QUESTION 2 [15 Marks]

Following the launch of a new product on 1 July 2022, Croesus Enterprises experienced a period of rapid expansion in the last 6 months of the year ended 31 December 2022. The following information is available from the management accounts of Croesus Enterprises:

	6 months to 31 December 2022	6 months to 30 June 2022
	R	R
Inventories at end of period	2 440 000	920 000
Trade receivables at end of period	3 430 000	1 580 000
Cash and cash equivalent at end of period	-	300 000
Trade payables at end of period	2 380 000	1 160 000
Short-term borrowing (overdraft) at end of period	500 000	-
Sales (revenue) for the period	6 200 000	4 000 000
Cost of sales for the period	4 840 000	2 900 000

Additional information

• All Sales and purchases are on credit.
• To calculate credit purchases for the 6 months ended 30 June 2022, assume that inventory on 1 January 2022 was R600 000.

Required:

2.1. Using the formulae in your module guide, calculate the following ratios for the 6 months ended 31 December 2022 (last 6 months of the year) and the 6 months ended 30 June 2022 (first 6 months of the year). Round off answers to two decimal places in each case:

1. Gross margin (2)
2. Inventory days (2)
3. Debtors collection period (2)
4. Creditors payment period (2)
5. Current ratio (2)
6. Acid test ratio (2)

2.2. Discuss the financial performance and working capital position of Croesus Limited as revealed by the financial statements analyses in 2.1 above and make a recommendation on a major step that the management of Croesus

Enterprises should take to address the risks identified with the cash conversion cycle. (3)