1. **Problem Statement:** Calculate and interpret financial ratios for Sawdust Limited for the years 2023 and 2024. 2. **Ratios and Formulas:** - Gross Profit Margin = $$\frac{\text{Gross Profit}}{\text{Net Sales}}\times 100$$ - Net Profit Margin = $$\frac{\text{Net Income}}{\text{Net Sales}}\times 100$$ - Return on Assets (ROA) = $$\frac{\text{Net Income}}{\text{Total Assets}}\times 100$$ - Return on Equity (ROE) = $$\frac{\text{Net Income}}{\text{Total Equity}}\times 100$$ - Current Ratio = $$\frac{\text{Current Assets}}{\text{Current Liabilities}}$$ - Quick Ratio = $$\frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}$$ - Debt-to-Equity = $$\frac{\text{Total Liabilities}}{\text{Total Equity}}$$ (Total Liabilities = Long-Term Debt + Current Liabilities) - Interest Coverage = $$\frac{\text{Operating Income}}{\text{Interest Expense}}$$ 3. **Calculations for 2023:** - Gross Profit Margin = $$\frac{480000}{1200000} \times 100 = 40\%$$ - Net Profit Margin = $$\frac{140000}{1200000} \times 100 = 11.67\%$$ - ROA = $$\frac{140000}{1000000} \times 100 = 14\%$$ - ROE = $$\frac{140000}{450000} \times 100 \approx 31.11\%$$ - Current Ratio = $$\frac{600000}{250000} = 2.4$$ - Quick Ratio = $$\frac{600000 - 300000}{250000} = \frac{300000}{250000} = 1.2$$ - Total Liabilities = $$300000 + 250000 = 550000$$ - Debt-to-Equity = $$\frac{550000}{450000} \approx 1.22$$ - Interest Coverage = $$\frac{240000}{40000} = 6$$ 4. **Calculations for 2024:** - Gross Profit Margin = $$\frac{570000}{1500000} \times 100 = 38\%$$ - Net Profit Margin = $$\frac{154000}{1500000} \times 100 \approx 10.27\%$$ - ROA = $$\frac{154000}{1220000} \times 100 \approx 12.62\%$$ - ROE = $$\frac{154000}{570000} \times 100 \approx 27.02\%$$ - Current Ratio = $$\frac{720000}{300000} = 2.4$$ - Quick Ratio = $$\frac{720000 - 350000}{300000} = \frac{370000}{300000} \approx 1.23$$ - Total Liabilities = $$350000 + 300000 = 650000$$ - Debt-to-Equity = $$\frac{650000}{570000} \approx 1.14$$ - Interest Coverage = $$\frac{270000}{50000} = 5.4$$ 5. **Interpretations:** - Gross Profit Margin decreased slightly, indicating higher cost of sales relative to sales. - Net Profit Margin decreased showing slightly lower profitability per sales dollar. - ROA and ROE decreased indicating less efficient asset and equity use. - Current Ratio stable at 2.4 suggests solid liquidity. - Quick Ratio increased slightly, showing good liquidity excluding inventory. - Debt-to-Equity decreased, indicating slightly lower financial leverage. - Interest Coverage decreased but still healthy, showing ability to cover interest expenses. Final answers for 2023 and 2024 are as calculated.