### Ratio Analysis Questions and Answers

Question 1:
Calculate the relevant investment ratios with the following information:
Dividend per share = \$0.20
Market price per share = \$5.00
Annual earning = \$100,000
Number of equity shares = 200,000

(1) Dividend yield = ( Dividend per share/ Market price per share ) * 100 % = (0.2 / 5) * 100% = 4%
(2) Earnings per share (EPS) = Profit available to shareholders / Number of shares = \$100,000 / 200,000 = \$0.50
(3) Price earnings ratio (P/E) = Market price per share / EPS = \$5 / \$0.50 = 10
(4) Payout Ratio = Dividend per share / EPS = 0.2 / 0.5 = 0.4 = 40%

Question 2:
Calculate the relevant profitability ratios with the following information:
Stock at start of year: \$30,000
Stock at end of year : \$20,000
Annual Sales: \$50,000
Annual Purchases: \$10,000
Total expenses: \$5,000
Capital at start: \$62,000
Capital at end: \$18,000

(1) Gross profit percentage = (Gross profit / Net sales) * 100 % = (30,000 / 50,000) *100% = 60%
(2) Net profit percentage = (Net profit / Net sales) * 100 % = (25,000 / 50,000) * 100% = 50%
(3) Return on capital employed = (Profit before interest / Capital employed) * 100 % = (25,000 / 40,000) * 100% = 62.5%
Workings:
Gross profit = Sales - Cost of goods sold = 50,000 - 20,000 = \$30,000
Cost of goods sold = Stock at start + Purchases - Stock at end = 30,000 + 10,000 - 20,000 = \$20,000
Net profit = Gross profit - Total expenses = 30,000 - 5,000 = \$25,000
Average capital employed = (Capital at start + Capital at end) / 2 = (62,000 + 18,000) / 2 = \$40,000

Question 3:
Calculate the relevant liquidity ratios with the following information:
Proposed dividends: \$2,500
Bank: \$5,000
Closing stock: \$9,000
Opening stock: \$8,000

(1) Current ratio = Current Assets / Current Liabilities = 35,000 / 17,500 = 2
(2) Quick ratio = (Current Assets - stock) / Current Liabilities = (35,000 - 9,000) / 17,500 = 1.49
Workings:
Current assets = closing stock + debtors + bank = 9,000 + 21,000 + 5,000 = \$35,000
Current liabilities = creditors + proposed dividends = 15,000 + 2,500 = \$17,500

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