QUESTION 2 Answer the questions from the information provided in QUESTION 1. 2.1 The efficiency with which the company used its net assets to produce sales. Comment briefly but meaningfully on the following ratios of Supreme Limited (comparative figures are provided in brackets): Earnings retention (2021: 30%; 2020: 45%) Gross margin (2021: 36.21%; 2020: 44.86%) Creditor payment period (2021: 24.66 days: 2020: 59.56 days) Acid test ratio (2021: 2.16:1; 2020: 1.75:1) Debt to equity (2021: 35.71%; 2020: 22.56%) The following information extracted from the accounting records of Supreme Limited, a company with an issued share capital of 500 000 ordinary shares: Statement of Comprehensive Income for the year ended 31 December 2021 Sales (all credit) Cost of sales Gross profit Operating expenses Operating profit Interest expense Profit before tax Company tax Profit after tax Statement of Financial Position as at 31 December 2021 Assets Non-current assets Inventories Accounts receivable Cash Equity and liabilities Equity Long-term loan Accounts payable Extract of Cash Flow Statement for the year ended 31 December 2021 Cash flows from operating activities Cash flows from investing activities Additions to plant and equipment Cash flows from financing activities Increase in long-term borrowings Additional information Inventories on 31 December 2020 amounted to R390 000. R 5 800 000 (3 700 000) 2 100 000 (1 200 000) 900 000 (60 000) 840 000 (235 200) 604 800 R 1 100 000 510 000 340 000 200 000 2 150 000 1 400 000 500 000 250 000 2 150 000 R 400 000 (700 000) (700 000) 350 000 350 000