Interpretation of Accounts The following figures have been extracted from the final accounts of Whelan Plc, a manufacturer of building materials - Leaving Cert Accounting - Question 5 - 2008

To find the period of stock turnover, we first need to calculate the average stock:

$\text{Average Stock} = \frac{\text{Opening Stock} + \text{Closing Stock}}{2}$

Given that:

• Opening Stock = €63,000 (calculated)
• Closing Stock = €64,000

$\text{Average Stock} = \frac{63,000 + 64,000}{2} = €63,500$

Now, to determine the period based on turnover:

According to the turnover rate given (10), we need the Cost of Goods Sold which is €630,000. The formula for stock turnover is:

$\text{Stock Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Stock}}$

Setting this equal to 10, we have:

$10 = \frac{630,000}{63,500}$

Thus, the average turnover period is:

$\text{Turnover Period} = \frac{365}{\text{Stock Turnover}} = \frac{365}{10} = 36.5 \text{ days}$

To find how long it takes for an ordinary share to recoup its market price, we use the formula:

$\text{Period to Recoup} = \frac{\text{Market Price}}{\text{Dividend per Share}}$

From the information:

• Market Price = €1.30
• Dividend Paid = €6.25

Thus, plugging in the values:

$\text{Period to Recoup} = \frac{1.30}{6.25} = 0.208 \text{ years (or 20.8 days)}$

The performance of Whelan Ltd can be assessed through several key ratios and indicators.

1. Profitability: The Return on Capital Employed (ROCE) is noted at 10.49% for 2007, a promising indicator when compared to 9% in 2006. This suggests improved profitability relative to investments.

2. Dividend Policy: The dividend for ordinary shares was €6.25 in 2007 compared to €5.45 in 2006, indicating a commitment to returning value to shareholders despite profitability strains.

3. Liquidity: With a quick ratio declining from 1.1 in 2006 to 0.7 in 2007, liquidity issues signal a need for caution. It suggests that Whelan may face challenges meeting short-term obligations.

4. Gearing: The gearing ratio is at 44.86%, indicating a moderately leveraged position. Compared to previous years, this increase in debt could hinder performance if interest rates rise.

5. Market Value of Shares: The drop in market price from €1.35 in 2006 to €1.30 in 2007 suggests a potential lack of confidence among investors, which could affect future capital raising.

In conclusion, while profit margins and dividends appear strong, liquidity and gearing ratios raise caution. Shareholders should consider these mixed signals before determining overall satisfaction with performance.

Rising liquidity ratios indicate that a company is in a better position to meet its short-term liabilities with its short-term assets. This is generally perceived as a positive sign of financial health and prudent management.

However, if the liquidity ratio exceeds 1:1 significantly, it may suggest that the company's funds are not being utilized effectively. This can lead to idle cash reserves, which could potentially be invested for higher returns.

Furthermore, a deteriorating liquidity ratio could signal an underperformance in operations or cash flow management, turning investors skeptical.

In summary, while an increasing liquidity ratio reflects safety and stability, it should ideally correlate with efficient capital deployment to maintain profitability.