Question 4

Answer the questions from the information provided.

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

4.1.1 Gross margin (2 marks)

4.1.2 Inventory turnover (2 marks)

4.1.3 Debtor collection period (2 marks)

4.1.4 Creditor payment period (2 marks)

4.1.5 Return on equity (2 marks)

4.1.6 Debt to assets (2 marks)

4.1.7 Acid test ratio (2 marks)

4.2 Use the appropriate answers from question

4.1 to comment on the following:

4.2.1 The profitability of the company from the shareholders point of view. (2 marks)

4.2.2 The ability of the company to pay its short-term debts under distress business conditions. (2 marks) The ability to collect debts timeously. (2 marks)

INFORMATION The extracts of the financial statements of Stimvac Limited for 2020 and 2019 are provided below.

The company tax rate is 30%. All purchases and sales are on credit.

4.2.3

2020 2019 R

R Sales 1 900 000

Cost of sales 1 200 000

Operating profit 440 000

Profit before tax 380 000

Equity 2 920 000 2 660 000

Inventories 720 000 400 000

Non-current assets 2 650 000 2 250 000

Accounts payable 360 000 380 000

Cash and cash equivalents 10 000 10 000

Bank overdraft 40 000 20 000

Non-current liabilities 500 000 200 000

Accounts receivable 440 000 600 000