The document analyzes various financial ratios for a business between 2013 and 2014 including profitability ratios, stability ratios, and turnover ratios. It finds that the business' return on equity, net profit margin, selling expense ratio, general expense ratio, total debt ratio, stock turnover, and interest coverage ratio improved between 2013 and 2014, while its gross profit margin, working capital ratio, and debtor turnover ratio worsened over this period.

1. Financial Stability Ratios FAI Exercise 1 Tutorial Answers
Profitability
Ratios 2013 2014 Interpretation
Return on Equity
(ROE) 18.5%
7155 x 100%
65800
2
= 21.7%
During the year 2013-14 period, the businesses’ ROE
increased from 18.5% to 21.7%. This means the owner is
getting more return from his capital.
Net Profit
Margin (NPM) 6.7%
7155 x 100%
72790
= 9.8%
During the year 2013-14 period, the businesses’ NPM
increased from 6.7% to 9.8%. This means the business is
getting better at controlling its overall expenses.
Gross Profit
Margin (GPM) 34%
23360 x 100%
72790
= 32%
During the year 2013-14 period, the businesses’ GPM
decreased from 34% to 32%. This means the business is
getting worse at controlling its COGS expenses.
Selling Exp.
Ratio (SER) 16.5%
9920 x 100%
72790
= 13.6%
During the year 2013-14 period, the businesses’ SER
decreased from 16.5% to 13.6%. This means the business
is getting better at controlling its selling expenses.
General Exp.
Ratio (GER) 8.8%
4535 x 100%
72790
= 6.2%
During the year 2013-14 period, the businesses’ GER
decreased from 8.8% to 6.2%. This means the business is
getting better at controlling its general expenses.
Financial Exp.
Ratio (FER) 2%
1750 x 100%
72790
= 2.4%
During the year 2013-14 period, the businesses’ FER
increased from 2% to 2.4%. This means the business is
getting worse at controlling its financial expenses.

2. Stability
Ratios 2013 2014 Interpretation
Working Capital
1.03: 1
8875
10420
= 0.85:1
During the year 2013-14 period, the business’ WCR has
decreased from 1.03:1 to 0.85:1. This means the business’
ability to pay its current liabilities is getting worse.
Total Debt
80.2%
58420 x 100%
94020
= 62.1%
During the year 2013-14 period, the business’ TDR has
decreased from 80.2% to 62.1%. This means the business’
total debt has reduced. In addition, the business’ still
exceeds the maximum limit of 50%
Stock Turnover
29.2 days
49610
5125
= 26.5 days
During the year 2013-14 period, the business’ STR has
decreased from 29.2 days to 26.4 days. This mean the
business is getting faster at selling their goods.
Debtor Turnover
24.8 days
36485
5125
= 51.3 days
During the year 2013-14 period, the business’ DTR has
increased from 24.8 days to 51.3 days. This means the
business is getting slower at collecting its debt.
Interest
Coverage 2.5 times
1750+7155
1750
= 5.1 times
During the year 2013-14 period, the business’ ICR has
increased from 2.5 times to 5.1 times. This means the
business’ ability to pay its interest has become better. In
addition, it satisfied the minimum requirement of 5 times.
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