QUESTION

The following information was selectively extracted from the accounting records of Hoskin Ltd as at 29 February 2020 (the end of their financial year):

2020(R) 2019(R) Sales (50% on credit) 2 200 000

Cost of Sales (80% of goods purchased on credit) 1 200 000

Net Income after tax 240 000

Tangible Assets 1 500 000 1 470 000 Inventory 200 000 300 000 Receivables 100 000 220 000 Cash 50 000 620 000 Payables 250 000 410 000 Loans at 9% p.a 210 000 65 000 Share Capital (500 000 ordinary shares at R2 each ) 1 000 000 1 000 000 Retained Income 250 000 230 000 Share Premium 140 000 140 000

NB:

a. Shares are currently trading at R4,10 per share.

Calculate:

1.1 The debtors average collection period and comment. (Last year was 37 days) Note: Debtors are given 30 days net to settle their accounts. (5 marks)

1.2 The creditors payment period and comment (Last year was 88 days - All creditors accounts are 90 days less 2%). (5 marks )

1.3The price to earnings ratio for 2020 and explain in detailthe significance of this ratio. (9 marks)

1.4The debt equity ratio and explain in detailits significance to decision makers. (6 marks)