Question $2(25$ Marks$)$

Tshwane Homeware Ltd is a retailer of homeware appliances and accessories. Extracts of their financial reports are

presented below:

Statement of Comprehensive Income for the year ended $28$ February $2023$

R

Sales $3500000$

Cost of Sales $(2865000)$

Opening inventory $556000$

Purchases $3024000$

Closing inventory $(715000)$

Gross profit $635000$

Operating expenses $(391000)$

Operating profit $244000$

Interest expenses $(32000)$

Profit before tax $212000$

Taxation $(59360)$

Profit after tax $152640$

Statement of Financial Position as at $28$ February $2023$

Assets R

Non$-$current assets $345000$

Property, plant and equipment $345000$

Current assets $1125000$

Inventory $715000$

Debtors$/$Accounts receivable $352000$

Bank $58000$

$1470000$

Equity and Liabilities

Equity $664000$

Ordinary share capital $($@R$2$ stated value per share$)460000$

Retained earnings $204000$

Non$-$current liabilities $324000$

Loan $324000$

Current liabilities $482000$

Creditors$/$Accounts payable $482000$

$1470000$

Note: All purchases and sales of inventories are on credit

Management report ratios of Tshwane Homeware Ltd as compared to the industry average are as follows as at $28$ February

$2023$:

Tshwane Industry

Acid test ratio $0\mathrm{.}851\mathrm{.}2$

Current ratio $2\mathrm{.}332\mathrm{.}5$

Inventory turnover $4\mathrm{.}0$ times $7\mathrm{.}5$ times

Return on equity $23\%27\%$

Required:

$2\mathrm{.}1.$ Use the information provided to calculate the following ratios: $($where applicable, round off answers to two

decimal places$).$

$2\mathrm{.}1\mathrm{.}1$ Debtors collection period $(2$ marks$)$

$2\mathrm{.}1\mathrm{.}2$ Debt to equity $(2$ marks$)$

$2\mathrm{.}1\mathrm{.}3$ Net profit margin $(2$ marks$)$

$2\mathrm{.}1\mathrm{.}4$ Earnings per share $(3$ marks$)$

$2\mathrm{.}1\mathrm{.}5$ Return on assets $(3$ marks$)$

$2\mathrm{.}1\mathrm{.}6$ Interest coverage $(3$ marks$)$

$2\mathrm{.}2$ Briefly discuss the management report ratios of Tshwane Homeware Ltd as compared to the industry

averages

$(4$ marks$)$

$2\mathrm{.}3$ Advise the directors of the company on ways to be successful in managing their inventory. $(6$ marks