Description of Current Ratio:

The current ratio is a liquidity ratio that measures a company's ability to pay off its short-term liabilities (current debts) with its short-term assets (current assets). It is calculated by dividing current assets by current liabilities.

Impact of Changes:

• Increase in Current Assets: If current assets increase (e.g., due to increased cash or higher debtors), the current ratio will also increase, assuming current liabilities remain the same. This indicates improved liquidity.
• Increase in Current Liabilities: If current liabilities increase (e.g., due to taking out a short-term loan or increasing payables), the current ratio will decrease, assuming current assets remain the same. This indicates a potential weakening of liquidity.
• Both Increase: If both current assets and current liabilities increase by the same proportion, the current ratio will remain unchanged.
• Both Decrease: If both current assets and current liabilities decrease by the same proportion, the current ratio will remain unchanged.

Calculate Total Cost of Goods Sold:

Total Cost of Goods Sold = Cost of Materials + Direct Labour + Factory Overheads

Total Cost of Goods Sold = £30,000 + £20,000 + £10,000 = £60,000

Gross Profit Calculation:

Gross Profit = Sales Revenue - Total Cost of Goods Sold

Gross Profit = £120,000 - £60,000 = £60,000

Gross Profit Margin Calculation:

Gross Profit Margin = (Gross Profit / Sales Revenue) x 100

Gross Profit Margin = (£60,000 / £120,000) x 100 = 50%

Answer: The gross profit for Precision Parts is £60,000 and the gross profit margin is 50%.

Calculation:

Rate of Inventory Turnover = Cost of Goods Sold / Average Inventory

Average Inventory = (Opening Inventory + Closing Inventory) / 2

Average Inventory = (£8,500 + £10,200) / 2 = £9,350

Rate of Inventory Turnover = £60,000 / £9,350 = 6.46 (rounded to two decimal places)

Interpretation: A rate of inventory turnover of 6.46 times indicates that GreenGrocer Ltd sold and replenished its entire inventory approximately 6.46 times during the year. This suggests a relatively efficient inventory management system. The company is selling its inventory at a reasonable pace. However, further analysis might be needed to determine if this rate is optimal compared to industry standards or the company's specific goals. Factors such as the perishability of the goods (if applicable) should also be considered.