1. Calculate and analyse the solvency ratios (debt ratios) of Ad Wording Consulting CC. What does the ratio that you have calculated tell you about the business? (4)
2. Assess the profitability position of Ad Words Consulting CC making use of the profitability ratio figures. (4)

Ad Wording Consulting CC Statement of financial position

(balance sheet) as at 31 December 2009.

EMPLOYMENT OF CAPITAL
Fixed assets					375
Current assets					250
Cash					50
Debtors				113
Inventory				87
TOTAL ASSETS					625
Own Capital					200
Reserves					175
Total own capital					375
Borrowed capital
Non-current loan					125
Current Liabilities				125
Creditors				125
EQUITY AND LIABILITIES					625

The financial statements of Ad Words Consulting CC appear below. o 50% of the business' sales are on credit o The credit period that the business grants is 30 days. o The value of inventory at the beginning of 2009 was R75k. o The enterprise buys 75% of its purchases on credit. o The mark-up percentage is 30% Ad Words Consulting CC Income Statement for the year ended 31 December 2009 R'000 INCOME Sales Less: Cost of Sales Gross Income Less: Current costs Net income before tax and interest Less: Interest Net income before tax Less: Tax Net income after tax 4125 -3000 1 125 -750 375 -54 321 -90 231