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The Published Balance Sheet
The published Balance Sheet of the Donald Macpherson Group Ltd. took the form of a simplified single column, again supplemented by copious notes and comparative figures for the preceding year.
Balance Sheet, Donald Macpherson Group Ltd as at 29 October 1978
1978 1977
£000 £000 £000
Fixed assets 9,144 8,751
Current assets
Stocks 14,658 11,443
Quoted investments 1
Trade and other debtors 14,963 13,168
Cash in hand and at bank 135 29,757 55
38,901 33,417
Deduct:
Current liabilities
Bank overdraft and loans and
acceptances 2,514 3,102
Creditors 12,456 8,949
Taxation 1,350 1,339
Proposed dividend 245 16,565 241
22,336 19,786
Financed as follows: Shareholders' funds
14,488,094 ord. 25p shares 3,622 3,570
Share premium account 450 294
Reserves 14,960 12,034
19,032 15,898
Minority interests 50 109
71/4% loan stock 893 1,104
Medium-term loans 2,361 2,675
22,336 19,786
The minority interests need not concern us. The Share Premium Account is a reserve created in the past by issues of ordinary shares at a subscription price above par.
Interpretation. Many, but not all, of the ratios described in the previous section of this section may be calculated from the above figures.
Working capital (or net current assets) is 29,757 less 16, 565, which comes to 13,192. Therefore:
Current ratio is 29,757: 16,565 = 1.8
Quick ratio is 15,099: 16,565 = 0.91
Current assets turnover is 65,490 : 29,757 = 2.2 times
Stock turnover (taking the stock as the average of opening and closing stock, a half of 11,443 + 14,658) is
65,490: 13,050 = 5 times
Debtors turnover is 65,490: 14,963 = 4.4 times
Net profit ratio before tax is
4,760 : 65,490 = 7.3%
Net return on capital employed (taking the employed capital as total assets less creditors, taxation, and dividend) is
4,764 : 23,869 (average of two years) = 19.95%
Net profit on working capital is
4,764: 13,192 = 36.1%
Dividend per share is 426: 14,488 = 2.9p net (equivalent to 4.39p gross of 33% tax, that being the standard rate in 1978/79)
Earnings per share are 3,357: 14,488 = 23.2p net (equivalent to 34.6p gross)
Notes: (a) The fact that new shares were issued during the year has been ignored for the sake of simplicity. (b) The company points out that had the full amount of deferred tax been charged against profits currently earned, earnings per share would have worked out at 12.9p net. This need not concern the non-specialist.)
Times dividend covered is 23.2 : 2.9 = 8 times
Trading And Profit Account
That was all. There was no Trading and Profit and Loss Account such as has been described in the preceding section of this section. But copious notes accompanied the above accounts amplifying and explaining the figures for the benefit of those who required more than the bare bones. From these notes one can partly reconstruct an account on the traditional lines as follows:
Trading Account to 29 October 1978
(Note that many items normally appearing in a Profit and Loss Account are shown in this Trading Account. It is not always possible to adhere to a precise pattern).