QUESTION 2 (25 Marks)

INFORMATION The information provided below was extracted from the accounting records of Benny Limited on 31 December 2023: Benny Limited Extract of Statement of Comprehensive Income for the year ended 31 December 2023 R Sales 3 300 000 Cost of sales (1 950 000) Gross profit 1 350 000 Operating expenses (855 000) Selling and administrative expenses 630 000 Depreciation 225 000 Operating profit 495 000 Interest expense (135 000) Profit before tax 360 000 Tax (120 000) Profit after tax 240 000 Statement of Financial Position as at 31 December: 2023 2022 Assets (R) (R) Non-current assets 1 980 000 1 620 000 Plant and equipment 1 875 000 1 500 000 Investments 105 000 120 000 Current assets 1 365 000 1 245 000 Inventories 645 000 615 000 Accounts receivable 570 000 525 000 Cash and cash equivalents 150 000 105 000 Total assets 3 345 000 2 865 000 Equity and liabilities Equity 1 830 000 1 680 000 Ordinary share capital 930 000 930 000 Retained earnings 900 000 750 000 Non-current liabilities 180 000 105 000 Long-term loan 180 000 105 000 Current liabilities 1 335 000 1 080 000 Accounts payable 1 260 000 981 000 Dividends payable 60 000 75 000 Income tax payable 15 000 24 000 Total equity and liabilities 3 345 000 2 865 000 Note: 1. Plant and equipment was purchased but there was no disposal of plant and equipment. 2. The issue price of the ordinary shares is R2 each. According to information supplied by the Johannesburg Securities Exchange, the shares are currently trading at R4 each. 3. All purchases and sales of inventory were on credit. REQUIRED Use the information provided above to answer the following questions:

2.1 Calculate the following ratios for 2023. Where applicable, round off answers to two decimal places.

2.1.1 Inventory turnover (3 marks)

2.1.2 Acid test ratio (3 marks) 2.1.3

Debt to assets (3 marks)

2.1.4 Price/Earnings ratio (3 marks)

2.1.5 Dividend yield (3 marks)

2.2 Are the collections from credit sales to customers satisfactory? Motivate your answer with the relevant ratio. (4 marks)

2.3 Would the shareholders of Benny Limited be satisfied with the return on their investments? Motivate your answer. (3 marks)

2.4 Suggest three ways in which Benny Limited can improve its gross margin ratio, without increasing the selling price of the inventories. (3 marks)