QUESTION FOUR

Your company is making a review of the financial performance for the past three years and you have been called upon to interpret the ratios indicated in the table below. Comment of the profitability and asset management performance of the company for each of the three years using these ratios.(12 marks)

Company Ratio	2009	2010	2011
Current Ratio	1.4	0.8	0.4
Stock Turnover	9.2 times	11.4 times	10.5 times
Debtor Days	34 days	20 days	36 days
Creditor Days	40 days	40 days	50 days
Gross Profit margin	20%	30%	28%
Asset Turnover	K1.30	K1.10	K0.56

b) A colleague of yours recently retired and would like to start a business but is unsure of how to manage certain aspects of the business. You have been approached to advise your close colleague regarding this matter. Explain to your colleague how to manage Debtors and marketable securities in their business. (10 marks)