QUESTION 3 (20 Marks) Extracts of the financial statements of Rexel Limited for 2019 are given below. REQUIRED 3.1 Calculate the following ratios for 2019. Where applicable, round off answers to two decimal places. 3.1.1 Net profit margin (2 marks) 3.1.2 Acid test ratio (2 marks) 3.1.3 Debt-equity ratio (2 marks) 3.1.4 Inventory turnover (2 marks) 3.1.5 Average collection period (Use 360 days) (2 marks) 3.1.6 Return on equity (2 marks) 3.2 Refer to your answers in question 3.1 above and answer the following questions: 3.2.1 Comment on the ability of the company to pay its creditors when business conditions are unfavourable. (2 marks) 3.2.2 Are the collections from debtors satisfactory? Explain. (2 marks) 3.2.3 As a shareholder would you be satisfied with the return on your investment? Motivate your answer. (2 marks) 3.2.4 Suggest TWO (2) ways in which the company can improve its net profit margin. (2 marks)

INFORMATION Rexel Limited Extract of Statement of Comprehensive Income for the year ended 31 December 2019 R Sales (all credit) 2 970 000 Cost of sales 1 980 000 Earnings before interest and taxes (EBIT) 363 000 Interest expense 33 000 Profit before tax 330 000 Earnings after interest and taxes 231 000

Non-current assets 2 029 500

Current assets 693 000 Equity

1 980 000 Non-current liabilities 495 000 Current liabilities 247 500 Note: Inventories amounted to R264 000 on 31 December 2019 and R226 000 on 31 December 2018. Accounts receivable amounted to R300 000 on 31 December 2019. Credit terms to debtors are 30 days.