QUESTION 1

Liquidity enterprise, a computer hardware manufacturer, has obtained accounting ratios relating to averages for similar organisations in the industry.

The average ratios for the period 1 January 2016 to December 2016 are as follows:

Return on capital employed 21.6%

Net assets turnover 1.6 times

Gross profit margin 25%

Net profit (before tax) margin 10.5%

Current ratio 1.5:1 Quick ratio 0.8:1

Inventory holding period 42 days

Trade receivable collection days 41 days

Trade payables payment period 59 days

Debt to equity 35%

Dividend yield 5%

Dividend cover 4 times

The summarised financial statements for Liquidity for the period 1 January 2016 to 31 December 2016 are as follows: