3.2 Will the company be able to pay its short-term debts if business conditions are unfavourable? Use an appropriate ratio to motivate your answer.

3.2 Will the company be able to pay its short-term debts if business conditions are unfavourable? Use an appropriate ratio to motivate your answer. (4marks)

QUESTION 3 Read the information below and answer the following questions INFORMATION The extracts of the financial statements of Disney Limited for 2020 and 2021 are provided below. Disney Limited Statement of Comprehensive Income for the year ended 31 December 2021 Sales Cost of sales Operating profit Interest expense Profit before tax Profit after tax R 1 960 000 1 240 000 472 000 48 000 424 000 305 280 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER: Assets Non-current assets Inventories Accounts receivable Cash and cash equivalents Equity and liabilities Equity Non-current liabilities Accounts payable Additional information 1. 2. The profit after tax for the year ended 31 December 2020 was R240 000. All purchases and sales of inventories are on credit. Use the information provided above to answer the following questions: 2021 (R) 2 320 000 720 000 360 000 440 000 3 840 000 2 960 000 480 000 400 000 3 840 000 2020 (R) 1 960 000 440 000 500 000 340 000 3 240 000 2 040 000 820 000 380 000 3 240 000