QUESTION ONE [25] Netforce Security (Pty) Ltd Balance Sheets for 2015 and 2014 financial years are below: Assets 2015 2014 Non Current/Fixed 7 000 000 6 000 000 Inventory 500 000 300 000 Receivables 450 000 420 000 Cash 650 000 80 000 8 600 000 6 800 000

Equity and Liabilities Share Capital (R2 shares) 5 000 000 4 400 000 Share premium 200 000 100 000 Retained Income 700 000 400 000 Long term Debt 2 000 000 1 000 000 Payables 700 000 900 000 8 600 000 6 800 000

The abbreviated Income Statement for the year ended 28 February 2015: Sales (50% on credit) 3 000 000 Cost of sales 2 000 000 Depreciation 120 000 Interest Expense 80 000 Net Income before Tax 900 000 Dividends 330 000 Retained Income 300 000 Notes: a. Shares are currently trading at R2.30 per share. b. The new shares were issued at the beginning of the year.

2

Required 1.1. Calculate the following ratios for 2015 and comment. Ratios for 2014 are given in brackets. 1.1.1. Current ratio (0,89:1) (3) 1.1.2. Acid test ratio (0,56:1) (3) 1.1.3. The debtors collection period (81 days) [all debtors are on 60 days accounts]. (4) 1.2. Share capital and equity 1.2.1. Calculate the earnings per share and dividends per share for 2015. (4) 1.2.2. How many shares were issued in 2015? (2) 1.2.3. Were the shares issued at a premium? If so what was the premium per share? (2) 1.3. Calculate the market to book ratio. Explain the significance of this ratio. (3) 1.4. Calculate the return on equity using the Du Point Identity/Formula. Will management be happy with this return?