QUESTION 3

(20 MARKS)

REQUIRED

Use the information provided below to answer the following questions:

3.1

Calculate the following ratios for 2020 only. Express the answers to two decimal places.

3.1.1

Gross margin

(2 marks)

3.1.2

Current ratio

(2 marks)

3.1.3

Debtors collection period

(2 marks)

3.1.4

Creditors payment period

(2 marks)

3.1.5

Return on equity

(2 marks)

3.1.6

Debt to assets

(2 marks)

3.1.7

Inventory turnover

(2 marks)

3.2

Would the shareholders be satisfied with their return on investment? Why?

(2 marks)

3.3

Is the current ratio for 2020 satisfactory? Explain.

(2 marks)

3.4

Comment on the collection of debts from credit sales.

(2 marks)

INFORMATION Extracts of the financial statements of Santia Limited on 31 December: 2020 2019 R R Sales 3 850 000 Cost of sales 2 350 000 Operating profit 700 000 Company tax 179 200 Retained income 250 000 200 000 Non-current assets 895 000 950 000 Inventories 1 000 000 630 000 Non-current liabilities 400 000 550 000 Current liabilities (Accounts payable only) 240 000 150 000 Ordinary share capital 1 400 000 1 000 000 Trade and other receivables (Accounts receivable only) 400 000 250 000 Cash and cash equivalents 5 000 70 000 Bank overdraft 10 000