Question 2 Ratio analysis

You are a financial consultant who provides services as an expert, independent finance manager. The following financial information has been presented to you as a prospective investment opportunity: Extract from The Trial Balance of Letu Consultants Ltd at 31 December 2021 N$000 Revenue 100 000 Gross profit 20 000 Profit for the year 8 000 Credit purchases 40 000 Total assets 10 000 Total liabilities 11 000 Current assets 3250 Inventories 1 000 Current liabilities 3 600 Average accounts payable 5 400 The client uses the following basis to make investment decisions for the sector this company operates: a) Net profit percentage of at least 5% b) Solvency ratio of at least 1:1 c) Acid test ratio of at least 1:1 d) Supplier payment period of less than 60 days.

Required: Calculate the required ratios and comment on whether or not you would support investment in Letu Consultants Ltd based on each of the ratios individually.