text { Sales } & £ 900 \\\hline \text { Cost Of Goods Sold } & £ 720 \\\hline \text { Gross Margin } & £ 180 \\\hline \text { Selling and Administrative Expenses } & £ 55 \\\hline \text { Interest } & £ 15 \\\hline \text { Net Income } & £ 110 \\\hline\end{array}$
The country in which the company operates has no corporate income tax.No dividends were paid during the year.All sales are on account.
$\begin{array}{|l|r|r|}\hline & \text { CE Ltd.}\\ & \text { Balance Sheets}\\& \text { As of 31 October}\\& \text { (in thousands)}\\ \hline & \text { This Year } & \text { Last Year } \\\hline \text { Current assets: } & & \\\hline \text { Cash } & £ 5 & £ 20 \\\hline \text { Accounts Receivable } & 120 & 110 \\\hline \text { Inventories } & 96 & 80 \\\hline \text { Noncurrent assets } & 500 & 460 \\\hline \text { Total assets } & £ 721 & £ 670 \\\hline \text { Current liabilities: } & & \\\hline \text { Accounts payable } & £ 147 & £ 206\\\hline \text { Noncurrent liabilities: } & & \\\hline \text { Bonds payable } & 150 & 150 \\\hline \text { Common shares } & 100 &100 \\\hline \text { Retained earnings } & 324 & 214\\\hline \begin{array}{l}\text { Total liabilities and } \\\text { shareholders' equity }\end{array} & £ 721 & £ 670\\\hline\end{array}$
Required:
a)Calculate each of the ratios listed in the magazine article for this year for CE,and comment briefly on CE Ltd.'s performance in comparison to the industry averages.
b)Explain why it could be misleadingto compare CE Ltd.'s ratios with those taken from the article.

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Definitions:

Supply Research

The process of studying the market and suppliers to understand the availability, quality, and cost of materials or services needed by a business.

Benchmarking

A method of measuring the performance of a company's products, services, or processes against those of another business considered to be the best in the industry.

Purchasing Process

A series of steps taken by organizations to acquire goods or services, typically including identification of needs, selection of suppliers, negotiation, and payment.

Industrywide Standards

Established norms or criteria within an industry that ensure quality, compatibility, and interoperability among products or services.