QUESTION ONE [25]

Tudo Ltds Statement of Financial Position for the 2020 and 2019 financial years are presented

below:

Assets 2020 2019

Non-current Assets 5 000 000 4 700 000

Inventory 600 000 700 000

Receivables 300 000 320 000

Cash 300 000 100 000

6 200 000 5 820 000

Equity and Liabilities 2020 2019

Share Capital (R2 shares) 2 400 000 2 200 000

Share Premium 600 000 200 000

Retained Income 550 000 400 000

Long term Debt 2 000 000 2 100 000

Payables 650 000 920 000

6 200 000 5 820 000

Additional information:

1. Tudos shares are currently trading at R3.20 per share.

2. Replacement cost of assets is R6 000 000.

Their abbreviated Statement of Comprehensive Income for the year ended 2020 appeared as

follows:

Sales (75% on credit) 2 000 000

Cost of sales (all purchases on credit) 850 000

Depreciation 80 000

Interest expense 90 000

Tax (30%) 160 000

Net Income after tax 300 000

Dividends 150 000

Retained Income 150 000

Required:

1.4 Calculate the Market to Book Ratio and explain the relevance of this ratio to decision makers. (4)