QUESTION 2 (25 Marks)

REQUIRED

2.1 Use the information provided below to calculate the ratios for 2021 (expressed to two decimal places) that would reflect each of the following:

2.1.1 The time taken by the company to settle its debts with trade suppliers. (3 marks)

2.1.2 The amount of debt that the company uses to finance its assets. (3 marks)

2.1.3 The operational effectiveness of the company before considering interest income, interest expense and company tax. (3 marks)

2.1.4 The percentage of the profit that has been put back into the company. (3 marks)

2.1.5 What investors are willing to pay for the shares of the company with due consideration given to the profit generated by each share in the company. (3 marks)

2.2 Comment on the FIVE (5) ratios of Oslo Limited as compared to the industry average provided in the additional information. (10 marks)

INFORMATION

The information given below was extracted from the books of Oslo Limited:

OSLO LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDING 31 DECEMBER 2021

	R
Sales	2 145 000
Cost of sales	(1 790 000)
Opening inventory	347 000
Purchases	?
Closing inventory	(447 000)
Gross profit	355 000
Operating expenses	(244 660)
Operating profit	110 340
Interest Paid	(20 000)
Profit before tax	90 340
Company tax	(52 295)
Profit after tax	65 045

STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2021

	R
ASSETS
Non-current assets	215 500
Property, plant and equipment	215 500
Current assets	702 500
Inventory	447 000
Debtors/Accounts receivables	219 500
Bank	36 000
TOTAL ASSETS	918 000
EQUITY AND LIABILITIES
Equity	414 855
Ordinary share capital	287 500
Retained Income	127 355
Non Current Liabilities	202 145
Loan	202 145
Current Liabilities	301 000
Creditors/Accounts payable	301 000
Total Equties and Liabilities	918 000

ADDITIONAL INFORMATION

Dividends for the year ended 31 December 2021 amounted to R39 027. There were 11 500 shares in issue.

The market price per share was R20.50 on 31 December 2021.

Credit terms to debtors are 30 days.

Ratios of Oslo Limited for 2021 as compared to the industry average are as follows:

Ratio	Oslo Limited	Industry average
Acid test ratio	0.85:1	1.1:1
Current ratio	2.33:1	2.75:1
Debtors collection period	37.35 days	30 days
Inventory turnover	4.51 times	6 times
Return on Equity	15.68%	18.25%