QUESTION 2 (20 Marks) REQUIRED 2.1 Use the information provided below to calculate the ratios for 2022 (expressed to two decimal places) that would reflect each of the following: 2.1.1 The profit of the company relative to sales after deducting the cost of sales. (2 marks) 2.1.2 The ability of the company to profitably utilize its capital, which includes both debt and equity. (2 marks) 2.1.3 The proportion of the total assets that are financed by total debt. (2 marks) 2.1.4 The ability of the company to repay its short-term debts under distress conditions, on the assumption that inventories would have no value at all. (2 marks) 2.1.5 The portion of the company's profit that is allocated to each outstanding ordinary share. (2 marks) 2.1.6 An indication of the percentage of profit that has been put back into the company. (2 marks) 2.2 Comment on the following ratios that have been calculated for Sapphire Ltd: 2.2.1 Profit margin (4 marks) 2.2.2 Return on equity (4 marks) INFORMATION Excerpts of the financial data of Sapphire Ltd for 2022 are as follows: STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2022 R Sales 7 800 000 Cost of sales 5 280 000 Operating profit 796 800 Interest expense 105 600 Profit before tax 691 200 Company tax 207 360 STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2022 R Assets Non-current assets 2 352 000 Inventories 3 120 000 Accounts receivable 931 200 Cash 9 600 6 412 800 Equity and liabilities Ordinary share capital (704 000 shares) 1 689 600 Retained earnings 1 382 400 Long-term loan (12% p.a.) 888 000 Accounts payable 2 092 800 Dividends payable (for 2022) 360 000 6 412 800 Additional information 1. All purchases and sales of inventories were on credit. 2. Inventories on 31 December 2021 amounted to R2 880 000. 3. The following ratios were calculated for 2022 and 2021: 2022 2021 Profit margin 6.20% 13.63% Return on equity 15.75% 21.85% 4. The market prices of the company's shares for 2022 and 2021 were R4.00 and R3.50 respectively.