Question 2

The following information has been extracted from the financial statements of Rila Co a company which prepares its accounts up to 31 December each year.

The following additional information has been provided

Required:

(a) Write a report to critically assess the financial performance and position of Loyalty Co over the period using ratio analysis under the headings of profitability, liquidity, efficiency, solvency and shareholders.

Calculate no more than two ratios under each heading, clearly show your workings and state any assumptions you consider necessary. All ratios should be calculated to 2 decimal places.

(b) Explain two limitations of ratio analysis as an analytical technique and provide a suggestion as to how the limitation might be overcome.