R Ltd sells Fanta. It has experienced declining turnover and profitability and Management is wondering if this is related to the industry as a whole. It has engaged a consultant who produced average ratios of many businesses. Below are the ratios that have been provided by the consultant for the soft drink business sector based on year end of 30th April, 2020.

Return on Capital employed 16.8% Net assets Turnover 1.4 times Gross profit margin 35% Operating profit margin 12% Current ratio 1.25:1 Average Inventory turnover rate 3times Trade payables payment period 64days Debt to equity 38%

R Ltd

Statement of Comprehensive income for the Year to 30th April 2020

Sales Revenue 410

Cost of Sales 235

Gross Profit 175

Operating Expenses 115

Profit before Interest and Taxation 60

Interest Payable 15

Profit before Taxation 45

Taxation 10

Profit After Taxation 35

Statement of financial position as at 30 April 2020

000 000

Asset

Non-current asset

Property, Plant and Equipment 208

Current assets

Inventory 82

Trade Receivable 58

Cash in Bank 7 147

355

Equity

10% Preference shares of 1 10

Ordinary shares of 1 100

Retained earning 19

129

Liabilities

Non-current liabilities

Long term loans 150

Current liabilities

Trade Payables 45

Payable re purchase of property,

plant and equipment 21

Taxation 10 76

355

Note: Dividends of 1000 (preference) and 20000 (ordinary) were paid in the year .

Required: a) Prepare common size income statement and statement of financial position of R Ltd for the period. b) Prepare for R Ltd equivalent ratios that have been provided by the consultant. c) In a report to the Chief Executive Officer, assess the financial position and operating performance using the consultants ratios as benchmarks. d) Discuss two (2) limitations of the rations you have computed.