Question $4(25$ Marks$)$

Neptune Ltd is a retailer of electrical products. Extracts of their financial reports are presented below:

Statement of Comprehensive Income for the year ended $29$ February $2024$

R

Sales $4500000$

Cost of Sales $(3865000)$

Opening inventory $556000$

Purchases $4024000$

Closing inventory $(715000)$

Gross profit $635000$

Operating expenses $(491000)$

Operating profit $144000$

Interest expenses $(32000)$

Profit before tax $112000$

Taxation $(31360)$

Profit after tax $80640$

Statement of Financial Position as at $29$ February $2024$

Assets R

Non$-$current assets $365000$

Property, plant and equipment $365000$

Current assets $1125000$

Inventory $715000$

Debtors$/$Accounts receivable $352000$

Bank $58000$

$1490000$

Equity and Liabilities

Equity $664000$

Ordinary share capital $($@R$2$ stated value per share$)460000$

Retained earnings $204000$

Non$-$current liabilities $324000$

Loan $324000$

Current liabilities $502000$

Creditors$/$Accounts payable $502000$

$1490000$

Note: All purchases and sales of inventories are on credit.

Management report ratios of Neptune Ltd as compared to the industry average are as follows as at $29$ February $2024$:

Neptune Industry

Acid test ratio $0\mathrm{.}821\mathrm{.}3$

Current ratio $2\mathrm{.}242\mathrm{.}4$

Inventory turnover $5\mathrm{.}4$ times $7\mathrm{.}5$ times

Return on equity $12\mathrm{.}1\%25\%$

Required:

$4\mathrm{.}1.$ Use the information provided to calculate the following ratios: $($where applicable, round off answers to two decimal

places$).$

$4\mathrm{.}1\mathrm{.}1.$ Debtors collection period $(2$ marks$)$

$4\mathrm{.}1\mathrm{.}2.$ Debt to equity $(2$ marks$)$

$4\mathrm{.}1\mathrm{.}3.$ Net profit margin $(2$ marks$)$

$4\mathrm{.}1\mathrm{.}4.$ Earnings per share $(3$ marks$)$

$4\mathrm{.}1\mathrm{.}5.$ Return on assets $(3$ marks$)$

$4\mathrm{.}1\mathrm{.}6.$ Interest coverage $(3$ marks$)$

$4\mathrm{.}2.$ Briefly evaluate the management report ratios of Neptune Ltd as compared to the industry averages. $(4$ marks$)$

$4\mathrm{.}3.$ Discuss the strategies to be implemented in successfully managing inventory in a retail business. $(6$ marks$)$

END OF PAPE