Dear Sir,

Kindly advise if this question should be split to 3 questions...or its okay as submitted,

Thanks for your help.

Question.

Three years ago, Mrs. Wekesa retired from the Public Service. She invested substantially all her terminal benefits in the shares of ABC Ltd., a company quoted on the stock exchange. The dividend payments from this investment makes up a significant position of Mrs Wekesas income. She was alarmed when ABC Ltd. dropped its year 2018 dividend to Sh.1.25 per share from Sh.1.75 per share which it had paid in the previous two years.

Mrs Wekesa has approached you for advice and you have gathered the information given below regarding the financial condition of ABC Ltd. and the finance sector as a whole.

ABC Ltd. Balance Sheets as at 31 October

	2016 Sh.000	2017 Sh.000	2018 Sh.000
Cash Accounts receivable Inventory Total current assets Land and buildings Machinery Other fixed assets Total assets Accounts and notes payable Accruals Total current liabilities Long term debt Ordinary share capital Retained earnings	15,250 80,320 98,600 194,170 25,230 33,800 14,920 268,120 34,220 15,700 49,920 60,850 115,000 42,350 268,120	14,400 87,800 158,800 261,000 27,600 36,400 18,200 343,200 73,760 34,000 107,760 60,858 115,000 59,582 343,200	8,000 134,400 254,000 396,400 25,000 30,600 16,400 468,400 135,848 67,000 202,848 81,720 115,000 68,832 468,400

ABC Ltd. Income Statements for the year ending 31 October

	2016 Sh.000	2017 Sh.000	2018 Sh.000
Sales (all on credit) Cost of sales Gross profit General administrative and selling expenses Other operating expenses Earnings before interest and tax (EBIT) Interest expense Net income before taxes Taxes Net income	827,000 (661,600) 165,400 (63,600) (25,400) 76,400 (12,800) 63,600 (25,400) 38,200	858,000 (710,000) 148,000 (47,264) (31,800) 68,936 (26,800) 42,136 (16,854) 25,282	890,000 (712,000) 178,000 (51,200) (38,200) 88,600 (63,600) 25,000 (10,000) 15,000
Number of shares issued	4,600,000	4,600,000	4,600,000
Per share data: Earnings per share (EPS) Dividend per share Market price (average)	Sh. 8.30 Sh. 1.75 Sh.48.90	Sh. 5.50 Sh. 1.75 Sh.25.50	Sh. 3.26 Sh. 1.25 Sh.13.25

	Industry Financial Ratios (2018)
Quick ratio Current ratio Inventory turnover Average collection period Fixed asset turnover Total assets turnover		1.0 2.7 7 times 32 days 13.0 times 2.6 times

	Industry Financial rations
Net income to net worth Net profit margin on sales Price-Earnings (P/E) ratio Debt/Equity ratio		1.8% 3.5% 6 times 50%

Notes:

1. Industry ratios have been roughly constant for the past four years.

2. Inventory turnover, total assets turnover and fixed assets turnover are based on the year-end balance sheet figures.

Required:

Calculate and interpret appropriate liquidity, profitability, efficiency and leverage ratios (Three ratios per category)