Question 4.1

QUESTION 4 Use the information provided to answer the questions. 4.1 (17 marks) Study the ratios provided below which were calculated from a project of Colchester Limited for 2020 and 2019 and provide suitable comments for each ratio. INFORMATION Ratio 2020 2019 Acid test ratio 0.91:1 1.32:1 (3 marks) Return on capital employed 16.18% 24.28% (3 marks) Trade receivables period 38.5 days 29.45 days (3 marks) Trade payables period 30 days 60 days (3 marks) Operating profit margin 20.47% 29.69% (2 marks) Inventory turnover period 60 days 40 days (3 marks) Additional information 1 Credit terms to debtors are 30 days and credit terms offered by creditors are 60 days. The interest rate on long-term borrowing is 12%